Monthly Archives: August 2008

AUR#901 Aug 27 Ukraine Economy Stands Impact of World Economic Crisis; VP Cheney to Ukraine

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

Ukrainian History, Culture, Arts, Business, Religion,
Sports, Government, and Politics, in Ukraine and Around the World       
                     
ACTION UKRAINE REPORT – AUR – Number 901
Mr. Morgan Williams, Publisher and Editor, SigmaBleyzer
WASHINGTON, D.C., WEDNESDAY, AUGUST 27, 2008
 
INDEX OF ARTICLES  ——
Clicking on the title of any article takes you directly to the article.               
Return to Index by clicking on Return to Index at the end of each article
UkrInform – Economic News online, Kyiv, Ukraine, Sunday, August 17, 2008 
 
Interfax Ukraine, Kyiv, Ukraine, Thursday, August 14, 2008
 
Interfax Ukraine, Kyiv, Ukraine, Saturday, July 23, 2008
 
Interfax Ukraine News, Kyiv, Ukraine, Monday, August 25, 2008
 
Will meet with members of the U.S.-Ukraine Business Council (USUBC)
Interfax Ukraine News, Kyiv, Ukraine, Friday, August 22, 2008

U.S.-Ukraine Business Council (USUBC), Washington, D.C., Wednesday, August 27, 2008
 
7.   WHAT NEXT FOR TRADE AFTER WTO FAILURE? 
In order to stay relevant, the World Trade Organization must stress
efficiency, liberalize initiatives, and adapt to changing realities
By Shanker Singham, Partner, Squire, Sanders & Dempsey
Business Week magazine, New York, NY, Wed, August 13, 2008
 
Commentary & Analysis: By Zeyno Baran, Director
Center for Eurasian Policy, Hudson Institute, Washington, D.C.
The Wall Street Journal, New York, NY, Tuesday, August 26, 2008
 
EDITORIAL: Financial Times, London, UK, Tuesday, August 26 2008
Settle the claim now and open OPIC for Ukraine
U.S.-Ukraine Business Council (USUBC), Washington, D.C., Wednesday, August 27, 2008
 
TO FORM PRE-EMINENT UKRAINIAN CABLE PROVIDER
Providence Equity Partners Increases Its Investment in the Combined Entity to over
$300 million, Making the Largest Private Equity Investment in Ukraine
By BusinessWire, Kyiv, Ukraine, Monday, July 28, 2008
12RUSSIA’S POTENTIAL EVOLUTION AND AMERICA’S AND UKRAINE’S NATIONAL SECURITY
OP-ED: By Victor Basiuk, The Ukrainian Weekly newspaper, Vol. LXXVI, No. 34
Parsippany, New Jersey, Sunday, August 24, 2008
 
13WANTED: A PLAN FOR UKRAINE
Brussels Blog: By Tony Barber, Financial Times, London, UK, Mon, Aug 25, 2008

14RUSSIA’S AGGRESSION IS A CHALLENGE TO WORLD ORDER

Opinion: U.S. Senator Lindsey Graham and U.S. Senator Joe Lieberman 
The Wall Street Journal, NY, NY, Tuesday, August 26, 2008; Page A21
 
15 EASTERN EUROPE CAN DEFEND ITSELF
Opinion: By Max Boot, The Wall Street Journal
New York, New York, Monday, August 25, 2008; Page A13
 
Op-Ed: by George Woloshyn, Special to Kyiv Post
Kyiv Post, Kyiv, Ukraine, Thursday, Aug 21, 2008
17.  DIVIDED MEANS CONQUERED
Ukraine must overcome a history of in-fighting and debilitating disunity if it is to resist Russia
Peter Dickinson, Business Ukraine magazine, Kyiv, Ukraine, Monday, August 25, 2008

18THE PUTIN DOCTRINE, COMING TO TERMS WITH UKRAINE’S NEW GEOPOLITICAL REALITIES 
Analysis & Commentary: By Taras Kuzio
BusinessUkraine magazine, Kyiv, Ukraine, Monday, August 25, 2008

 
19UKRAINE FEARS BEING NEXT ON RUSSIA’S HIT LIST
By Askold Krushelnycky, Sebastopol, Ukraine
The Sunday Times, London, UK, Sunday, August 24, 2008

20 UKRAINE: THE POLITICS OF NATIONAL RUIN

Analysis & Commentary: By James Sherr
Head of the Russia & Eurasia Programme of the Royal Institute of International Affairs
Zerkalo Nedeli (Mirror-Weekly, Kyiv, Ukraine, # 28 (707) 2 – 8 August 2008
 
21.  RUSSIA FACES WESTERN PRESSURE OVER GEORGIA
Senior British official flies to Ukraine to build a coalition 
By Jon Boyle, Reuters, Moscow, Russia, Tuesday, August 26, 2008 
 
Ukrainian News -on-line, Kyiv, Ukraine, Tuesday, August 26, 2008 
 
Washington, D.C. Thursday, August 21, 2008
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1
 UKRAINIAN ECONOMY STANDS IMPACT OF WORLD CRISIS
SAYS MINISTER OF ECONOMY BOHDAN DANYLYSHYN
 
UkrInform – Economic News online, Kyiv, Ukraine, Sunday, August 17, 2008 

KYIV -The July results confirm the fact that the Ukrainian economy stood the impact of world crisis, energetic, food and financial, the Minister of Economy, Bohdan Danylyshyn stated, having noted that the real GDP growth has been accelerated over January-July 2008 and made up 6.5 percent against 6.3 percent over January-June 2008.

Among the types of economic activities, the highest rates of the gross value added are demonstrated by trade (11.8 percent), agriculture (10.8 percent), processing industry (8.4 percent), transport and communications (8.4 percent). Real growth of industrial production volumes makes up 7.3 percent by results of January-July.
For the Ukrainian industry high production rates are peculiar to types of activities, products of which have an investment trend, the minister noted. Primarily, it is machine building, growth rates make up 28.7 percent. Over seven months, the machine building sector ensured over half of total industrial growth, in particular, production of vehicles and equipment increased by 39.2 percent.
Growth of chemical and petrochemical industry deserves a special attention, taking into consideration dependence of this sphere on a price of imported natural gas. In total, growth of production volumes was by 5.2 percent ensured by expansion of the domestic market capacity and a favorable foreign economic situation.
In July, a trend of growth in the volumes of metallurgical production continued (by 3.5 percent over January-July against 3.3 percent in January-June 2008 as compared to a relevant period of 2007), which proves that the sector entered a trajectory of sustainable growth and is a pledge of dynamic development of adjacent types of industrial activities in the following periods, Danylyshyn underscored.
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[return to index] [Action Ukraine Report (AUR) Monitoring Service]
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2.  UKRAINE UNLIKELY TO FACE MORTGAGE CRISIS, SAYS BANKING EXPERT

 
Interfax Ukraine, Kyiv, Ukraine, Thursday, August 14, 2008
 
KYIV – Ukraine is unlikely to face mortgage crisis, according to the press service of Ukrsotsbank (part of UniCredit Group, Kyiv) referring to Iryna Kniazeva, the bank’s deputy board chairman.
According to Kniazeva, the growth in rates on mortgage crediting is linked not only with the mortgage crisis in the United States, but with the internal economic situation in the country, in particular, the fall in the US dollar against the hryvnia and the deficit of banking capital on the market.
“I think that at present there is no prerequisite for a fall in mortgage rates in our country, as here there is no oversupply, in contrast, for example, with the United States. The number of those who need new flats significantly exceeds the quantity of constructed housing. Besides, the current situation on the market will force developers to build less due to funding difficulties. Of course, after a time there will again be price hikes,” the press release reads, citing Kniazeva.
Currently, some developers have interrupted projects, cut investment into construction development, and that will lead to a fall in house commissioning, an increase in demand, and a rise in house prices in one-and-a-half to two years, Kniazeva said.
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[return to index] [Action Ukraine Report (AUR) Monitoring Service]
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3.  WORLD BANK CHANGES FORECAST FOR UKRAINE’S
INFLATION IN 2008 TO 21.5%, GDP GROWTH TO 6%
 
Interfax Ukraine, Kyiv, Ukraine, July 23, 2008

KYIV – The World Bank has raised its forecast for Ukraine’s GDP growth in 2008 from 5.5% to 6%. At the same time, the bank revised its forecast for this year’s inflation in Ukraine from 17.2% to 21.5%, bank expert Ruslan Piontkovsky said at a press conference in Kyiv on July 18.

“According to our current forecast, GDP will grow by 6% this year… As it seems to us, Ukraine is on the right track for reining in the pace of inflation … We forecast that by the end of the current year, it [inflation] will be 21.5%,” Piontkovsky said.
As the World Bank said in a press release, according to its updated forecast, the inflation forecast in 2009 was increased from 13% to 15.3%, whereas for 2010 it was cut from 9.9% to 9.8%.
At the same time, the World Bank reduced its forecast for Ukraine’s GDP growth in 2009 from 5% to 4.5%, whereas a projection for 2010 was improved from 4.5%, to 5%.
“Our inflation forecast [for 2008] is also up, since even with food prices ebbing down as the good harvest is brought to market, macro-policies remain insufficiently tight for a faster pace of disinflation, and electoral pressures may prevent a further tightening during 2008,” the World Bank says.
The bank also reviewed the forecast for the balance of the account of current operations – its deficit in 2008 may hit 8.4% of GDP (former forecasts had it at 8.7%), in 2009 it will be 11.3% of GDP, and in 2010 it will be 11.1% of GDP (previously 11.3%).
“…the CA [current account] deficit moves above 11% of GDP, requiring external financing of some $25 billion,” say World Bank expert. “We expect gradually stabilizing international markets and Ukraine’s strong underlying value proposition to ensure this continues to be met through FDI [foreign direct investment] and private lending.”
According to World Bank Director for Ukraine, Belarus and Moldova Martin Raiser, the World Bank approves of the National Bank of Ukraine’s switch to the policy of a greater flexibility of the official forex rate of the hryvnia.
He said the World Bank believes Ukraine has taken the right decision to shift to a more flexible forex rate. “A fiscally prudent budget and tight monetary policy are core ingredients for the gradual adjustment to take hold,” say World Bank experts.
 
“Absent a further widening of the exchange rate band, the NBU will need to rely on tightening prudential regulations to further slow the pace of credit growth and curb short-term capital inflows, whilst monitoring liquidity in the banking sector.
 
But the burden of adjustment will remain on fiscal policy, which should target real income increases in the 2009 budget in line with underlying productivity growth, implying a modest increase in nominal wages and social transfers. This would help stabilize inflationary expectations and contain the further deterioration of the CA.”
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[return to index] [Action Ukraine Report (AUR) Monitoring Service]
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4.  U.S. VICE PRESIDENT CHENEY TO VISIT UKRAINE ON SEPTEMBER 4-5

 
Interfax Ukraine News, Kyiv, Ukraine, Monday, August 25, 2008

KYIV –  Under preliminary agreements, U.S. Vice President Richard Cheney is to make a working visit to Ukraine on September 4-5, the press service of the Ukrainian president reported on Monday.

During the visit, the U.S. Vice President and Ukrainian President Viktor Yuschenko will hold an eye-to-eye meeting and take part in the talks of the two delegations.
“The state and the prospects of the Ukrainian-U.S. relations will be discussed, as well as the settlement of the situation in Georgia, issues of international security and the strengthening of transatlantic ties,” Yuschenko’s press service reported.
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[return to index] [Action Ukraine Report (AUR) Monitoring Service]
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U.S.-Ukraine Business Council (USUBC): http://www.usubc.org
Promoting U.S.-Ukraine business relations & investment since 1995.
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5.  UKRAINE’S NATIONAL SECURITY AND DEFENSE COUNCIL SECRETARY,
RAISA BOHATYRIVOA, TO VISIT UNITED STATES ON AUGUST 24-30
Will meet with members of the U.S.-Ukraine Business Council (USUBC)
Interfax Ukraine News, Kyiv, Ukraine, Friday, August 22, 2008

KYIV- National Security and Defense Council Secretary Raisa Bohatyriova will pay a working visit to the United States on August 24-30, the Council said on Friday.

She will participate in the International Leaders Forum in Denver, the State of Colorado, at the invitation of the U.S. National Democratic Institute for
International Affairs (NDI).

During her visit, Bohatyriova will have a chance to familiarize herself with the work of the assembly of the U.S. Democratic Party. A ceremony to
nominate a presidential candidate from the Democrats will take place during the meeting.

“The NSDC secretary’s visit foresees meetings and talks on a wide range of burning issues of international and regional security, as well as bilateral
cooperation in security, economy, energy, and other sectors,” the council said.

Bohatyriova is scheduled to meet with Assistant to the President for National Security Affairs Stephen Hadley, Deputy Assistant to the Vice President for National Security Affairs Joseph Wood, Under Secretary of State for Political Affairs Nicholas Burns, Under Secretary of Defense for Policy Eric Edelman, as well as U.S. senators and congressmen, and representatives from political teams of U.S. presidential candidates.

The program of the visit also includes meetings with influential non-governmental organizations, particularly the Project on Transitional Democracies, leading analytical centers in the United States, the US-Ukraine Business Council (USUBC), and representatives of the Ukrainian Diaspora.

Bohatyriova will hold a roundtable with U.S. leading political experts and give exclusive interviews to the BBC and the Voice of America television
companies.
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[return to index] [Action Ukraine Report (AUR) Monitoring Service]
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6.  COMPETITION LAUNCHED FOR MAJOR NEW RESEARCH & EDUCATION
CENTER FOR ENERGY EFFICIENCY IN UKRAINE BY U.S. CIVILIAN RESEARCH
& DEVELOPMENT FOUNDATION (CRDF)
 
U.S.-Ukraine Business Council (USUBC), Washington, D.C., Wednesday, August 27, 2008
 
WASHINGTON, D.C. – The U.S. Civilian Research & Development Foundation (CRDF) has announced a competition to select and establish a major research and education center for energy efficiency in Ukraine.  This center will be the second in a planned series of new research and education centers in Ukraine that will address key economic priority areas.
 
“The CREST (Cooperation in Research and Education in Science and Technology) centers are jointly funded by public and private sector partners. CRDF welcomes interest from any members of the U.S.-Ukraine Business Council (USUBC) or other companies who may wish to consider serving as partners for future research and education centers in Ukraine, ” according to Morgan Williams, SigmaBleyzer, who serves as president of USUBC. 
 
The new CREST Center for Energy Efficiency, to be selected in late 2008 through a peer-reviewed competition among Ukrainian universities, will develop innovative solutions and new technologies for energy conservation and efficiency while educating young scientists in this important field. 
 
The CREST Center for Energy Efficiency has been made possible with the generous support of the U.S. Agency for International Development (USAID) from the American people, CRDF, and the Ministry of Education and Science in Ukraine (MESU).
 
Modeled on a similar CRDF program in Russia, the goal of the CREST program is to strengthen research capabilities in science and technology, promote the integration of research and education, and increase academic and private sector collaboration in Ukrainian higher education institutions. 
 
The CREST Center for Energy Efficiency will be the second CREST center since May 2007, following the establishment of the first CREST center at the National Mining University in Dnipropetrovsk, focused on mine safety and environmentally sound mining practices. 
 
CRDF and the MESU have identified several high priority areas of science and technology in which to establish additional CREST centers, including energy, agricultural sciences, information and communication technologies, and public health.  CRDF is currently seeking additional support and partners for these centers.
 
CRDF is a nonprofit organization authorized by the U.S. Congress and established in 1995 by the National Science Foundation. This unique public-private partnership promotes international scientific and technical collaboration through grants, technical resources and training. CRDF is based in Arlington, Virginia with offices in Kyiv, Ukraine; Moscow and St. Petersburg, Russia; and Astana, Kazakhstan. 
 
USUBC president Williams said, “the CREST program is directed and managed by Dr. Marilyn Pifer, a molecular biologist with more than two decades of experience in promoting U.S. science and technology collaboration with Eurasian countries, and who resided in Ukraine from 1998 to 2001. CRDF has been an active member of the U.S.-Ukraine Business Council (USUBC), Washington, D.C. (www.usubc.org) since 2007.
 
For more information on how your company can be involved in the CRDF CREST program, please contact Ashley Dougherty at adougherty@crdf.org or 703-526-6766, Arlington, VA or for the CRDF Ukraine office in Kyiv please contact Natalia Artiukhovskaya at nartiukhovskaya@crdf.org.ua or 38-044-253-7223. Additional information CRDF is available on their website http://www.crdf.org/
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[return to index] [Action Ukraine Report (AUR) Monitoring Service]
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7.  WHAT NEXT FOR TRADE AFTER WTO FAILURE? 
In order to stay relevant, the World Trade Organization must stress efficiency,
liberalize initiatives, and adapt to changing realities
 
By Shanker Singham, Partner, Squire, Sanders & Dempsey
Business Week magazine, New York, NY, Wed, August 13, 2008
 
The collapse in the Doha round (BusinessWeek.com, 7/30/08) of trade negotiations has given us cause to take stock of the multilateral trade agenda and the problems that have dogged it since the failed WTO meeting in 1999 in Seattle. Unfortunately, looking back over the last near-decade in the multilateral trade negotiations, there have been very few bright spots.
 
Indeed the only one, the launch of the Doha round in November 2001, has proven to be a false dawn, resulting as much from a reaction to the horrors of September 11 as from a realization of the need to liberalize trade by the WTO’s members.
What is clear from the last decade is that trade negotiators have fallen almost completely under the spell of mercantilism—that exports are good, imports are bad, and tariff reductions are concessions to be given only when something else is won from a trading partner. It is true that mercantilism has been always with us.
 
In the early days of trade negotiation, however, the fact that tariffs could be gradually reduced by harnessing this mercantilist impulse for a positive purpose was part of the genius of the system.
A NEW FRAMEWORK IS NEEDED 
As tariffs have come down and the new barriers become inside-the-border barriers, regulatory protection, and market distortions, the architecture of the trading system (at least on the multilateral level) cannot cope with the complex new reality.
 
The train of trade in the 21st century is different, but we insist on driving that train on the old lines. Instead we must change the lines, and develop a new architecture to frame the real trade issues of the day.
 
That architecture must now find a way of harnessing the very real mercantilist impulse in nations, which has always been with us, to ratchet down internal barriers, distortions, and anticompetitive practices.
 
Here are a number of ways that this might be done.
[1] On agricultural negotiations, the historic bugbear of global trade, reductions in developed-country subsidy programs must be accompanied by a reduction in the overall global measure of market distortion faced by agricultural companies in these countries. The goal must be to secure not only liberalized agricultural trade, but also competitive markets in agriculture.
 
As we have seen, working only on traditional agricultural tariffs and subsidies, while neglecting other market distortions such as regulatory bars and support for state-owned companies, will sink further discussions.
[2] Dealing with market distortions is not a mere add-on to the trade negotiation process. It is a vital part of discussions and the architecture must recognize this. Trade negotiators must recognize the role of market distortions.
[3] Willing countries must take the lead in crafting a set of agreements on public-sector restraints of trade that are uncompetitive or otherwise unjustified. These kinds of barriers are huge distorters of global trade and it is simply not rational not to deal with them.
 
Every step should be taken to encourage other WTO members to join these disciplines, but their failure to do so should not hold back those who wish to proceed.
[4] Countries must offer much more liberalization and liberalizing initiatives in the industrial goods and services area. Services trade is growing at a tremendous pace, and will soon be the dominant force in global trade.
 
It is regulatory barriers that distort services trade, and these must be dealt with comprehensively in negotiations. Those countries that liberalize these areas and lower their regulatory barriers will benefit enormously from doing so.
[5] In these days of rising food prices, and rising transportation costs, we must recognize the role that efficiency plays in solving many of these problems. China uses much more oil to generate the same level of economic growth as the U.S., for example.
 
Anything that would make the Chinese economy more efficient will help reduce demand to levels that are more sustainable. Competitive markets deliver efficiency, and will help with some of the world’s most pressing problems now.
ADAPTING TO CHANGING REALITIES 
From the days of Adam Smith and David Ricardo, trade liberalization has been about reducing trade barriers so that the forces of competition could be liberated to lower prices for consumers and lift the poor out of poverty.
 
Trade liberalization’s goals have not changed. By incorporating the points noted above, we can more clearly bring into focus for WTO members the fact that the overarching goal of free trade is to enhance consumer welfare and empower individual companies and their workers.
Future generations are counting on the trade system to evolve and adapt to changing realities, and to deal with the most pernicious problems that result in a lack of efficiency and damage trade.
 
If we do not make the necessary adjustments now, when we have a chance to do so, the WTO will find itself increasingly irrelevant to the world’s economic problems. Ultimately it is the poorest among us who will pay the price for our failure to act now.
 
NOTE: Shanker Singham is a partner in the economic regulation practice of the global law firm of Squire, Sanders & Dempsey.  Squire, Sanders & Dempsey is a member of the U.S.-Ukraine Business Council (USUBC), Washington, D.C. Singham spoke at a recent workshop in Washington sponsored by USUBC.
 
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8.  STATE OF THE UNION: A BEAR ENERGY MARKET

COMMENTARY & ANALYSIS: By Zeyno Baran, Director
Center for Eurasian Policy, Hudson Institute, Washington, D.C.
The Wall Street Journal, New York, NY, Tuesday, August 26, 2008
 
Along with a rapid military victory in Georgia, Vladimir Putin succeeded with another weapon in Russia’s effort to divide and conquer Europe: energy.
Despite claims of unity on the crisis in the Caucasus, energy is a clear dividing line on the Continent.
 
Countries that have long-term gas partnerships with Russia — primarily the West Europeans — chose the “both sides are to blame” approach to the war in Georgia. Countries that are more eager to diversify their sources of energy supply away from Russia — most of the East and Central Europeans — evinced the necessary moral clarity about Moscow’s preplanned invasion.
We saw the same fault line at the NATO summit in April that failed to offer a membership action plan (MAP) to either Georgia or Ukraine, further emboldening Mr. Putin to provoke the Georgians into an unwinnable war. It is simply not possible for the European Union to be united in what Russia considers to be its “sphere of influence” unless the Kremlin’s gas leverage over the Continent is broken.
 
Russia is Europe’s single largest supplier of natural gas. As there is no global market for gas, the construction of costly pipelines effectively locks consumers into lengthy contracts with producers. This means that Moscow can (and does) easily manipulate dependence into political and economic leverage.
Germany, for example, imports almost 40% of its gas from Russia — the most of any West European country — and plans to increase this figure to over 60% by 2020. Six East European countries are entirely dependent on Russia for their natural gas imports. Yet they are also the most vocal about the EU’s need to diversify away from Russia.
 
That’s because they know Russia can turn off the taps in a second — as in Latvia in 2003, Lithuania in 2006 and the Czech Republic in 2008 — with little reaction from Brussels. Russia managed to divide the EU by being a reliable supplier to Western Europe, while continuing to treat Eastern Europe as its “backyard.”
Despite Russia’s repeated use of energy as a political weapon in Eastern Europe, Western Europeans keep repeating the mantra that Russia has been a reliable supplier to “Europe.” They also choose to ignore that natural-gas giant Gazprom serves as the Kremlin’s leading foreign-policy arm.
 
The company is primarily state-owned, and many members of Gazprom’s leadership are current or former government officials. The Kremlin’s present occupant, Dmitry Medvedev, until recently was the chairman of Gazprom. His replacement there is former Prime Minister Viktor Zubkov.
The Russian plan is rather simple: Punish countries that refuse to come under its influence by building new gas pipelines that bypass them, while rewarding countries and political leaders that cooperate with Russia with lucrative energy deals.
 
Maintaining a monopoly over the transport of Caspian gas to Europe is essential for Moscow to ensure that all those countries that have submitted to a Russian “partnership” will acquiesce to the return of the former Soviet space to the Kremlin’s control.
Mr. Putin has visited each of the relevant European countries to persuade them to join his energy projects. Nord Stream is one such example. When completed in 2011, that pipeline will connect Russia and Germany through the Baltic Sea, skirting Poland and the Baltic states.
One of the leaders of this politically divisive joint enterprise is Gerhard Schröder, who extended a €1 billion government credit guarantee to the pipeline project just prior to stepping down as German chancellor in 2005. Germany, and especially Foreign Minister Frank-Walter Steinmeier, Mr. Schröder’s former chief of staff and like his old boss a Social-Democrat, opposed the MAP for Georgia and is reluctant to take a firm position toward Russia.
Just last week, while Finnish Foreign Minister Alexander Stubb was shuttling between Moscow and Tbilisi in his capacity as chairman of the OSCE, Nord Stream announced the hiring of former Finnish Prime Minister Paavo Lipponen.
Moscow also tried to hire former Italian Premier Romano Prodi as chairman of a second gas pipeline, South Stream. Mr. Prodi turned down the job, but his successor Silvio Berlusconi is a longtime Putin ally who supports designating South Stream as a “European project.” Once officially accepted by Brussels, South Stream may even get EU funding. Not surprisingly, the Berlusconi government has reacted to the Russian invasion of Georgia with moral equivocation.
The future of South Stream — which will connect Russia and Bulgaria via the Black Sea, isolating Ukraine — will bear heavily on the prospects of a truly European project, the Nabucco pipeline.
Mr. Putin came up with South Stream to keep Nabucco from being built. Scheduled to be completed by 2013, Nabucco would transport Azerbaijani and Central Asian gas to Europe. The two pipelines would follow roughly the same route, ending in Austria, but Nabucco would bypass Russian control.
 
So, over the past year Mr. Putin has cut bilateral deals with each country along the route, undermining Nabucco’s viability. Moscow has also been much more active than Europe in courting the Caspian rim countries that have the gas each pipeline needs.
 
If South Stream is built first, it will pull all available Caspian gas supplies with it. Nabucco could still be built to carry Middle Eastern gas, but Russia will have ensured continued control over Caspian gas reaching Europe.
And because Nabucco is being privately funded, its investors would likely walk away if its gas sourcing is shaky. State-owned Gazprom, though, is willing to finance a project even if it isn’t commercially viable — so long as it supports the Kremlin’s strategic goals. No Nabucco means no gas diversification for East Europe, which will continue to be subjected to Russia’s power plays while Moscow caters to their West European brethren.
France took a Russia-first position at the NATO summit and, despite President Nicolas Sarkozy’s strong trans-Atlantic position, brokered a cease-fire between Russia and Georgia that was very much in the Kremlin’s interest. But Mr. Sarkozy now seems to have understood that he was played.
 
German Chancellor Angela Merkel, too, is finally giving clear support for Georgia’s NATO membership as Russia’s occupation of the country is in its third week.
Only a united Europe could stop Russia from cutting bilateral deals that are advantageous for individual countries but disastrous for the EU as a whole. Only a united Europe could hold Gazprom accountable to transparency and competition rules, stopping the firm from dictating its terms and playing one EU country against the other.
The EU correctly points out that Russia needs European energy consumers just as much as Europe needs Russian energy suppliers. Moscow, though, has managed to turn this mutual dependence into one-sided leverage. It’s time to reverse this trend.
Ultimately, it all comes down to political will in Western Europe — and the longer Russian tanks remain in Georgia, the clearer it becomes that such will is lacking.
 

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

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9.  RUSSIA’S GRIP ON ENERGY 

 
EDITORIAL: Financial Times, London, UK, Tuesday, August 26 2008
Russia has produced some of the world’s top chess players – and its invasion of Georgia is a brutally effective gambit in the new Great Game. It has prompted the fastest investor pull-out in a decade, but Moscow may care little about that.
 
Longer-term strategic goals have been achieved. In one move, Moscow has reasserted its influence over energy supply routes, and suppliers, from the Caspian basin and Central Asia.
Russia has re-established a hold over the narrow strategic corridor of the southern Caucasus. If, as is still possible, Georgia’s president Mikheil Saakashvili is deposed and replaced by a more pro-Russian candidate, its control will be cemented.
 
Georgia alleges (though Moscow denies) that during the conflict Russia attempted to bomb the 1m barrels-a-day Baku-Tbilisi-Ceyhan pipeline – the only important export route for Caspian oil bypassing Russia.
 
Russia’s ability and willingness to wage war close to the BTC will make companies, lenders and investors think hard about backing new pipelines through the region. Nabucco, the gas pipeline plan championed by the European Union, could well lose out to Russia’s rival South Stream.
Among other western-leaning former Soviet states, Ukraine may see the conflict as a further incentive to embed itself in the Euro-Atlantic community. But key energy suppliers such as Azerbaijan and Kazakhstan, which flirted with the US while retaining authoritarian political systems akin to Russia’s, are likely to tilt back towards Moscow.
 
So may Turkmenistan, which Washington has wooed since the death of its eccentric dictator in 2006. Uzbekistan has already returned to Moscow’s orbit.
All this follows Gazprom’s shrewd courtship of other gas producers from Libya to Nigeria – aiming if not to form a “gas Opec”, then at least to play a co-ordinating role. For Gazprom shareholders (of whom there are plenty in the west), that looks positive. For the EU and US, striving to diversify energy suppliers, it looks a lot like checkmate.
 
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[return to index] [Action Ukraine Report (AUR) Monitoring Service]
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10.  OVERSEAS PRIVATE INVESTMENT CORPORATION (OPIC)
STILL CLOSED FOR UKRAINE
Settle the claim now and open OPIC for Ukraine
 
U.S.-Ukraine Business Council (USUBC), Washington, D.C., Wednesday, August 27, 2008
 
WASHINGTON, D.C. – One of the top issues for the U.S.-Ukraine Business Council (USUBC) over the past several years has been the closure for Ukraine of the major economic and business development support programs of the U.S. government’s Overseas Private Investment Corporation (OPIC) (http://www.opic.gov/).  OPIC’s programs ares still not open for Ukraine in July of 2008.  The government of Ukraine should settle the small  OPIC claim immediately and get OPIC programs open for Ukraine. This is a win-win for everyone.

USUBC has been speaking out about this critical issue at meetings, in Washington and Kyiv, with every top Ukrainian and U.S. government official who has some responsibility regarding this major problem for a long time.

USUBC was told directly in several meetings this year by top officials in the Ukrainian government and in the U.S. government that resolving the OPIC issue was a top priority.  Strong indications were given to USUBC that the OPIC issue would be solved by late March or certainly by May 2008 at the latest. 

 
But, now in late August 2008 endless meetings are still be held from time-to-time between the two government about how to resolve the claim OPIC has with the government  of Ukraine. A claim which has been around since 1999. 
 
USUBC urges the two governments to find a way to settle the issue now and get the OPIC working once again for the benefit of American businesses and for Ukraine.  The dispute has gone on long enough.  Many business development and expansion programs for Ukraine are on hold because OPIC is closed…jobs are being lost, tax revenue is not being generated, investment and economic growth suffer as a result.
 
An article about the OPIC issue, written by Jim Davis and published by the Business Ukraine magazine in Kyiv back in February 2008, is still very
relevant:
 
UKRAINE’S OUTSTANDING OPIC DEBT: A BARRIER TO INTERNATIONAL INVESTMENT

By Jim Davis, Business Ukraine magazine, Kyiv, Ukraine, Monday, February 11, 2008

Amid all the fanfare that has accompanied the signing of a protocol which will bring Ukraine WTO membership, it is worth noting that a disagreement over a relatively small amount of money has made it impossible for Ukraine to enjoy the benefits of an obscure but extremely important agency of the United States government, the Overseas Private Investment Corporation (OPIC).

Estimates made by well-informed persons involved in the process relating to OPIC would suggest that had the problem could have been resolved when it
first arose in 1999, Ukraine could have gained an absolute minimum of an additional USD 5 – 10 billion in foreign direct investment – and probably a lot more than that.

The issue could have been solved years ago, but it was as is so often the case it is a problem for which no one had primary responsibility on the Ukrainian side.

All those, i.e. the various ministers, who had parts of the responsibility within their jurisdictions failed to understand the overall importance of the issue and therefore guarded their own turf rather than that of the state as a whole.

The end result has been to deny the Ukrainian economy one of the tools that could have been attracting investment into the country ever since, with a
potential opportunity cost running into the billions of dollars.

A SIMPLE PROBLEM MADE COMPLEX
The matter involves the non-payment of a state debt incurred by the Ministry of Defence about ten years ago at a time when the needs of various ministries were seriously under-funded and ministers were prone to making deals first and worrying about payment later.

The debt in question was covered by OPIC political risk insurance. OPIC paid the claim to the insured U.S. supplier and looked to Ukraine to ultimately
make good on the original agreement, as was called for in the Ukraine-OPIC agreement.

The amount of the claim, approximately USD 17 million, is quite small when viewed in the light of the overall budget of Ukraine. For the uninitiated, USD 17 million might appear to be a sum that could be dealt with in a simple meeting among ministers of any government.

However, there is no single ministry nor any single minister who has ever been tasked with dealing with the problem in a priority manner, so time and
time again the issue has been discussed at seemingly high-level meetings between U.S. ambassadors and embassy staff on one side and various ministers and prime ministers on the other.

The matter is further complicated by the nature of Ukraine’s budget process. No government has wanted to debate the debt in parliament so it has never
been made a part of any annual state budget.

With no line item listing of the debt, some other mechanism would need to be found in order to keep a payment from being illegal under the existing
legislation of the state budget act. So far, no creative payment mechanism has been found that would meet the needs of both sides of the disagreement.

The most recent top-level discussions came during a visit to the United States by then-Prime Minister Viktor Yanukovych in late 2006.

At the time Yanukovych promised U.S. officials during discussions that the matter would have his personal attention and would be settled in a very short time. However, the Yanukovych government neither paid the amount owed nor requested or agreed to negotiations to adjust the amount owed.

ABOUT OPIC
OPIC is an independent U.S. government agency whose mission is to mobilise and facilitate the participation of U. S. private capital and skills in the
economic and social development of less developed countries and areas, and countries in transition from non-market to market economies.

OPIC assists U.S. companies by providing financing (from large structured finance to small business loans), political risk insurance, and investment
funds. OPIC complements the private sector in managing risks associated with foreign direct investment and supports U.S. foreign policy.

Since its establishment in 1971, OPIC programmes have grown and expanded to encompass the support of development in over 150 countries. In 2007, OPIC assisted 70 projects in 38 countries and regions involving a wide range of industries. Of all the projects underway around the world in 2006, 87% or 61 projects involved U.S. small businesses in 35 U.S. states.

Many OPIC projects involve U.S. procurements, but it is also small and medium-sized enterprise (SME) projects in recipient cooperating countries
that receive the greatest benefits. For example, in Kazakhstan, OPIC provided debt financing for a USD 1.89 million investment in the Asian Credit Fund (ACF), a non-banking microfinance institution established by the Mercy Corps.

In Azerbaijan, OPIC provided financing to SOAKredit LLC (SOA), an independent limited liability non-credit organisation. SOA’s purpose is to

implement an innovative finance programme primarily designed to stimulate local business growth and facilitate Azerbaijan’s transition from a demand
to a market economy.

In Russia, OPIC is providing financing to ZAO Europlan (Europlan), the leading leaser of equipment and vehicles to SMEs throughout the Russian
Federation, to support a planned USD 450 million expansion.

CREATING CONFIDENCE, OFFERING SECURITY
Nadir Shaikh, Chairman of the Board of Citibank Ukraine, explained that SME firms and medium-sized projects are the ones that would benefit most if
Ukraine settles its dispute with OPIC.

Shaikh has been one of the persons most active in promoting a settlement with OPIC and as recently as two weeks ago participated in a meeting with
senior government officials where this matter was discussed.

“We know from experience that the largest foreign firms come here fully prepared to finance their own way into the Ukrainian market. Their investments are based on advice from the most sophisticated sources in their own companies or from professional advisors such as investment banks. It is the smaller foreign investors who need the type of help and risk coverage that OPIC is able to give.

“Making OPIC political risk insurance available would, for example, would give many smaller foreign investors the kind of backing that would first
help convince their own boards of the viability of investments in Ukraine, and would also assist them in finding financing for projects here or in their home country.

“In addition, it would help Ukrainian companies to get access to financing that could be provided by such banks as Citibank, based on OPIC risk coverage programmes.

“Settling the current dispute requires a firm decision and political will on the part of government to find a financing mechanism to pay the current  claim. I am optimistic that the efforts of the current government are more likely to find a solution to this problem,” Shaikh concluded.

A RELATIVELY TRIFLING DEBT
One of the most interesting elements in the OPIC-Ukraine issue is the flexibility exhibited by OPIC in attempting to settle the claim. On several occasions various Ukrainian governments have been told that while USD 17 million is the amount actually owed, OPIC is willing to engage in negotiations that could lead to a solution that would mean a substantially reduced settlement.

Even with the clearest signals possible from OPIC, no Ukrainian government over the last ten years has been willing or able to find the will to effect a settlement.

The issue has not been filed away in a long forgotten filing cabinet, either. Morgan Williams, president of the U.S.-Ukraine Business Council (USUBC) said that the OPIC issue has been a matter of discussion between the two governments in every meeting that he has attended in Washington or Kyiv in recent years.

“On January 31, while addressing a meeting of the USUBC that included representatives of the American Chamber of Commerce and U.S. embassy officials, Vice-Prime Minister Nemyrya made a point of telling the audience that he was fully aware of the problem and that he expects a solution to be
found soon. We sincerely hope that is correct.

“OPIC programmes are being used all over the world to spur development and USUBC thinks that the inability of Ukraine to solve its OPIC problem has
cost the country at least one billion and perhaps several billions of dollars in lost investment opportunities. In effect, a failure to solve the OPIC issue has a negative effect on Ukraine’s ability to create jobs and wealth for all of Ukraine’s citizens.

“For example, in the autumn of 2005 OPIC conceived and was ready to implement a USD 100 million private equity fund programme for Ukraine.

“I have been told on the back channel by top U.S. government officials in Washington that the total value of OPIC programmes that could be implemented here within a relatively short time might have a total value of as much as USD 500 million.

“However, it is the government of Ukraine that must turn the key to open what is literally a treasure trove of new investment and risk guarantee

0pportunities. I hope it will make the effort necessary to find the solution needed,” Williams concluded.
 

LINK: http://www.businessukraine.com.ua/ukraine-s-outstanding-opic-debt
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11.  VOLIA CABLE & SIGMABLEYZER’S REGIONAL CABLE BUSINESS MERGE TO FORM PRE-EMINENT UKRAINIAN CABLE PROVIDER
Providence Equity Partners Increases Its Investment in the Combined Entity
to over $300 million, Making the Largest Private Equity Investment in Ukraine

By BusinessWire, Kyiv, Ukraine, Monday, July 28, 2008

KYIV, Ukraine – Volia Cable (Aquorn Limited) and SigmaBleyzer’s regional cable operations (Oisiw Limited) are merging to form Ukraine’s pre-eminent
cable provider with operations in over 15 of Ukraine’s largest cities. As a result of the merger, the combined business, to be named Volia Limited, will
provide television service as well as high-speed Internet access to over 2.5 million Ukrainian households.

In a separate transaction, Providence Equity Partners, the world’s leading media and communications private equity firm, is making an additional
investment in Volia bringing its total investment in the combined entity to over US$300 million. The transaction has been approved by the Antimonopoly
Committee of Ukraine.

“We are very pleased to extend our partnership with Providence, a leading private equity investor and one of the largest and most experienced owners
of media and communications companies globally,” said Michael Bleyzer, President and CEO of SigmaBleyzer.

“Merging our two cable businesses makes a lot of strategic sense and will allow us to provide best in class service from a unified operating platform
to our subscribers. We see Providence’s increased investment in Ukrainian cable also as a vote of confidence in the Ukrainian economy.”

“The combination of Volia Cable and SigmaBleyzer’s regional cable operations creates a cable company uniquely positioned to meet the rapidly expanding demand in Ukraine for the most advanced television and broadband services,” said Jonathan M. Nelson, Providence Chief Executive Officer. “We are pleased to expand our commitment to Volia and look forward to continuing to work with Michael and Sergey and their teams to build value at Volia over the long-term.”

Sergey Boyko, President of Volia Cable, will be leading the combined business and said: “I see tremendous potential in the combined operations. We now have the platform and scale to build a unified cable brand across Ukraine and bring to the regional cities the same level and quality of service that our subscribers in Kyiv have come to rely upon.” Goldman Sachs International acted as financial advisor to Oisiw Limited.

ABOUT PROVIDENCE EQUITY PARTNERS
Providence Equity Partners is the leading global private equity firm specializing in equity investments in media, entertainment, communications and information companies around the world. The principals of Providence manage funds with approximately $22 billion in equity commitments and have
invested in more than 100 companies operating in over 20 countries since the firm’s inception in 1989.

Significant investments include Bell Canada, Bresnan Broadband Holdings, Casema, Com Hem, Digiturk, Education Management Corporation, eircom,
FreedomCommunications, Hulu, Idea Cellular, Kabel Deutschland, Metro-Goldwyn-Mayer, NexTag, Ono, Open Solutions, PanAmSat, ProSiebenSat.1,
Recoletos, TDC, Univision, VoiceStream Wireless, Warner Music Group, Western Wireless and Yankees Entertainment and Sports Network. Providence
is headquartered in Providence, RI (USA) and has offices in New York, Los Angeles, London, Hong Kong and New Delhi.

ABOUT VOLIA LIMITED
Volia Limited is the number one cable TV and Broadband Internet provider in Ukraine. As a result of the merger, the combined entity will have about 2.5
million homes passed and 1.8 million RGUs. Volia Limited provides services such as analog cable TV, digital cable TV, high-speed cable Internet access,
VoIP and data services. New services, such as VoD and PPV, are under development and will be implemented in the future.

Volia Limited was created through the consolidation of a number of companies acquired by SigmaBleyzer over the past few years. Since acquisition, Volia
has worked on integrating and upgrading the activities of the original cable operators.

ABOUT SIGMABLEYZER
Operating in the region for over a decade, SigmaBleyzer is one of the largest and most experienced private equity investors in Eastern Europe. With the strength of the company’s local infrastructure, western-style management and knowledge of local markets, SigmaBleyzer has created one of the best investment management companies in the region.

SigmaBleyzer manages funds and special purpose investment vehicles with approximately $1 billion in commitments and has made investments in over
100 companies in Ukraine since 1994.

As a manager of a family of private equity funds currently investing in Ukraine, Romania, Bulgaria and Kazakhstan, SigmaBleyzer utilizes a hybrid
investment approach developed specifically for emerging markets and focused on simultaneous value creation at the micro or enterprise level and at the
macro level.

Because of this unique approach and strong on-the-ground presence in a region where many of its investors could not have invested directly, SigmaBleyzer brings one of the most attractive pipelines of investment opportunities found anywhere to its client base.

With offices in Kyiv and Kharkiv (Ukraine); Sofia (Bulgaria), Bucharest (Romania), Astana (Kazakhstan), and a back office in Houston, Texas, SigmaBleyzer has the infrastructure in its countries of operation to successfully manage portfolio companies to help them reach their full potential, while creating value for the investors, shareholders, employees and other stakeholders.

 

NOTE:  SigmaBleyzer is a member of the U.S.-Ukraine Business Council, Washington, D.C.
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12.  RUSSIA’S POTENTIAL EVOLUTION AND AMERICA’S
AND UKRAINE’S NATIONAL SECURITY
 
OP-ED: By Victor Basiuk, The Ukrainian Weekly newspaper, Vol. LXXVI, No. 34
Parsippany, New Jersey, Sunday, August 24, 2008
 
Henry A. Kissinger, former Secretary of State, recently visited Russia and wrote a column in The Washington Post under the title “Finding Common Ground With Russia” (July 8). In it, he raises two issues directly relevant to America’s and Ukraine’s national security: Russia’s potential evolution towards democracy and Ukraine’s joining of NATO. Mr. Kissinger’s views on these issues need to be addressed.
 
Mr. Kissinger believes that, with the accession of Dmitry Medvedev to the presidency, Russia has entered “a transition from a phase of consolidation to a period of modernization.” With the two centers of power now emerging – Putin and Medvedev – it appears “to be the beginning of an evolution toward a form of checks and balances,’ and, hence, eventual democracy. 
 
Mr. Kissinger considers “Russian policy under Putin as driven by a quest for a reliable strategic partner, with America being the preferred choice.” He views the Sochi declaration between Putin and Bush as an emerging partnership between the two countries.
 
So as not to impede it as well as the evolution of Russia towards democracy, Mr. Kissinger advocates a postponement of Ukraine’s joining NATO, since bringing the Western security system close to Moscow “will inhibit the solving of all other issues.”
 
The above analysis by Mr. Kissinger overlooks certain fundamentals of Russia’s evolutionary process and Russian-Ukrainian relations. The struggle between the Slavophiles and Westernizers within Russia goes back to the early 19th century. The Slavophiles believed that Russia is unique, its culture is superior to Western culture, it is a Third Rome.
 
The Slavophiles were autocratic supporters of the Pan-Slavic movement, which sought unification of all Slavic peoples under the domination of Russia.  The Westernizers believed that Russia’s development depended on the adoption of Western technology and liberalism.
 
After the break-up of the Soviet Union, Slavophile thinking was revived in Russia in the form of culturology. Taught in the former departments of Marxism-Leninism in secondary schools and universities, culturology has, in effect, become a successor to communism as an ideology in Russia. It is compulsory in primary and secondary schools and it is nearly always a required course in the first year of university.
 
The Russian Ministry of Education sets up the standards to obtain diplomas in culturology. including doctoral degrees. Like Slavophile teachings, culturlogy rejects Western universalism, insists on Russia’s messianic destiny, and views Russia as “a world apart.”
 
Culturology is an instrument of power and it helps the Russian authoritarian  regime control its population. At this point, the principal instrument of Russia’s power, domestic and international, is oil, and Russia capitalizes on it in a way that strongly suggests Cold War mentality among Russia’s top leaders. Besides using oil and gas as an instrument of political power with regard to the “near abroad” and Western Europe, Russia is converting its oil power into military power.
 
On July 25 of this year, the commander-in-chief of the Russian Navy, Admiral Vladimir Vysotskiy, gave an interview to RIA Novosti, where he said that Russia is significantly expanding its navy. Priority is given to a new generation of strategic nuclear submarines. Russia is also building advanced destroyers and aircraft carriers. The naval programs have high priority, are fully funded, and the first nuclear submarine armed with new ballistic missiles Bulava-M will soon join the Northern Fleet.
 
The Russian Navy considers it necessary to have 5 or 6 aircraft carriers, and not just one aviation cruiser as is the case now. While another oil-rich country – Saudi Arabia – is investing billions of dollars into building new cities with multiple industries so as to diversity its economy, Russia does not seem to be interested in that kind of activity.
 
Does the above suggest that, contrary to Mr. Kissinger’s contention, the evolutionary process is bypassing Russia? This is not so, but we cannot expect that democracy will come from the top of the present regime – it must come from the bottom, society itself.
 
It is too optimistic to hope that a former KGB colonel would anoint as his successor to the presidency someone who would create a system of checks and balances to his own power. In a world characterized by rapidly growing interdependence, societal evolution in Russia has to come from both internal and external forces.
 
There is evidence that, culturology notwithstanding, there is a degree of progression towards closer ties to the West in Russia, especially in the younger generation. A public opinion poll conducted in late June 2008 by the All-Russian Center of Appraisal of Public Opinion indicated that 41% of young people of 18 to 24 years of age consider that, for the Russians, Europe is a common home. and 48% are in favor of a European road for the development of the country.
 
Among the total respondents, 45% believe that Russia is a part of Europe, and in the 21st century their destinies will be closely intertwined. However, almost an equal number (42%) consider Russia as a unique Eurasian civilization whose center of interests in the future will be directed eastward.
 
Mr. Kissinger is correct in maintaining that public exhortations and a continuous pressure on Russia are counterproductive for the process of societal evolution. Craving for freedom is a very powerful internal societal mover in the evolution towards democracy; it produced peaceful “color revolutions” in three former Soviet republics – Georgia, Ukraine and Kyrgyzstan. It exists in Russian society just as it exists in other societies; it is a part of human nature.
 
However, in Russia craving for freedom is laced with a historical baggage: hundreds of years of autocracy. As a result, many Russians feel more comfortable when decisions are made for them, when there is a “batyushka” (father) to give them order and security. Autocracy has almost become a part of the value system of many Russians. Russian society thus needs more external help than others.
 
The West must develop policies to unleash the craving for freedom among the Russians; otherwise the evolution towards democracy will be significantly slowed down, confined mainly to generational changes.  Such policies might include greater efforts to increase personal contacts of the Russians with Westerners.
 
To that end, the U.S. government might encourage Russia to diversify its economy, which would bring more foreign investment and foreigners to Russia.
Travel and educational exchanges could be increased. Activities that would, directly or indirectly, stimulate the development of civil society in Russia need to be supported since such a society creates a fertile ground for freedom.
 
The free market economy, which now exists in Russia, creates a useful precondition for the development of a civil society in Russia, although one must face the reality of the Russian government’s periodic interference with its functioning as well with other activities that might encourage a craving for freedom. Removal or relaxation of such interference could be used as a “soft power” bargaining chip in dealing with Russia.
 
In the longer run, the United States could neutralize the control by the Russian authoritarian government over its population through oil and oil’s use as an instrument of power in foreign affairs without a direct confrontation with Russia. The United States at present is developing a strategy to free itself from dependence on foreign oil.
 
America could set its goal higher — replacement of oil as the principal source of energy by alternative fuels on a global scale. A promising source in this regard is methane from methane hydrates, which could be commercially produced within five years.
 
Methane hydrates, a substance consisting of methane mixed with ice and found on the continental shelves at the depth of 500 meters and below in most areas of the world, have a total energy content of nearly twice of that of all the known deposits of oil, coal, and natural gas combined.
 
According to present estimates, only 5 to 15 percent of methane hydrates are commercially exploitable, but even at this percentage the potential is vast. Methane is readily convertible into gasoline and aviation fuel.
 
Only when strong preconditions for democracy develop in society and become compelling, would the Russian authoritarian government react to them and move in the direction of reforms.
 
Mikhail Gorbachev did not come to power and initiate his far-reaching reforms until it became obvious to the top Soviet leadership that the Soviet command economy was no longer workable in a highly complex technological setting and it could not generate adequate resources to meet the armaments competition initiated by Ronald Reagan. No such compelling conditions exist at present.
 
With regard to Ukraine: Mr. Kissinger’s assumption that the principal reason Russia is strenuously opposed to Ukraine’s joining NATO is national security overlooks the complexity of Russian-Ukrainian relations and strategic objectives of the Russian government. Yes, national security is an important factor, but Russia already has three former Soviet republics – Latvia, Lithuania, and Estonia – which are on its borders and are members of NATO.
 
The principal reason Russia does not want Ukraine to join NATO is that, if Ukraine becomes a member of NATO, Russia will lose forever a chance that Ukraine, with its very substantial economic and technological resources, will become its vassal, if not a full-fledged member of the Russian Federation. Moreover, there are strong socio-political reasons for such objections.
 
For hundreds of years, Russian children were taught – and are still being taught – in schools that “Kyiv is the mother of Russian cities.”  It is difficult for their parents to explain why Kyiv is abroad and is not even connected with Russia.
 
It is equally difficult for many patriotic Russians to accept that Russia’s history starts in 14th century, with the then barbaric Principality of Muscovy, and not with Kyiv, which three centuries earlier, under Prince Yaroslav the Wise, was already the capital of a major, economically and culturally flourishing European country.
 
The influence of Russia in Ukraine is strong. At present, the Party of the Regions, headed by the pro-Russian former Prime Minister Viktor Yunukovych, is the largest party in Ukraine and holds plurality in the Ukrainian Parliament. When Yanukovych was in power, he was helping the Russian government and business infiltrate Ukraine economically and culturally.
 
Then President Putin was helping Yanukovych to get reelected and congratulated him before he was actually reelected, but then the Orange Revolution cancelled the fraudulent election. The present government of Prime Minister Yulia Tymoshenko has been formed on a very slim democratic coalition in the Parliament – the margin of only two votes. But two parliamentarians of the coalition have resigned and, although the coalition formally still exists, it is in a very precarious position.
 
Russia’s pressure on Ukraine not to join NATO is very strong. In February 2008, the then Russian President Putin said that, if Ukraine joins NATO, Russia may have to target Ukraine with nuclear missiles. The Russian State Duma appealed to President Medvedev and the government to consider abrogating the 1997 Treaty of Friendship, Cooperation and Partnership with Ukraine if Ukraine’s plan to join NATO is approved.
 
A centerpiece of this treaty is the recognition of territorial integrity of Ukraine. In interviews and public statements, Yuriy Luzhkov, the Mayor of Moscow, said that Ukraine “seized” Crimea and it should go back to Russia.
 
A critical point in Ukraine’s joining NATO is the approval of a Membership Action Plan (MAP) at the December 2008 NATO summit, which was rejected at the April Bucharest NATO summit. The MAP merely delineates steps to join NATO, and not the joining itself.
 
Quite correctly, Mr. Kissinger points out that Russia’s expansionist policies in the past were facilitated by the weakness of nearly all countries on Russia’s border, a condition which has largely disappeared. And yet Ukraine comprises a potential window for Russia’s expansion, and a strong motivation for such expansion on the part of Russia exists.
 
If Russia is successful in extending its influence – and perhaps more – into Ukraine, this would embolden expansionist groups and individuals in Russia and impede its evolution to democracy.
 
The present Ukrainian democratic government is trying to close that window by joining NATO and, eventually, the European Union (EU). I think that, contrary to Mr. Kissinger, it would be in the best interest of U.S. and Ukrainian national security to expedite the process.
 
As things stand, it will take years to join NATO, and many more years to join the EU. If the process is shortened, it will reduce the period of Ukraine being a bone of contention and a source of friction between the West and Russia. 
 
Moreover, as today Ukraine celebrates its 17th Independence Day, Ukraine’s joining NATO soon would ensure that subsequent celebrations will be real, and not just a veneer of subordination to its northern neighbor. And this way Russia will get sooner reconciled to the fact that Ukraine is a part of the West, as it became reconciled to the Baltic republics and its former East European satellites to joining the Alliance. 
 
As a member of NATO Ukraine will be more free of the influence of pro-Russian forces and will develop more rapidly into a mature, vibrant democracy, potentially becoming an important catalyst in the evolution of democracy in Russia.
 
NOTE: Victor Basiuk is a consultant on science, technology, and national security policy in the Washington, D.C. area. He taught at Columbia University and in Washington he worked for the White House, the State Department, and the Department of Defense. Dr. Basiuk is the author of “Technology, World Politics, and American Policy” and at present he is writing a book on After World Dominance, Whither America? 
 
LINK: The Ukrainian Weekly Archive: www.ukrweekly.com
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13.  WANTED: A PLAN FOR UKRAINE

BRUSSELS BLOG: By Tony Barber, Financial Times, London, UK, Mon, Aug 25, 2008

Among the lessons to be drawn from the Russian-Georgian war is that the next flashpoint between the European Union and Russia may turn out to be Ukraine. There is a particular risk of trouble over Crimea, the Ukrainian peninsula where ethnic Russians are in the majority and where Russia’s Black Sea fleet has a 20-year lease on bases that is due to expire in 2017.

To help avert a crisis in Ukraine, the EU badly needs to come up with a convincing strategy for rescuing the country from the geopolitical no man’s land in which it has languished since the Soviet Union’s demise in 1991.

Russia’s military intervention in Georgia underscores the Kremlin’s determination to rebuild its influence in former Soviet republics on its western and southern borders. Ukraine – with 46m people and a culture and history intimately connected to that of Russia – is the biggest prize of them all.

Unfortunately, the EU’s plans for Ukraine are at present anything but convincing. At an EU foreign ministers’ meeting in Brussels last month, the
27-nation bloc even found itself debating whether to state the obvious and call Ukraine a European country. The snag is that to do so would imply that
Ukraine has the right to eventual EU membership, a prospect that some EU member-states can’t stomach.

EU and Ukrainian leaders are due to meet in the French town of Evian on September 9 and sign an association agreement on closer relations. But this
accord will be deliberately ambiguous about whether or not it puts Ukraine on a track leading one day to EU accession.

A new report by the European Council on Foreign Relations think-tank argues that the EU cannot afford any more delays in defining and deepening its ties
with Ukraine. It proposes giving Ukraine access to the EU’s four freedoms (freedom of movement of goods, people, services and capital) and a roadmap
for visa-free travel.

It advises the EU to commit itself to consulting and assisting Ukraine in the event of a challenge to the country’s sovereignty and territorial integrity. It recommends support for Ukraine’s efforts to secure the peaceful withdrawal of the Russian Black Sea fleet from Crimea.

Above all, the report advocates that the Ukraine should be offered a “clearer perspective” towards a Nato membership action plan, and states that the EU should recognise Ukraine’s right to join the EU. None of these steps would be intended as a provocation to Russia, whose sheer size and regional weight leave the EU with no choice but to pursue a policy of long-term diplomatic and commercial engagement with Moscow.

The report’s recommendations make a lot of sense. However, they may overstate the EU’s ability to apply its famed “soft power” in a country that is right on Russia’s doorstep and permeated with Russian influence. Equally, they may underestimate Russia’s probable response to any hint that Ukraine is drawing close to Nato.

All in all, one has to fear that a crisis in Ukraine, like this month’s fighting in Georgia, will flare up long before the EU’s member-states have forged a consensus on what they want to do.

 
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14.  RUSSIA’S AGGRESSION IS A CHALLENGE TO WORLD ORDER

 
OPINION: U.S. Senator Lindsey Graham and U.S. Senator Joe Lieberman 
The Wall Street Journal, NY, NY, Tuesday, August 26, 2008; Page A21

In the wake of Russia’s invasion of Georgia, the United States and its trans-Atlantic allies have rightly focused on two urgent and immediate tasks: getting Russian soldiers out, and humanitarian aid in.

But having just returned from Georgia, Ukraine and Poland, where we met with leaders of these countries, we believe it is imperative for the West to look beyond the day-to-day management of this crisis. The longer-term strategic consequences, some of which are already being felt far beyond the Caucasus, have to be addressed.
Russia’s aggression is not just a threat to a tiny democracy on the edge of Europe. It is a challenge to the political order and values at the heart of the continent.

For more than 60 years, from World War II through the Cold War to our intervention in the former Yugoslavia in the 1990s, the U.S. has fostered and fought for the creation of a Europe that is whole, free and at peace.

 
This stands as one of the greatest strategic achievements of the 20th century: the gradual transformation of a continent, once the scene of the most violent and destructive wars ever waged, into an oasis of peace and prosperity where borders are open and uncontested and aggression unthinkable.
Russia’s invasion of Georgia represents the most serious challenge to this political order since Slobodan Milosevic unleashed the demons of ethnic nationalism in the Balkans. What is happening in Georgia today, therefore, is not simply a territorial dispute. It is a struggle about whether a new dividing line is drawn across Europe: between nations that are free to determine their own destinies, and nations that are consigned to the Kremlin’s autocratic orbit.
That is the reason countries like Poland, Ukraine and the Baltic States are watching what happens in the Caucasus so closely. We heard that last week in Warsaw, Kiev and Tbilisi. There is no doubt in the minds of leaders in Ukraine and Poland — if Moscow succeeds in Georgia, they may be next.
There is disturbing evidence Russia is already laying the groundwork to apply the same arguments used to justify its intervention in Georgia to other parts of its near abroad — most ominously in Crimea. This strategically important peninsula is part of Ukraine, but with a large ethnic Russian population and the headquarters of Russia’s Black Sea Fleet at Sevastopol.
The first priority of America and Europe must be to prevent the Kremlin from achieving its strategic objectives in Georgia.
 
Having been deterred from marching on Tbilisi and militarily overthrowing the democratically elected government there, Russian forces spent last week destroying the country’s infrastructure, including roads, bridges, port and security facilities. This was more than random looting. It was a deliberate campaign to collapse the economy of Georgia, in the hope of taking the government down with it.
The humanitarian supplies the U.S. military is now ferrying to Georgia are critically important to the innocent men, women and children displaced by the fighting, some of whom we saw last week.
 
Also needed, immediately, is a joint commitment by the U.S. and the European Union to fund a large-scale, comprehensive reconstruction plan — developed by the Georgian government, in consultation with the World Bank, IMF and other international authorities — and for the U.S. Congress to support this plan as soon as it returns to session in September.
Any assistance plan must also include the rebuilding of Georgia’s security forces. Our past aid to the Georgian military focused on supporting the light, counterterrorism-oriented forces that facilitate Tbilisi’s contribution to coalition operations in Iraq. We avoided giving the types of security aid that could have been used to blunt Russia’s conventional onslaught. It is time for that to change.
Specifically, the Georgian military should be given the antiaircraft and antiarmor systems necessary to deter any renewed Russian aggression. These defensive capabilities will help to prevent this conflict from erupting again, and make clear we will not allow the Russians to forcibly redraw the boundaries of sovereign nations.
Our response to the invasion of Georgia must include regional actions to reassure Russia’s rattled neighbors and strengthen trans-Atlantic solidarity. This means reinvigorating NATO as a military alliance, not just a political one.
 
Contingency planning for the defense of all member states against conventional and unconventional attack, including cyber warfare, needs to be revived. The credibility of Article Five of the NATO Charter — that an attack against one really can and will be treated as an attack against all — needs to be bolstered.
The U.S. must also reaffirm its commitment to allies that have been the targets of Russian bullying because of their willingness to work with Washington. The recent missile-defense agreement between Poland and the U.S., for instance, is not aimed at Russia. But this has not stopped senior Russian officials from speaking openly about military retaliation against Warsaw.
 
Irrespective of our political differences over missile defense, Democrats and Republicans should join together in Congress to pledge solidarity with Poland, along with the Czech Republic, against these outrageous Russian threats.
Finally, the U.S. and Europe need a new trans-Atlantic energy alliance. In recent years, Russia has proven all too willing to use its oil and gas resources as a weapon, and to try to consolidate control over the strategic energy corridors to the West. By working together, an alliance can frustrate these designs and diminish our dependence on the foreign oil that is responsible for the higher energy prices here at home.
In crafting a response to the Georgia crisis, we must above all reaffirm our conviction that Russia need not be a competitor or an adversary. Since the collapse of the Soviet Union, Democratic and Republican administrations have engaged Russia, sending billions of dollars to speed its economic recovery and welcoming its integration into the flagship institutions of the international community. We did this because we believed that a strong, prosperous Russia can be a strategic partner and a friend. We still do.
But Russia’s leaders have made a different choice. While we stand ready to rebuild relations with Moscow and work together on shared challenges, Russia’s current course will only alienate and isolate it from the rest of the world.
We believe history will judge the Russian invasion of Georgia as a serious strategic miscalculation. Although it is for the moment flush with oil wealth, Russia’s political elite remains kleptocratic, and its aggression exposed as much weakness as strength. The invasion of Georgia will not only have a unifying effect on the West, it also made clear that Russia — unlike the Soviet Union — has few real allies of strategic worth.
 
To date, the only countries to defend Russia’s actions in the Caucasus have been Cuba and Belarus — and the latter, only after the Kremlin publicly complained about its silence.
In the long run, a Russia that tries to define its greatness in terms of spheres of influence, client states and forced fealty to Moscow will fail — impoverishing its citizens in the process. The question is only how long until Russia’s leaders rediscover this lesson from their own history.
Until they do, the watchword of the West must be solidarity: solidarity with the people of Georgia and its democratically elected government, solidarity with our allies throughout the region, and above all, solidarity with the values that have given meaning to our trans-Atlantic community of democracies and our vision of a European continent that is whole, free and at peace.
NOTE: Mr. Graham is a Republican senator from South Carolina. Mr. Lieberman is an Independent Democratic senator from Connecticut.
 
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15.  EASTERN EUROPE CAN DEFEND ITSELF

OPINION: By Max Boot, The Wall Street Journal

New York, New York, Monday, August 25, 2008; Page A13

Eastern Europeans are rightly alarmed about the brazenness and success of the Russian blitzkrieg into Georgia. For many living in Russia’s shadow, this is reviving traumatic memories — of 1968 for Czechs, 1956 for Hungarians, 1939 for Poles. It does not help that senior Russian generals are threatening to rain nuclear annihilation on Ukraine and Poland if they refuse to toe the Kremlin’s line.

 
Even those states which, unlike Georgia and Ukraine, are already in NATO can take scant comfort. As Poland’s foreign minister, Radek Sikorski, says, “Parchments and treaties are all very well, but we have a history in Poland of fighting alone and being left to our own devices by our allies.”
Warsaw’s response has been to draw closer to the United States, by rapidly concluding an agreement in long drawn-out negotiations over the basing of U.S. interceptor missiles on Polish soil. That’s a good start, but it’s a move of symbolic import only. The small number of interceptors are designed to shoot down an equally small number of Iranian missiles — not the overwhelming numbers that Russia deploys.
 
Poland and other states should be under no illusion they can count on the U.S. in a crisis. In the past we left Poland, Hungary and Czechoslovakia in the lurch. More recently we haven’t done much to help Georgia.
The only thing that the frontline states can count on is their own willingness to fight for independence. But willingness alone is not enough. They also need the means to fight, and at the moment they don’t have them. We have already seen how the tiny Georgian armed forces — with fewer than 30,000 men — were routed by the Russian invaders.
What gets ignored is that Georgia, although a small country (population: 4.6 million), has the potential to do far more for its defense. According to the CIA’s World Factbook, Georgia has over 900,000 men between the ages of 16 and 49. It could easily create a larger military force than it has, but that would require spending more on defense. By the CIA’s estimate, its defense budget was just 0.59% of GDP in 2005.
Georgia’s military spending has grown in recent years, but not Eastern Europe’s. According to the International Institute of Strategic Studies, only one country in Eastern Europe spends more than 2% of GDP on defense. That would be Bulgaria at 2.2%. Romania is in second place at 1.9%, followed by Poland at 1.8%.
 
Nor do these countries maintain large standing forces. Poland has 7.9 million males of military age but only 127,266 active-duty personnel in its armed forces. Hungary could mobilize 1.9 million men but has only 32,300 in uniform. Bulgaria has 1.3 million potential soldiers but only 40,747 actual soldiers. And so on.
There is one exception to this demilitarizing trend. Russia, which has more than a million soldiers under arms, has been increasing its defense budget from the lows of the immediate post-Soviet era. Based on official figures it spends at least 2.5% of GDP on its military. But if you add in expenditures on paramilitary forces and other items, the total comes closer to 4% — roughly the same percentage that the U.S. is spending.
Small states have often shown the ability to humble great powers. In 1920, under the inspired leadership of Marshal Josef Pilsudski, the Poles staged a brilliant counterattack to save Warsaw and drive the Red Army off their soil.
 
In the winter war of 1939-1940 the plucky Finns held off Soviet invaders, forcing the Kremlin to settle for a slice of its territory rather than all of it. More recently, the Afghan mujahedeen drove the Red Army out of their country altogether, thereby helping to bring down the Soviet Union.
But if they have any hope of emulating such feats — or, more precisely, of deterring the Russians from threatening them in the first place by making it clear that they could emulate such feats — today’s Eastern Europeans have to do much more to prepare a robust defense. They should double their military spending to make themselves into porcupine states that even the Russian bear can’t swallow.
The U.S. can help, as we helped the Afghans in the 1980s and as the French helped the Poles in 1920. That will require a readjustment in our military assistance strategy, which has been to create in Eastern Europe miniature copies of our own armed forces.
 
Our hope, largely realized, has been that these states will help us in our own military commitments in Afghanistan, Iraq and elsewhere. But in addition to developing NATO-style expeditionary capacity, these states need to be able to conduct a defense in depth.
That means having large reserves ready for fast call-up and plenty of defensive weapons — in particular portable missile systems such as the Stinger and Javelin capable of inflicting great damage on Russia’s lumbering air and armor forces. That’s more important than fielding their own tanks or fighter aircraft.
 
We should offer to sell them these relatively inexpensive defensive systems, and to provide the advisory services to make the best use of them. But the first step has to be for the Eastern Europeans to make a larger commitment to their own defense.
NOTE: Mr. Boot, a senior fellow at the Council on Foreign Relations, is the author, most recently, of “War Made New: Technology, Warfare, and the Course of History, 1500 to Today” (Gotham Books, 2006).

LINK: http://online.wsj.com/article/SB121962284006967693.html

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16.  NATO IS UKRAINE’S BEST OPTION 

OP-ED: by George Woloshyn, Special to Kyiv Post
Kyiv Post, Kyiv, Ukraine, Thursday, Aug 21, 2008
 
Russia’s naked aggression against Georgia may very well be a test of a similar strategy to be applied in the near future against its much bigger prize: Ukraine. The tiny (population 70,000) “breakaway” (with Russian support) province of South Ossetia could easily be the Sevastopol or even Crimea of the future declaring its “independence” from Ukraine.
 
Russian troops via its Sevastopol naval base would represent themselves as “peacekeepers” (to “protect” Russian nationals).  Russia would hand out Russian citizenship to whoever asks for it and, lo and behold, a pretext is set in place for wholesale intervention by Russian forces, including the bombing of Ukrainian population centers.
The current Georgian scenario may have turned out entirely differently if Georgia had become a member of NATO. Russia knows that taking on a NATO member means a direct military challenge to Europe and North America, with unpredictable consequences for Russia.
That is why it is time for all patriotic Ukrainians, regardless of their political leanings, to move as quickly as possible for NATO entry.  This is no longer an intellectual exercise. Georgia should convince us that NATO is essential to the peace, freedom and independence of Ukraine.
NATO is simply a defense alliance of 26 countries which agree to resolve their disputes peacefully, and to come to each other’s defense when attacked. The final decision to contribute troops or equipment to a NATO­led operation is left to each member state. All NATO decisions are taken jointly by member states on the basis of consensus.
 
NATO does not maintain its own military force but relies on voluntary contributions by member states. Each member state contributes towards NATO’s day­to­day costs, which are estimated to be 0.5 percent of the total defense expenditure of NATO countries.  In fact, member states generally enjoy markedly reduced defense expenditures because, rather than stand alone, each can rely on the support of other states when threatened.
Ukraine, more than any other European country, needs NATO. It is one of two countries against which Russia has made repeated and direct territorial claims and threats. (The other is Georgia.)  It is one of two countries that has been the object of a broad­based Russian domestic and international campaign of unprecedented slander, subversion and intrusion into almost every facet of its life.
 
Russian military forces in Ukraine ignore Ukrainian laws, as they ignore Georgian sovereignty over South Ossetia. Its political leaders openly encourage and support fragmentation of its territorial integrity, as in Georgia. And its media has been systematically stoking popular anti­Ukrainian hysteria.
Russia understands that Ukrainian membership in NATO will – once and for all – remove Ukraine from its hegemony.  Its unreconstructed imperialists, who still consider Ukrainian statehood to be a transitory aberration, will have to give up their dreams of Russian domination and exploitation of Ukraine. Its threats against Ukraine will prove meaningless, as all such threats will be considered threats against 26 other nations. 
Although, in theory, membership in NATO is not a requirement for eventual entry into the European Union, in reality NATO membership would greatly facilitate such integration and make it virtually impossible for Europeans to withhold EU membership.
 
Both the European public and its political leaders would become comfortable with the idea of Ukrainian contribution to European security and full Ukrainian participation in Europe’s economic and cultural life would naturally follow. 
Those who claim that NATO membership will entangle Ukraine in foreign military operations are either ignorant of the basic terms of the treaty or intent on disinformation.  For example, all 26 NATO members and 14 other countries (including Ukraine) have been involved in Afghanistan. Afghanistan is considered an official NATO operation. Yet, each state decides on the extent and form of its participation. 
 
 NATO member states have contributed as few as nine individuals and as many as several thousands.  Half of the member states have fewer than 500 personnel in Afghanistan, hardly the sort of “entanglement” that would pose a problem for Ukraine.  In fact, it may even prove of great value in providing “real world” experience in military tactics and technology. 
Those who fear U.S. domination in NATO should only consider the case of Iraq. Despite strong U.S. urgings and incentives, only 10 NATO states have contributed forces to the U.S.­led “coalition of the willing” in Iraq. Apparently, the other 16 members were not very “willing” and have decided to stay out.
 
In short, the simple fact remains that NATO membership requires Ukrainian participation only in the defense of threatened NATO member states….all other military operations are discretionary with each member state. Although NATO and the Warsaw Pact are often considered as analogous organizations, they were very different creatures.
 
NATO participation is voluntary, based on consensus, and entirely defensive in nature. Can anyone imagine a communist Bulgaria or Romania insisting on withholding troops from the Warsaw Pact?
But what about Russian objections to NATO membership for Ukraine?  It’s time for Russians to get over it. They pose the biggest – probably the only – threat to Ukrainian independence and their concerns should have the least bearing on Ukraine’s choice of a defensive alliance. Russian foreign policy has always been that of a pragmatic bully. 
 
They will squeeze those who are vulnerable (like Georgia), but seek good relations with those who are of equal or greater strength.  Ukraine can only gain their respect as an equal within a defensive alliance such as NATO. A decision against NATO membership will only exacerbate relations with Russia, not improve them.
Europe’s and Ukraine’s answer to Russian brutality and aggression in Central Asia should be expedited and full membership in NATO.
NOTE: George Woloshyn, a native of Kupnovychi, Ukraine, is an American citizen living in Linden, Virginia.
 
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17.  DIVIDED MEANS CONQUERED
Ukraine must overcome a history of in-fighting and debilitating disunity if it is to resist Russia

 
Peter Dickinson, Business Ukraine magazine, Kyiv, Ukraine, Monday, August 25, 2008

Throughout its troubled history Ukraine has repeatedly been undone by the splintering of its national forces into competing interests, leaving the country wide open to foreign domination via the tried and tested methods of divide and rule.

 
This lack of unity shattered the power of the once-thriving Kyiv Rus civilisation long before the Mongols arrived to deliver the coup de grace, and in later centuries put paid to numerous Cossack attempts at nation-building as Tsars and Polish noblemen bribed and cajoled regional chieftains with wealth and honours into turning against their fellow-countrymen.
 
In more recent years this debilitating national characteristic has come to be seen exclusively through the prism of the Russia vs Europe divide, but in reality this tradition of in-fighting and betrayal far outdates modern political considerations and is as Ukrainian as embroidered shirts and salo.

A divided land ripe for the taking

It therefore comes as no surprise to find that as Ukraine prepares to face the threat of renewed Russian encroachment, the country is once more divided and apparently ripe for the taking.
 
The President and Prime Minister are engaged in a Cold War which threatens to break out into open hostilities at any moment, while the pro-Russian opposition Party of Regions sits back and enjoys the show, entering the fray from time to time to stir up ethnic tensions or attempt to break up the already dysfunctional governing coalition.
Rarely has a country appeared so ill-prepared to face an external threat. The divisions within the country cannot all be explained by mere reference to language, religion or even a preference for alliance with Russia or the West.
 
While these factors all play a role in shaping the battles taking place for the soul of modern Ukraine, they have been magnified and exploited by the country’s traditional clannish political interests and the subterranean power struggles which continue to shape the national debate.
Little effort has been made to focus on positives like the way in which independent Ukraine has managed to avoid the ethnic bloodshed which has plagued much of the former USSR, or the huge strides that have been made to protect freedom of speech and freedom of conscience in the country.
 
These successes, coupled with the growth of a grass roots democratic culture, could serve as imposing foundation stones in a modern nation-building process, providing Ukrainians with a strong sense of identity imbued with a respect for the highest values of European civilisation that stands in stark contrast to the authoritarian instincts of their Eurasian neighbours.
 
Instead, we have a President who appears focused on a polarising interpretation of ethnic Ukrainian identity and a political class more interested in pillaging the country than building a nation. That, in short, is a recipe for impending disaster.

The folly of 1994: disarmed and betrayed

With the Russian bear looming ever larger on the horizon, it is particularly timely to remember that, back in the dark days of 1994, Ukraine was the first and only nation in world history to opt for unilateral nuclear disarmament. This decision was accompanied by guarantees from the West and the Kremlin to safeguard Ukraine’s territorial integrity.
 
These promises have clearly been forgotten, both by the Russian demagogues who call for the annexation of Crimea and south east Ukraine, and by the European powers who refuse to offer the country the security of roadmaps towards EU and NATO membership.
 
In an age when we are often told that the proliferation of weapons of mass destruction has become one of the great threats to global security, it is almost incredible that Ukraine’s noble gesture should be disregarded in such a callous and deceitful manner.
 
One wonders how the situation would alter if the Ukrainian government were to announce that it had, in fact, kept a few warheads in reserve, but unfortunately it seems that the country’s nuclear disarmament programme was the sole military undertaking carried out in 1990s Ukraine which did not involve massive corruption and duplicity.
The sad truth is that Ukraine cannot rely on international support in its struggle to resist Russia. Events in Georgia emphatically demonstrated that the West is also suffering from its own prolonged bout of disunity. Ukraine’s only remaining hope is that the threat of resurgent Russian imperialism will galvanize the country’s leadership before it is too late.
NOTE: Letters to the editor are welcomed at peter.dickinson@nfmg.co.uk.
 
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18.  THE PUTIN DOCTRINE, COMING TO TERMS WITH
UKRAINE’S NEW GEOPOLITICAL REALITIES 

ANALYSIS & COMMENTARY: By Taras Kuzio
BusinessUkraine magazine, Kyiv, Ukraine, Monday, August 25, 2008

This month is the fortieth anniversary of the Soviet invasion of Czechoslovakia, with Moscow’s justification later defined in the West as the Brezhnev Doctrine. A new version of this imperial posturing is now beginning to gain international notoriety in the wake of the Russian invasion of Georgia.

This “Putin Doctrine” consists of four inter-locking policies: provoking ethnic clashes, introducing its own troops as so-called “peacekeepers”,
distributing Russian passports and arming separatists. The Crimean peninsula has an ethnic Russian majority, 10,000 Russian Black Sea Fleet personnel and a regional parliament dominated by the pro-Russian Party of Regions.

Posing a threat to all post-Soviet societies

The Putin Doctrine’s assertion of the right to intervene in defence of Russian minorities is a direct threat to Ukraine, Latvia and Estonia where Russian speakers (in Russian parlance “compatriots”) number around a third of the population.

Ukraine’s Crimea or Estonia’s Narva could be the next flashpoints. Russia has said that it plans to hold a referendum in Georgia’s separatist enclaves, no doubt modelled on that it held in Chechnya three years ago to international disdain, that would support their independence, or annexation by Russia.

This element of the Putin Doctrine could in turn be applied to other frozen conflicts in the former Soviet Union or to the Crimea. As a result, the Georgian-Russian crisis has important strategic ramifications for Ukraine.

Although Ukraine and Georgia are separated by geography both leaders, Georgia’s Mikheil Saakashvili and Ukraine’s Viktor Yushchenko, came to power
within the space of one year in near-identical popular uprisings against electoral fraud that came to be known as the Rose and Orange revolutions.

Many Russians, exposed to state-controlled television, believed the neo-Soviet line that these revolutions were part of a US-conspiracy to surround Russia and move into its ‘rightful’ sphere of influence. NATO enlargement was in Russia’s eyes the second stage in this US-backed conspiracy to undermine Russia.
A colour revolution double act

Mr. Saakashvili and Mr. Yushchenko are also close personal friends and allies who have given each other sustenance and moral support in the face of
Russian antagonism and adversity. Mr. Saakashvili stood on the Maidan during the Orange Revolution and spoke to the protestors in Ukrainian. Earlier that
year during Ukraine’s most violent electoral campaign to date, Mr. Yushchenko and Mrs. Tymoshenko visited Mr. Saakashvili in Georgia.

With Russian tanks poised perilously close to the Georgian capital Tbilisi, Mr. Yushchenko, together with the leaders of Poland, Lithuania, Latvia and
Estonia, told a mass rally of Georgians that they stood united in the face of Russia’s new imperialism.

All six countries had their own individual centuries of despotic rule by Tsars and Commissars. Mr. Yushchenko was the most courageous of the five:
after all, the other four countries were members of NATO and could, if Russia attacked their countries, count on NATO’s article five to defend
them.

Ukraine and Georgia: A post-Soviet partnership

If Georgia is forced into losing sovereignty over South Ossetia, the Saakashvili regime could be overthrown and replaced by a regime more pliant to Moscow. Pro-Russian Georgian leaders (implicated in assassination attempts on former President Eduard Shevardnadze) are waiting in Moscow for
such an opportunity to return. The removal of Mr. Saakashvili would be a personal blow to President Yushchenko.

However, it is important to remember that Ukraine and Georgia’s close relationship predates the rise of Saakashvili and Yushchenko, who are portrayed by Russia’s leaders and state-controlled media as mere American stooges. Their predecessors, Eduard Shevardnadze and Leonid Kuchma, may have
sought to be more accommodating to Russia but nevertheless relations between the Tbilisi-Kyiv axis and Moscow remained continually strained.

Russia’s accusations that Ukraine had armed Georgian forces attempts to pin the blame on Saakashvili-Yushchenko but ignores the fact that military
cooperation between both countries has existed for over a decade. Communist Party leader Piotr Symonenko said during the height of the Georgian-Russian conflict that he thought there was a need to institute criminal charges over the illegal transfer of weapons to Georgia.

What these accusations ignore is that, “military-technical cooperation between Ukraine and Georgia, which has taken place over the last 15 years, took place within the parameters of international law.” (Zerkalo Nedeli, August 9).

Arms supplies to Georgia began under President Leonid Kuchma and President Shevardnadze and over a decade before Mr. Yushchenko and Mikheil Saakashvili came to power. Ukraine trained Georgian officers including officers trained to use anti-aircraft systems. Cooperation increased during the Anatoliy Kinakh and Viktor Yanukovych governments of 2001-2004.

Both of them were in power when Ukraine exported anti-aircraft defense systems to Georgia in 2002.  Georgia allocated USD 12 million for their
purchase from Ukraine and they were stationed on the Georgian-Russian border. Mr. Kinakh publicly admitted to the existence of the arms deal with
Georgia.

The Kremlin and GUAM: Fear and loathing

The GUAM grouping (named after its members Georgia, Ukraine, Azerbaijan, Moldova) regional alliance that so infuriated Russia was set up by Mr.
Shevardnadze and Mr. Kuchma and inaugurated with great fanfare at NATO’s fiftieth anniversary summit in Washington DC. GUAM received strong
encouragement from the US. High levels of US military cooperation with Georgia and Ukraine long predate the two countries’ colour revolutions.

During the recent conflict Ukraine was the only CIS country to openly come out in support of embattled Georgia. This is not surprising for common
wisdom in Kyiv is that Ukraine could be the next target for the Putin Doctrine.

One of the strategic imperatives behind the creation of GUAM was the presence of frozen conflicts in three of its members, Georgia, Azerbaijan
and Moldova, and Russian territorial claims against Ukraine’s Crimea and Sevastopol. If South Ossetia and Abkhazia are to be recognised as
independent by Russia, as seems likely, then what of the Trans-Dniestr and Crimea?

The fall, or severe weakening of the Saakashvili regime through a post-conflict economic crisis, would destroy the already fragile GUAM regional group. Uzbekistan left it in 2005 and Moldova, led by a Communist president willing to negotiate deals with Russia over its separatist Trans-Dniestr enclave, has become a neutral and passive member of GUAM.

A pro-Russian Georgian regime would not remain in GUAM and the organisation would therefore collapse, demolishing plans unveiled at a June Kyiv summit for an energy corridor from Azerbaijan to Ukraine and central Europe.

An end to alternative energy options?

The Georgian-Ukrainian alliance has focused on alternative sources of energy to reduce dependency on Russian oil and gas. A GUAM summit in Kyiv two
months ago produced detailed plans to make operational the Odesa to Brody pipeline with Azeri oil supplied through Georgia to Ukraine and Poland.
Russia’s illegal occupation of Georgia close to the pipeline threatens the energy independence of these countries and indirectly, therefore, energy security for Europe.

The Putin Doctrine’s next target could be the Crimea. The State Duma made territorial claims against Sevastopol as recently as two months ago. During
NATO’s Bucharest summit then-President Vladimir Putin warned that Ukraine’s alleged “fragility” would lead it to disintegrate if it joined NATO,
implying that Russia would use the Crimean card to try and halt Ukraine’s NATO membership.

Communists raise the spectre of separatism

Crimean KPU leader Leonid Grach has threatened to support the peninsula’s secession from Ukraine if it joined NATO. This view was criticised by the
head of parliament’s committee on European Integration and deputy leader of the Our Ukraine faction Borys Tarasiuk. Crimea’s Communists, which are a
regional branch of the KPU, played a positive role in the 1990s in supporting Ukraine’s territorial integrity and adopting the 1998 pro-autonomy constitution.

The Simferopol city council voted on July 24 to declare itself a ‘territory free from NATO’. The vote was supported by the ‘For Yanukovych’ faction and
national Bolshevik-oriented Natalia Vitrenko bloc. The Party of Regions has to tread carefully in playing with Ukraine’s territorial integrity for it
would lose votes in eastern Ukraine if it began to play, like the KPU and Vitrenko bloc,  with separatism.

Russian Communist leader Gennadiy Zyuganov arrived in the Crimea during the Ossetian crisis to hold negotiations with Crimean Communists on a “joint
anti-NATO struggle.” Mr. Zyuganov said the Saakashvili regime is undertaking “state terrorism” with the support of the US and NATO. Mr. Zyuganov
supported the independence of South Ossetia and Abkhazia, as well as long-standing support for Sevastopol’s transfer to Russia.

Sevastopol and the Black Sea Fleet

Black Sea Fleet vessels were involved in naval action in the Georgian crisis, including landing troops in Georgian territory outside the
separatist enclaves in Poti where they sank Georgian naval vessels.

President George Bush said that, “We’re concerned about reports that Russian forces have entered and taken positions in the port city of Poti, that
Russian armoured vehicles are blocking access to that port, and that Russia is blowing up Georgian vessels.” Black Sea Fleet personnel have illegally taken part in anti-NATO and  anti-American rallies in the Crimea.

Two years ago these violent rallies forced the cancellation of annual US-Ukrainian military exercises which was humiliating for Ukraine and damaged its chances of entering NATO. US-Ukraine military exercises held under In the Spirit of Partnership for Peace and NATO Partnership for Peace (PfP) exercises had been held annually since the mid 1990s.

Ukraine was the first CIS country to join NATO’s newly launched PfP in January 1994. Without doubt it is Georgia and Ukraine’s long-standing support for NATO membership that has most infuriated Russia. Following their democratic revolutions, both countries speedily entered NATO’s Intensified Dialogue in Membership Issues and sought to enter Membership Action Plans (MAP) first at the 2006 Riga summit and, failing that, at this year’s Bucharest NATO summit.

NATO doubters may find their hand forced

Bitterly divided in Bucharest, NATO opted to compromise by not extending invitations while stating, “NATO Allies welcomed Ukraine’s and Georgia’s
Euro-Atlantic aspirations for membership and agreed that these countries will become members of NATO.”

NATO’s unwillingness to offer Georgia and Ukraine MAPs may have sent the wrong signal to Moscow that the organisation was divided over extending its
security umbrella into what Berlin and Paris still seem to recognise as Russia’s sphere of influence.

Russia’s provocation of Georgia into a conflict through its illegally armed South Ossetian proxies, coupled with Moscow’s blatant disregard for Georgian
sovereignty, has probably swung the balance in favour of those NATO members who support extending MAPs to Georgia and Ukraine.

Russia’s refusal to withdraw completely to pre-conflict lines, its demands for a security zone inside Georgia proper while permitting ethnic cleansing
and war crimes by Ossetian paramilitaries has turned many Russophile and fence sitting NATO members towards the pro-NATO membership camp.

Kremlin in danger of over-extending its reach

In other words, the Putin Doctrine, like its Brezhnev predecessor, may have over-extended itself. Russia’s brazen imperialism in Georgia may have
changed the minds of enough NATO fence sitters in support of the US and the eastern Europeans who support NATO membership for Georgia and Ukraine.

British Conservative Party and opposition leader David Cameron, who is riding high in the polls and set to head Britain’s next government, wrote in
The Daily Telegraph, “we should accelerate the path to NATO membership for countries like Georgia, and other democracies like Ukraine, if that is what
they wish.

The lack of clarity about Georgia’s prospects of joining NATO contributed to the present crisis. It encouraged Russia to believe it could intimidate and
bully because the West was divided and uncertain.”

Ukraine’s elites  also have to adjust to the reality of the Putin Doctrine. While Mr. Yushchenko’s actions in the crisis have proven to be patriotic and
statesmanlike, his secretariat have continued to act in a manner inconsistent with Ukraine’s national interests.

The secretariat accused Prime Minister Tymoshenko of treason for allegedly negotiating secretly with Russia, a ridiculous and unsubstantiated charge
reminiscent of the worst of Soviet propaganda. Ukraine has no right to demand that NATO support MAP’s for itself and Georgia in December if the
presidential secretariat, at the same time, continues to fan the flames of political instability.

Will the West opt for a bold response?

In four months NATO has the opportunity to rectify its mistake in Bucharest by supporting two young democracies and inviting  Georgia and Ukraine into
MAPs. By inviting Georgia and Ukraine into NATO the organisation accomplishes two important steps.

It would ensure that their democracies can continue to flourish in a secure environment. It would also avert a more serious threat to international order and European security if the Putin Doctrine were applied to Ukraine.

In December, in addition to the NATO meeting, the 1997 Russian-Ukrainian treaty comes up for renewal and many Russian leaders are arguing against
renewing it. Russia’s failure to renew the treaty would constitute a re-opening of its territorial claims against Ukraine. This would be a serious violation of Russia’s signature to the 1994 agreement providing security assurances to Ukraine in exchange for its nuclear disarmament.

NOTE: Taras Kuzio is editor of Ukraine Analyst and adjunct professor in the Institute of European, Russian and  Eurasian Studies, Carleton University,
Ottawa, where he teaches on Post-Communist Transitions and Democratic Revolution

 
LINK: http://www.businessukraine.com.ua/the-putin-doctrine
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19. UKRAINE FEARS BEING NEXT ON RUSSIA’S HIT LIST

By Askold Krushelnycky, Sebastopol, Ukraine
The Sunday Times, London, UK, Sunday, August 24, 2008

Rival groups of Russian and Ukrainian demonstrators hurled insults at each other to a background of cannon fire as the Russian navy’s Mirage sailed
into Sebastopol on Ukraine’s Crimean peninsula last week.

The celebratory gunfire could become all too real if fears are realised that Russia may repeat its incursion into Georgia and turn Ukraine into the next
Caucasian flashpoint.

Crimea has a Russian majority population and, because of its strategic importance, Moscow deeply resented its loss at the time of the break-up of the Soviet Union.

Mirage, a guided missile corvette, returned on Friday morning to the home port of the Russian Black Sea fleet after seeing action against Georgia’s port of Poti, where it shelled Georgian defences and landed troops who occupied the city.

Enemies suffer as Russia trumpets victory

Many of the Russians waiting to greet Mirage belonged to a political party called the Russian Bloc, whose leader in Crimea, Vladimir Tyunin, said: “We
say categorically that Crimea should and certainly will become part of Russia.”

He claimed that the Ukrainian government was trying to force native Russian-speakers to speak Ukrainian, showing only films and television programmes dubbed in Ukrainian and forcing Russians to assimilate their culture.

While Tyunin maintained that Russian annexation of Crimea would be peaceful, some of his supporters were more outspoken. One young woman said: This is Russia. We want nothing to do with Ukraine. The Ukrainians oppress our people. They are totalitarians and fascists who take orders from America.”

Her remarks were greeted with approval by others, who aired a ferocious litany of charges and threats against Ukraine. With a million Russians in Crimea, outnumbering native Ukrainians and Crimean Tatars, local loyalties are often to Moscow rather than Kiev and the presence of the base serves only to reinforce the Russian claim.

Many “Crimean flags”, that differ only slightly from the Russian one, fly on the streets, not only in Sebastopol but also in most other Crimean towns. Taking part in a rival pro-Ukrainian demonstration, opposing the return of the Mirage, was Oleh Fomushkin, a former colonel in the Soviet army and now a community activist.

“Moscow and its intelligence services have been active here for 17 years while the Ukrainian authorities slept or were too timid to act,” he said. “They’ve demonstrated their aggression in Georgia and they won’t hesitate to use violence to get hold of Crimea.”

Tension in Crimea has risen because of the public support for Georgia of Viktor Yushchenko, the Ukrainian president. Russia accused Ukraine of supplying weapons to Georgia and Yushchenko enraged the Kremlin by ordering restrictions on the future movements of the Russian fleet in Ukrainian waters.

The Black Sea fleet facilities are leased from Ukraine until 2017 but Ukraine, which wants to join Nato and the European Union, says it will not renew the lease. Moscow has made clear it is determined to stay.

Reports that thousands of Russian passports have already been distributed on the peninsula have sparked fears that a takeover may be in the offing. Moscow issued passports in South Ossetia to foster its breakaway from Georgia.

A western military source advised caution, saying Crimea was effectively already occupied by Russia.

Mykola Vladzimirsky, a Ukrainian journalist, said Tatars, who were deported by Stalin in 1944 but have slowly returned, might take up arms. “If they
carried out an attack against ethnic Russians, Moscow would have its excuse to annex Crimea by contending that Ukraine is unable to defend Russian citizens,” he said.

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20.  UKRAINE: THE POLITICS OF NATIONAL RUIN

 
ANALYSIS & COMMENTARY: By James SHERR
Head of the Russia & Eurasia Programme of the Royal Institute of International Affairs
Zerkalo Nedeli (Mirror-Weekly, Kyiv, Ukraine, # 28 (707) 2 – 8 August 2008
 
Since the collapse of the USSR and the Orange Revolution, Ukraine has passed through three defining moments of statehood.   The most significant of these moments was, of course, the establishment of Ukraine as an independent state in 1991. 
 
Yet the defining question of those initial years was whether Ukraine actually would be able to preserve its independence, not to say the integrity of its borders which, despite the 1994 Tripartite Agreement between the United States, Ukraine and Russia, Ukraine’s elder brother never quite managed to regard as settled.
The second but least memorable of these defining moments occurred during the spring and summer of 1997.  Three closely connected events, the conclusion of the NATO-Ukraine Distinctive Partnership, the conclusion of the Russia-Ukraine State Treaty and the signing of the three intergovernmental Agreements on the Black Sea Fleet, resolved the uncertainties of the post-independence period and established Ukraine as a recognised, independent actor in Europe. 
 
But it opened up a new question:  what type of actor would Ukraine be?   As President Kuchma stated in May 1998:
[T]he fact that Ukraine does exist and that it will remain a sovereign and independent state is not subject to any debate.  The question is to what extent it will be a democratic, socially-oriented and law-governed state and to what extent the integrity of the fundamental constitutional formula will be ensured.
The third and most dramatic of these moments, the Orange Revolution, appeared to answer that question. 
 
During the winter of 2004-5, Ukraine experienced a rite of passage [perelomniy moment] from virtual democracy to immature democracy.  The immaturity was discernable within weeks and, by the time of the Orange coalition’s first collapse in September 2005, visibly destructive.  Yet there was no talk of a reversal of Ukraine’s democratic course then, and there isn’t now.
Nevertheless, Ukraine has arrived at its fourth defining moment.  What defines it is paralysis.  The narrowest, but all too vital, questions are when Ukraine will overcome its political paralysis and what damage will be inflicted by then: to its economy, to its reforms and to its international relationships. 
 
The more ominous question is whether paralysis will become as endemic to Ukraine as it was to Poland during the time of the Liberum Veto or to France during the final decade of the Third Republic. 
 
The yet more ominous question, as these parallels suggest, is whether Ukraine will lose its ability to comprehend and influence the regional and global factors that act upon it—or, more brutally put, remain a subject, rather than just an object in international relations.
These questions arise for internal reasons, and they will not be answered successfully without internal changes.  Are such changes possible?
the mutation of Ukraine’s governing establishment
 
Both the Orange Revolution and the events leading up to it testified to a gap between the mores and priorities of an increasingly civic society and those of the country’s governing elite.  Today, we find that this gap has not diminished but in some respects widened.  Potentially, this divide can prove to be as beneficial now as it was in 2004.  Yet it also underscores the tenacity of the problems that Ukraine inherited and still contends with.
At one level, the Orange Revolution had an astonishingly small impact on the composition and conduct of Ukraine’s governing establishment. 
 
The author’s warning in June 2005 that ‘personal agendas and power struggles seem…to be taking precedence over compelling and urgent national interests’—warnings echoed in a pellucid article by Volodymyr Horbulin and Oleksandr Litvinenko (who speak of the establishment’s ‘artificially created world’, the culture of ‘impunity’, and behaviour ‘outside any moral or ethical rules'[1])—painfully hark back to the circumstances I described in 1998: the dominance of ‘subjective’ private agendas over public responsibilities, the incoherence of the legal order, the incompetence of state institutions… and, in both the private and public spheres, a lack of accountability and transparency….Old power networks have been better at turning change to their advantage than those who demanded change in the first place.
The current authorities are not only trapped by these realities, they are also a part of them—and, like their predecessors, beneficiaries.
But at another level, there have been changes, and whilst some have been for the better, some have not.  During the Kuchma administration’s most innovative period, many of its exemplars had a weak national tradition, but a strong, albeit sovietised, state tradition. They understood organisation, administration, professionalism and the centrality of institutions. 
 
None of this was not enough to arrest the supremacy of ‘understandings’ over rules or the ever more insinuating encroachment and authority of money.  But there was a system of power.  It preserved coherence and, at best, an effective, if undemocratic mode of reform. At worst, and by the end, it proved inconsistent with reform as well as democracy, and it passed into history.
In contrast, the Orange ideologists, particularly those of the presidential wing, have a strong national tradition, and most of them are convinced democrats.  But they lack a state tradition and the managerial and professional instincts that accompany it.
 
Their understanding of government is personalised rather than institutionalised, their inner circles of decision-making are inbred, and their public and personal interests intertwined rather than demarcated. As they have lost their capacity to influence events, their preoccupations have become more ingrown and self-serving.
 
In response to pressure and failure, their response has not been to  improve policy and its implementation, but to make deals—or, block those who are too difficult to deal with, even when the blockage incapacitates government itself. This is not so much a system of power as a way of maintaining it.  But it is not a way of achieving anything.  To the contrary, it ensures that nothing of importance can be achieved. The UEFA fiasco symbolises this weakness and irresponsibility and parades both across Europe.
 
Moreover, two undoubted benefits, political democracy and economic growth, have combined with an unquestioned evil, the corruptibility of the law, to produce yet another mixed blessing:  the emancipation of money from its remaining Soviet and post-Soviet constraints. 
 
Money has brought an influx of new people into the establishment (and most visibly into BYuT):  some of them better than the old, some of them worse, some with the aim of protecting their wealth from political power, some with the aim of converting it into power.
This dubious social ‘advance’ prompts three questions with international as well as internal ramifications. 
 
[1] First, how will the vaunted ‘parliamentary republic’ be able to accomplish anything of national importance so long as the Rada’s ultima ratio is to be the most powerful krysha in the country?  Despite ‘free and fair’ elections, dare Ukraine entertain such a momentous constitutional change before the law has force and the force of the law extends to parliament?
[2] Second, when will Ukrainian business acquire a national ideology like their Russian counterparts?  The difference between Ukraine and Russia in this respect is far less a difference between degrees of state control than degrees of national consciousness and pride.  The author of Russia’s most successful and transparent privatisation, Anatoliy Chubays, is also the author of the phrase ‘liberal empire’. 
 
Russia today is endowed with big businessmen and small entrepreneurs who believe that, when making money for themselves, they are also enhancing the influence of Russia.  Yet until recently, many of Ukraine’s largest businesses also made money in ways that enhanced the influence of Russia.  When will Ukraine have its Chubays—not in the service of ‘liberal empire’, but securing Ukraine’s place in Europe?
[3] Third, how will these new economic and sociological factors interact with another, which we identified as long ago as 2002: whilst ‘the growth of civic instincts is sharpening the divide between state and society, it is also creating points of friction within the state and hence, a dynamic of evolution inside it’?
 
Instead of creating a craving for a Putin-style vertical, chaos [bardak] at the top has stimulated individual, corporate and institutional creativity and self-reliance in the country. Those who are venal, incompetent and dysfunctional remain as they were.  But many of the institutions that once mimicked Euro-Atlantic standards are now adopting them and, despite anxiety and disruption, continue down a reformist path. 
 
In other words, a counter-elite is being formed:  educated, well-rounded, imbued with a sense of responsibility and with their eyes fixed on the future.  But when will this ‘dynamic of evolution’ become visible to those in Europe who today see only bardak? 
 
Will evolution be enough to bring this counter-elite to power, or will Ukraine require another Hobbesian moment of the kind it experienced in 2004?  Will such a moment arrive before the adverse combination of internal and international factors does irreparable harm to the country?
the international factor
By now, the harm should be obvious. NATO’s Bucharest Summit commitment that Ukraine and Georgia ‘will become members of NATO’ was expected to enhance the confidence of Ukraine and Georgia, diminish pressure on NATO, reign in the ambitions as well as the apprehensions of Russia and establish a  measured and consensual approach to the next stage of enlargement.  So far, the effects are proving to be almost diametrically opposite.
It is easy to blame the Russian factor for this, particularly for those in Ukraine who deflect responsibility from everything they do or fail to do.  But that instinct is as misconceived as it is self-serving.  True, Russia’s ominous statements and behaviour after Bucharest have made some NATO Allies even more apprehensive about defying it. 
 
But they have made other Allies doubly apprehensive about the risks of giving in to it.  True, ‘how will further enlargement affect NATO’s relations with Russia?’ is a vital question. 
 
But  the more vital question. is how enlargement—or its curtailment—will affect NATO’s entire scheme of interests in Central and Eastern Europe, the Black Sea Region and places further afield.  The majority of Allies know that this is the key question. 
 
But then comes another key question:  who can take Ukraine seriously?
Those inside NATO who are best qualified to answer the question can only answer it indirectly.  They can point out that, despite cynicism, opportunism and irresponsibility at the top, defence and security sector reform has hardly been damaged at all or, at least, far less than might have been feared.  They can point out that, despite the ‘mess’, Ukraine continues to ‘punch above its weight’ in NATO-led security operations. 
 
They can also point out that ‘Ukraine is not Russia’: that whilst Russia’s new diarchy is an embodiment of rationality and order compared to Ukraine’s, Russia is also a cauldron of problems, gathering steam below the surface; whereas beneath the blighted [pogibshiy] domain of Ukraine’s high politics, positive changes are taking root in the country.  Yet as the blight [golovnya] is prolonged, our ability to make these arguments with credibility and conviction diminishes. 
 
And because we are honest with our decision makers we are obliged to tell them that the blight might continue beyond the next presidential election unless there is a constitutional settlement that has legitimacy in the eyes of the country.  For an Alliance founded not only on shared interests and common values, but collective capacity, these are not good answers.  Even in the UK, only a minority of experts are hopeful that ‘Ukraine will become a member of NATO’.
 
The rest are apprehensive or oppose membership: the minority because of Russia, the majority because of Ukraine.  This is not a good picture for Ukraine.
The failure of Ukraine’s leadership to change this picture is not the problem.  The problem is that they are not thinking about it. Yet who will think in their place? 
 
If MAP is offered neither in December 2008 or April 2009, then the lure of neutrality will become ever more seductive.  Yet who has given thought to what neutrality will mean?  It will not mean non-alignment [neprisoedineniye].  Non-alignment is a political status: the status that Ukraine has maintained de jure from 1991 until the present moment. 
 
Neutrality is a legal status and, in the conception of Russia (whose perceptions will surely count), a status defined between the neutral state and its ‘guarantors’.  What will neutrality mean to them? Anybody can see that it means no membership of NATO. 
 
But what about the in-depth and highly institutionalised degree of  integration that exists between Ukraine and NATO today?  What about participation in NATO led exercises, deployments and peace-keeping, as most non-members (including Russia) do now?
 
What about intelligence cooperation and participation in NATO led programmes of security sector reform? Representatives at NATO HQ? Students at the NATO Defence College? Seminars and roundtables in the Verkhovna Rada  and the National Defence Academy?  How much sovereignty will Ukraine be able to exercise over these decisions be once ‘neutrality’ is established?
Will Ukraine’s neutrality be consistent with its eventual membership of the European Union?  For the overwhelming majority of the country, the natural answer is ‘yes’. 
 
But do they understand that the old, simplistic notion, ‘NATO does security, the EU does economics’, no longer corresponds to reality: a reality that includes EU peace-keeping forces, EU-NATO cooperation in the Balkans and, through the European Security and Defence Policy, a web of connections to NATO’s assets [infrastruktura], institutions and system of guarantees? 
 
For this reason (and quite a few others), the Russian Federation has altered its hitherto benign assessment of the EU, yet who in Ukraine has drawn conclusions?  During the past month, those in a position to know in Pridnestrovie told the author in astonishingly open terms that in their conception of neutrality—and in Russia’s—Moldova’s future membership of the EU is flatly excluded.  Are there not some important conclusions to draw?
[4] Finally, who will defend Ukraine in a region and world where security threats are growing rather than diminishing and becoming ever more complex? 
 
Despite its lbs34 ($68) bn defence budget and $2.8 trillion GDP, the United Kingdom has concluded that without collective defence, there is none.  Was President Kuchma correct when he said that ‘Ukraine is not Switzerland’, or does Ukraine now have reason to come to a different conclusion?
This fourth defining moment of Ukraine’s statehood is a time to restate fundamental questions. 
 
Will Ukraine be (in the words of the British government 13 years ago) a ‘pivot’ in the security architecture of Europe or (in the author’s words 12 years ago), ‘like nineteenth century Turkey…a fault line in the international system and a guarantor of great power mischief, intrigue and discord’?
It is a measure of the seriousness of this moment that these questions are once again pertinent. 
 
[1] Note:  this is my translation from their article, which I read in Russian:  ‘[zhivet v] iskusstvenno sozdannom mire’, ‘beznakazannost”, ‘[deiystvovat’] vne liubiykh moralniykh ili eticheskikh pravil’.
 
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21.  RUSSIA FACES WESTERN PRESSURE OVER GEORGIA
Senior British official flies to Ukraine to build a coalition
 

By Jon Boyle, Reuters, Moscow, Russia, Tuesday, August 26, 2008 
 
MOSCOW – Russia will face increased Western pressure on Wednesday when a senior British official flies to Ukraine to build a coalition to counter Russia’s conflict with ex-Soviet Georgia.

The United States, NATO and European powers condemned as unacceptable Russia’s recognition on Tuesday of two breakaway Georgian regions as independent states, and demanded Moscow recognize Georgia’s territorial integrity.

U.S. President George W. Bush condemned Moscow’s decision to recognize Abkhazia and South Ossetia, saying they must remain part of Georgia.
“Russia’s action only exacerbates tensions and complicates diplomatic negotiations,” Bush said in a statement from his Texas ranch.
Russian President Dmitry Medvedev said Tbilisi’s desire to seize back Abkhazia and South Ossetia by force had killed all hopes for their peaceful co-existence in one state with Georgia.
Russian tanks and troops continue to occupy parts of Georgia after crushing Tbilisi’s bid to retake South Ossetia — the first time Moscow has sent troops into another country since the end of the Soviet Union in 1991.
EU president France earlier this month brokered a ceasefire in the conflict and German Chancellor Angela Merkel said she would talk to Russia’s leadership before Monday’s emergency EU summit on the crisis to get the bloc’s viewpoint across.
“I think each and every member state is very clear … that it is of the utmost importance to find a common position, and I am going to do whatever I can so that we succeed,” she said.
Georgian President Mikheil Saakashvili, whose attempt this month to retake South Ossetia sparked the war with Russia, said the fate of the free world was being played out in his country.
“The Russian Federation’s actions are an attempt to militarily annex a sovereign nation — the nation of Georgia,” he said in a statement. “This a challenge to the entire world. Not just Georgia.”
In an interview later with Reuters, he said: “The point here is the Russians are bluffing and they’re overplaying their hand.” But he added that Europe was in “mortal danger” from its reliance on Russian energy and Georgia could further develop its role as a transit state to help reduce that dependence.
 
BRITISH FOREIGN SECRETARY DUE IN KIEV
British Foreign Secretary David Miliband was due in Kiev to meet the leadership of Ukraine, home to a large Russian-speaking population and a major Russian naval base.
“I am holding talks today with international partners and will be visiting Ukraine … to ensure the widest possible coalition against Russian aggression in Georgia,” Miliband said on Tuesday.
Ukraine, like Georgia, has angered Moscow by actively seeking membership of NATO. But divisions within the pro-Western camp there may complicate Miliband’s mission.
President Viktor Yushchenko believes Ukraine should enter NATO and the European Union but Prime Minister Yulia Tymoshenko has grown cool towards NATO membership, which is unpopular with voters.
The West could exclude Russia from some top world bodies but its ability to punish Moscow is limited given Russia’s veto in the U.N. Security Council. The West also needs Moscow’s support over Iran’s nuclear program and supply routes for NATO forces in Afghanistan.
The United States appeared to pull back from the prospect of an immediate confrontation with Russia, cancelling the delivery of relief supplies by U.S. warships to Poti, a busy Georgia cargo port still patrolled by Russian forces.
Kremlin chief Medvedev said he did not want a new Cold War with the West but was not scared of one. And he told Europe, a major consumer of Russian oil and gas, that it had to decide what sort of ties it wanted with Moscow.
“The ball is in the Europeans’ court. If they want a worsening in relations, they will get it of course,” he told France’s LCI television. “If they want to maintain strategic relations, which is in my opinion totally in the interests of Russia and Europe, everything will go well.”
Europe and Russia are major trading partners and the conflict has rattled financial markets as well as raising concerns over the stability of a key oil and gas transit route from the Caspian Sea.  (Editing by Richard Balmforth)
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22.  PARTY OF REGIONS LEADER YANUKOVYCH CALLS ON UKRAINE TO
RECOGNIZE SOUTH OSSETIA’S & ABKHAZIA’S INDEPENDENCE FROM GEORGIA
 
Ukrainian News -on-line, Kyiv, Ukraine, Tuesday, August 26, 2008 
 
KYIV – Ukraine’s Party of Regions leader Viktor Yanukovych supports the idea of Ukraine’s recognition of South Ossetia’s and Abkhazia’s independence from Georgia, the party’s press release informs. “I think that Ukraine should accept the will of South Ossetian and Abkhazian people, and recognize their independence,” Yanukovych said.
He considers Russia’s recognition of independence of South Ossetia and Abkhazia to be logical, taking into account the recognition of Kosovo. “Russia’s recognition of independence of South Ossetia and Abkhazia is a logical continuation of the process triggered by the Western states that recognized the independence of Kosovo,” the party leader noted.
He considers proclamation of Kosovo’s independence without Serbia’s consent to have actually demolished the order of borders’ inviolability set after the Second World War.
As Ukrainian News reported, Ukraine’s Ministry of Foreign Affairs called on Russia to refuse from recognizing independence of breakaway South Ossetia and Abkhazia (Georgia).
The Council of Federation and the State Duma of the Federal Assembly of Russia approved August 25 the appeal to Russian President Dmitry Medvedev for recognizing independence of breakaway South Ossetia and Abkhazia. Kosovo proclaimed its independence on February 17. Serbian government made the decision to deny legitimacy of Kosovo’s independence. Forty-six of 192 UN states recognized Kosovo as an independent state.
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23.  GEORGIAN ASSOCIATION IN THE UNITED STATES SENDS
LETTER TO U.S. PRESIDENT GEORGE BUSH
 
August 21, 2008
 
President George Walker Bush
The White House
1600 Pennsylvania Avenue NW
Washington, DC 20500
 
Dear Mr. President:
 
We are contacting you on behalf of thousands of Georgian-Americans and friends of Georgia, members of the Georgian Association in the United States of America. The Georgian Association is the oldest Georgian organization in the United States established in 1932 by Georgian patriots who emigrated to this country while escaping a previous Russian military invasion and annexation of Georgia in 1921.  A second wave of emigrants fled following the brutal crushing of a Georgian national revolt against the Communist regime in Georgia in 1924. 
 
The Association greatly appreciates and commends your government’s strong statements supporting Georgia’s national sovereignty and territorial integrity during this crisis. We understand that it was not easy to predict the scale of the military attack on Georgia, and to elaborate an immediate response to such an aggression. We think the time has come for serious action.

Our community has a clear message: the target of Russian aggression is not only Georgian democracy and statehood, but the US and Western interests in this strategically important area of the world as well.  If Russia gets away with these actions in Georgia, it will reestablish its long-term presence in Central Eurasia, thus threatening to end the functioning of the alternative strategic transportation corridor in South Caucasus.
 
We call on your government to ensure a US strategic presence in the region and to guarantee stability through the following foreign policy initiatives:
 
1)  Continue and strengthen support of the territorial integrity of Georgia;

2)  Accelerate NATO MAP procedures for Georgia and Ukraine, and if this becomes impossible due to resistance within the organization, initiate a
      bilateral military treaty with Georgia; Georgia will welcome US military base on its soil;
3)  Increase military assistance to Georgia to develop defense capabilities that would help the Georgian army defend the country from uninvited aggressors.
4)  Provide strong economic, humanitarian, and democracy support to the Georgian state to restore the damaged infrastructure and confidence of investors.
5)  Support the Congressional initiative to revoke the 2014 Olympic games in Russia;
6)  Take the diplomatic steps towards limiting the private travel of Russian citizens closely associated with the Russian government to the US;
7)  Consider freezing the bank accounts of Russian individuals and businesses associated with the Russian government;
8)  Increase funding for the dissemination of objective information in Russia about developments in the world. Reopen the Russian services of Voice of 
     America, and strengthen other services, including the Georgian service. The people of Ukraine, Georgia, Russia and others need a voice from
     Washington.
 
Unless the world, and Russia itself sees that the US is acting decisively, there will always be a grave threat of a similar repeat brutal attack on Georgia, and on other independent states in the Russian neighborhood.
On behalf of the Board of the Georgian Association,
 
Mamuka Tsereteli, President                                                  
Stephen Jones, Secretary
 
LINK: Georgian Association, http://www.georgianassociation.org/
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AUR#900 Aug 25 Georgia and the Stakes for Ukraine; "The Biggest Threat to Ukraine is Us"; FDI Soars

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

Ukrainian History, Culture, Arts, Business, Religion,
Sports, Government, and Politics, in Ukraine and Around the World       
 
“THE BIGGEST THREAT TO UKRAINE IS US”
[Article 18]
                     
ACTION UKRAINE REPORT – AUR – Number 900
Mr. Morgan Williams, Publisher and Editor, SigmaBleyzer
WASHINGTON, D.C., MONDAY, AUGUST 25, 2008
 
INDEX OF ARTICLES  ——
Clicking on the title of any article takes you directly to the article.               
Return to Index by clicking on Return to Index at the end of each article
1.  GEORGIA AND THE STAKES FOR UKRAINE
Victor Yushchenko, President of Ukraine
The Washington Post, Washington, D.C., Mon, Aug 25, 2008; Page A17
 
Agence France Presse (AFP), Kiev, Ukraine, Sunday, August 24, 2008
 
By Sabina Zawadzki, Reuters, Kiev, Ukraine, Sunday, August 24, 2008
 
Roman Olearchyk in Kiev, Financial Times, London, UK, Mon, August 25 2008
A striking contrast to his usual hesitancy
OP-ED: By Jed Sunden, Publisher, Kyiv Post, Kyiv, Ukraine, Thu, Aug 21, 2008
OF GEORGIA MEANS THAT NATO MUST QUICKLY EXPAND EASTWARDS
We will not be the next on Russia’s hitlist, vows defiant Ukraine
Roger Boyes in Kiev, The Times, London, UK, Saturday, August 23, 2008

7GEORGIA MUST BE WHOLE AND FREE 
William Taylor, U.S. Ambassador to Ukraine
Zerkalo Nedeli (Mirror Weekly), # 31 (710), Kyiv, Ukraine, 23-29 Aug 2008

 
8FOREIGN DIRECT INVESTMENT IN UKRAINE SOARS 170% IN H1
Interfax Ukraine, Kyiv, Ukraine, Wed, August 20, 2008
 
Interfax Ukraine, Kyiv, Ukraine, Friday, August 22, 2008
 
Interfax Ukraine, Kyiv, Ukraine, Thursday, August 21, 2008
 
Mark Pollok, Ukrainian News Agency, Kyiv, Ukraine, Sunday, August 17, 2008
 
13RUSSIA SEES GEORGIA OUTCOME AS PROOF OF ITS DOMINANCE, ANALYSTS SAY
The U.S. and other Western nations may not like what Russia is doing, but officials in Moscow
believe those countries lack the leverage, strength or unity to intervene, analysts say.
News Analysis: By Megan K. Stack, Los Angeles Times Staff Writer
Los Angeles Times, Los Angeles, CA, Monday, August 25, 2008

14RUSSIAN ACTIONS REIGNITE TENSIONS OVER STRATEGIC PORT IN UKRAINE

By David L. Stern, The New York Times, New York, NY, Aug 25, 2008, Page A6
 
By Damien McElroy in Sevastopol, Telegraph, London, UK, Sat, 23 Aug 2008
 
The war in Ossetia is all about drawing a line under further NATO expansion
By Owen Matthews, Newsweek, NY, NY, Sat, Aug 23, 2008

17.  THE REAL WORLD ORDER
For the Russians the strategic break point was Ukraine 

On Aug. 8, the Russians invited us all to the Real World Order.
By George Friedman, Founder and CEO
Stratfor geopolitical intelligence, Austin, Texas, Mon, Aug 18, 2008 
Interview: With Anatoliy Gritsenko, Chairman
Verkhovna Rada Standing Committee on National Security and Defense
Author: Tatiana Silina, Zerkalo Nedeli (Mirror Weekly) # 30 (709)
Kyiv, Ukraine, Saturday, 16 – 22 August 2008
 
19RUSSIA COULD HELP UNITE A DRIFTING WEST 
A French academic who pondered the possible demise of the
U.S.-Europe alliance now believes that Russia will give it a raison d’etre.
By Sebastian Rotella, Los Angeles Times Staff Writer
Los Angeles Times, Los Angeles, CA, Monday, August 25, 2008

20 EU MUST COMMIT TO UKRAINE AFTER GEORGIA SAYS THINK TANK
Reuters, Brussels, Belgium, Monday, August 25, 2008

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1
 GEORGIA AND THE STAKES FOR UKRAINE

Victor Yushchenko, President of Ukraine
The Washington Post, Washington, D.C., Mon, Aug 25, 2008; Page A17

KYIV, Ukraine — The conflict in Georgia revealed problems that extend well beyond our region. Recent events have made clear how perilous it is for the
international community to ignore “frozen conflicts.”

The issues of breakaway regions in newly independent states are complex; too often, they have been treated as bargaining chips in geopolitical games. But
such “games” result in the loss of human lives, humanitarian disasters, economic ruin and the collapse of international security guarantees.

Ukraine has become a hostage in the war waged by Russia. This has prompted Ukrainian authorities and all of our country’s people, including those
living in the Crimea, to ponder the dangers emanating from the fact that the Russian Black Sea fleet is based on our territory.

The tragic events in Georgia also exposed the lack of effective preventive mechanisms by the United Nations, the Organization for Security and
Cooperation in Europe, and other international organizations.

We in Ukraine hope that the Russian Federation will heed the opinion of the global community so that the issues at hand can be settled through
negotiations. We want an end to the looting and destruction of Georgian infrastructure. We must do everything possible to prevent provocations and avoid further massacres.

The ongoing conflict between Russia and Georgia affects my country’s interests. Military operations have taken place close to our borders, and the Russian Black Sea fleet was directly involved. The question of Ukraine’s national security was acutely raised. Given the activities of the Russian fleet, I had to issue a decree regulating its functioning on the territory of Ukraine.

Under these circumstances, Ukraine could not stay silent. We, along with other nations, engaged to seek resolution of the conflict. From the first day of hostilities, Ukraine called for an immediate cease-fire by all parties and dispatched humanitarian aid to victims regardless of their ethnicity. Ukraine upheld its firm support for the sovereignty and  territorial integrity of Georgia.

On Aug. 12, I, together with my colleagues from the three Baltic states and Poland, visited Tbilisi. Our proposals seeking a solution to the conflict were in harmony with the European Union settlement plan. We highly praise the efforts of the United States and the E.U. presidency, led by the French, to achieve a cease-fire. Their actions proved efficient in putting a halt to war and bloodshed.

Ukraine favors a wider international representation in the peacekeeping force in the conflict area. A new multilateral format mandated by the United
Nations or the Organization for Security and Cooperation in Europe is the only way to guarantee security in the conflict zone.

I strongly hope that that plan will be strictly implemented by the conflicting parties. We are ready to join international efforts to provide relief and help victims resume their peaceful lives. Ukraine also stands ready to take part in the U.N. or OSCE missions by sending peacekeepers.

It is clear that in addition to the political dimensions of issues involving breakaway regions, we need to cope with the social and economic aspects of
this phenomenon. Many of these provinces are beyond the control of the respective governments or the international community. In many cases, the
absence of monitoring has turned these territories into havens for smuggling as well as illegal trafficking in arms, people and drugs.

Corruption and human-rights abuses are rampant. These areas are marked by their lack of democratic electoral procedures and their unfree or biased
media. The ethnic dimension of the problem is often exaggerated to help conceal the criminal practices.

Moreover, an area home to such activities poses a threat to the prosperity and development of adjacent nations. Official authorities are compelled to
counter attacks from separatist paramilitaries. But they are not always successful. Before large-scale combat erupted in Georgia, Russian peacekeepers failed to prevent the shelling of Georgian territory by South Ossetian separatists. Indeed, that activity intensified in the days before the greater conflict.

This weekend Ukraine celebrated the anniversary of its independence. This conflict has proved once again that the best means of ensuring the national
security of Ukraine and other countries is to participate in the collective security system of free democratic nations, exemplified today by NATO.

In accordance with national legislation and its foreign policy priorities, Ukraine will continue following the path of Euro-Atlantic integration. This
is the path of democracy, freedom and independence.

The writer is president of Ukraine.

LINK: http://www.washingtonpost.com/wp-dyn/content/article/2008/08/24/AR2008082401856.html

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2.  UKRAINE VOWS TO SPEED UP BID TO JOIN NATO

 
Agence France Presse (AFP), Kiev, Ukraine, Sunday, August 24, 2008

KIEV – Ukrainian President Viktor Yushchenko called Sunday for stronger efforts to join NATO, saying Ukraine shares Georgia’s “pain” in its conflict with Russia.

“We must intensify our work to win membership in the European security system and strengthen the defense capabilities of our country,” Yushchenko said in a speech marking the 17th anniversary of Ukraine’s independence from the Soviet Union.
“Anyone who cares about Ukraine must openly declare that entry into the Euro- Atlantic security system is the only way to protect the lives and ensure the well-being of our families, children and grandchildren,” he said.
Yushchenko condemned the “forceful intervention and “aggression” waged against Georgia but vowed his country would not be Russia’s next target. “Ukraine will do everything to prevent any military escalation in our region.”
Ukraine, which has a large ethnic Russian minority, has sided with Georgia in its confrontation with Russia over the breakaway republic of South Ossetia, whose rebel leadership is backed by Moscow.
Ukraine has sided with the West in condemning Russia for sending tanks and troops into Georgian territory in response to a Georgian offensive on August 7 to retake South Ossetia, where residents have been given Russian passports.
Addressing several thousand people gathered on Kiev’s independence square, Yushchenko said “the events in Georgia did not leave Ukraine indifferent.
“I share a deep empathy with all the suffering people of the indivisible Georgian land. Your pain is in our hearts.”
Ukrainians watched a military parade on Kiev’s main Kreshchatyk street, cheering tanks, armored personnel carriers and missiles mounted on vehicles as they rolled by.
There was also a fly-past of some 22 fighter jets and other warplanes in the parade, the first military display since 2001 to mark the anniversary of Ukraine’s secession from Moscow.
At its summit in Bucharest in April, NATO leaders agreed that Georgia and Ukraine should eventually join the organization, but neither nation was given candidate status and no timetable was set.
German Chancellor Angela Merkel has underscored that NATO’s offer to Ukraine and Georgia to eventually join the North Atlantic Treaty Organization remains valid.
The Georgia conflict has heightened tensions over Russia’s Black Sea fleet based in the port of Sevastopol in Ukraine’s Crimea republic. Ukraine has called on Russia to begin preparations for a withdrawal from Sevastopol after Moscow sent ships from the base to Georgia during its military campaign.
Russia retained control of the port after the breakup of the Soviet Union, on a lease that runs out in 2017, a deal which some see as an obstacle for Ukrainian efforts to join NATO.
Russian warships returned to Sevastopol from Georgia last week, greeted by cheering crowds of ethnic Russians, while Ukrainian nationalists have held protests nearby.
Yushchenko has been criticized by the opposition for his strong support of Georgian President Mikheil Saakashvili. He was among five leaders from eastern Europe who staged a public show of support for him in Tbilisi earlier this month.
Opposition leader Viktor Yanukovych said the parade was a “demonstration of nonexistent military power” in a commentary to the weekly Zerkalo Nedeli.
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3.  UKRAINE LEADER MAKES NATO BID ON INDEPENDENCE DAY

By Sabina Zawadzki, Reuters, Kiev, Ukraine, Sunday, August 24, 2008
 
KIEV – Ukraine sees joining the NATO alliance as vital to its security, President Viktor Yushchenko said on Sunday in a speech bound to antagonise Russia.

Ukraine’s President Viktor Yushchenko kisses the national flag during a ceremony on the Day of the State Flag in Kiev August 23, 2008. Ukraine sees joining the NATO alliance as vital to its security, Yushchenko said on Sunday in a speech bound to antagonise Russia. (REUTERS/Konstantin Chernichkin)

Marking 17 years of Ukrainian independence following the collapse of the Soviet Union, Yushchenko said Ukraine must also increase its own defences — a clear swipe at Russia which unnerved former Soviet republics when it sent troops into Georgia over the breakaway region of South Ossetia.
In a congratulatory message to mark the day, Russian President Dmitry Medvedev called on Ukraine not to spoil their historically close ties.
Yushchenko’s speech to a crowd of thousands in Kiev’s Independence Square, site of 2004 street protests that swept him to power, was followed by the first display in years of Ukraine’s military hardware.
Tanks, armoured personnel carriers and missile launchers rolled down the capital’s central streets. Military jets flew in formation overhead and the capital shook to the boom of cannon.
“We must speed up our work to achieve membership of the European system of security and raise the defence capabilities of the country,” Yushchenko said.
“Only these steps will guarantee our security and the integrity of our borders,” he told the crowd, many dressed in traditional Cossack shirts.
Yushchenko, who has stepped up his calls for swift NATO membership since Russian forces entered South Ossetia, warned Russia that Ukraine would not tolerate any attempt to divide it.
“Ukraine condemns any attempts to undermine the current world order and its democratic values. We condemn acts of forceful intervention and aggression,” he said. “We are well aware of the threats that are emerging more and more acutely in our region.”
Moscow is angry over Ukraine’s, as well as Georgia’s, NATO ambitions, seeing the encroachment of the alliance on its borders as a military threat.
“PRECIOUS ASSET”
Medvedev reminded Ukraine of the strong links between the two countries which reach back a thousand years.
“Our countries are linked by years of spiritual, cultural and historical ties. I believe the main task now is not to allow this precious asset, which we inherited from past generations, to be wasted,” he said in a statement. “We need to preserve it and build it up.”
In April NATO states refused to give Ukraine and Georgia a Membership Action Plan — the first step towards membership — but said the two countries would one day join the alliance. NATO countries will revisit the issue in December.
Analysts say that Georgia’s attempt to retake South Ossetia by force, which prompted Russia’s incursion into Georgia, might have harmed Tbilisi’s chances of joining the alliance soon.
Ukraine backed Georgia in the conflict and was angered when Russia used ships moored in Ukraine Black Sea to land troops in Georgia. Kiev leases the port of Sevastopol to Moscow.
Yushchenko tightened the rules of movement for the fleet, stationed in the pro-Russian Crimean region, and for several days there were concerns that there would be a standoff between the two countries as the ships came back.
The first boat returned, without incident and to cheering crowds, on Friday. Thousands of pro-Russian supporters welcomed the Moskva flag ship on Saturday. (Additional reporting by Oleg Shchedrov in Moscow, Pavel Polityuk in Sevastopol and Elizabeth Piper in Kiev)
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4.  UKRAINE FLEXES ITS MUSCLES 

By Roman Olearchyk in Kiev, Financial Times, London, UK, Mon, Aug 25 2008
KIEV – Ukraine held an army parade yesterday to celebrate 17 years of independence from the USSR. The display of military might follows Russia’s invasion of Georgia, a mutual pro-western ally.
Some 3,500 soldiers, tanks, armoured personal carriers and anti-aircraft systems rumbled down Kiev’s main street. A flyby of fighter jets and helicopters followed. It was the first military parade held by Kiev since 2001, planned some months ago.
Addressing an audience, Kiev’s pro-western president, Victor Yushchenko, expressed solidarity with Georgia and said Kiev must also increase its own defences. “We are well aware of the threats that are emerging more and more acutely in our region. We condemn acts of aggression,” he said.
Kiev’s relations with Moscow deteriorated after a pro-democracy revolution propelled to power a pro-western leadership which seeks speedy membership of the European Union and Nato.
Russian President Dmitry Medvedev answered Ukraine by calling for both countries to “preserve” close ties.
 
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U.S.-Ukraine Business Council (USUBC): http://www.usubc.org
Promoting U.S.-Ukraine business relations & investment since 1995.
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5.  STRONG LEADERSHIP BY PRESIDENT YUSHCHENKO

A striking contrast to his usual hesitancy
 
OP-ED: By Jed Sunden, Publisher, Kyiv Post, Kyiv, Ukraine, Thu, Aug 21, 2008
In the years following his accession to the Presidency in the aftermath of the Orange Revolution, President Yushchenko has damned his presidency by hesitation, half-steps and unprincipled compromises.
 
To name a few, his failure to launch substantial political or economic reform in the first year of his administration, tackle corruption followed by his numerous deals to undermine PM Tymoshenko during her first term as well as his back-room dealings with the Party of the Regions have doomed his Presidency to failure on domestic issues.
In striking contrast to his hesitancy in domestic issues, President Yushchenko has exhibited true leadership and force of will in the recent crisis over the Russian attack of Georgia.
President Yushchenko, along with the presidents of the Baltic States and Poland, arrived in Tblisi immediately after the invasion to give support to the Georgian people. (see video clip here: http://www.youtube.com/watch?v=Aj9D_goWE_E)
Additionally, President Yushchenko has challenged Russia’s lease on the base for the Black Sea fleet on the basis of the Russian navy’s illegal actions in Georgia.
It seems Ukraine may finally have the leader it hoped for during the heady days of the Orange Revolution.
Is it really a Cold War?
Russian Prime Minister Vladimir Putin’s regime has gone further than the West in using military options against the West.
Ever since the Russian invasion of democratic Georgia, pundits and politicians have been writing extensively about the “new Cold War” that is emerging between Russia and the West.
Though it is clear that the dynamics of the Russia-West relationship has changed dramatically, it has already moved beyond a Cold War. In fact, by launching a full military invasion of democratic, NATO-allied Georgia, Russia has transformed the “cold war” of words to a full-out assault on Western institutions and freedoms.
In the aftermath of World War II, the Big 3 — the United States, Great Britain and the Soviet Union — divided up Europe and Germany into spheres of influence with tragic consequences for the Eastern half of Europe and Germany. In the late 1940s, the division of Europe hardened with the Soviet government undermining and destroying any independent political movement in the Eastern half of Europe.
Although the Soviets used extensive force to subdue opposition and destroy the remnants of the military units caught behind in its territory, it displayed severe apprehension of using any military power directly against Western European or American territory.
The first flashpoint of the nascent Cold War was in 1948 when the Soviet army blockaded allied entry to Berlin. Though the military was at high alert, no bullets were fired, much less did the Soviet army advance into Western territory.
In 1949, NATO was formed as a military treaty unifying the West against the Russian military threat. Over the course of the remaining four decades of the Cold War, the Soviet leaders rightfully feared launching an open military attack on Western Europe or the United States. In fact, it was the lack of direct military engagement between the West and the Soviet Union that defined the Cold War era.
Looking back over the past few years of Russian actions, it was clear that Putin had already launched a Cold War against Western institutions. Russia’s role in actively undermining a democratic election in Ukraine, launching cyber-warfare against Estonia and launching gas wars against Western countries were clearly the opening salvos of the new Cold War.
Sadly, there was no Churchillian figure who grand eloquently warned the West of an iron curtain descending on Europe, or perhaps, more aptly, an oil-fused one.
 
While NATO was clearly formed to counter the Soviet military threat, at the most recent conference in Bucharest, NATO members bent over backwards showing deference to Russian sensibilities and accepting its right to have a veto over Ukraine and Georgia’s foreign policy.
Perhaps it was the tepid response by the West to Putin’s cold war tactics against his neighbors that emboldened the Russia Prime Minister to accelerate its Cold War tactics to outright military invasion of a European democratic country.
 
Georgia may still be a largely unknown country to many in the West, as are Estonia, Latvia and Ukraine, but the great success since the fall of the Berlin Wall has been the expansion of freedom and democracy to new areas in Europe, just as the post-World War II years did so to countries like Greece, Spain and Portugal.
Russia’s military invasion of Georgia is a direct challenge to this expansion. It also clearly goes beyond any actions against the West undertaken by the Soviet Union during the decades of the Cold War.
 
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6.  UKRAINIAN PRESIDENT YUSHCHENKO TELLS THE TIMES THE INVASION
OF GEORGIA MEANS THAT NATO MUST QUICKLY EXPAND EASTWARDS
We will not be the next on Russia’s hitlist, vows defiant Ukraine

Roger Boyes in Kiev, The Times, London, UK, Saturday, August 23, 2008

Viktor Yushchenko, the Ukrainian President, was in a fierce and defiant mood yesterday as he urged Nato to respond to the Russian invasion of Georgia by
moving quickly to expand the frontiers of the alliance eastwards.

In an exclusive interview with The Times Mr Yushchenko asserted that the fundamentals of international politics had changed. Ukraine had to do everything in its power to ensure it was not going to be next on the Kremlin hitlist.

“It is the first time in Europe since the Cold War that a foreign army has entered the territory of a sovereign state without any internationally accepted legal basis,” he said.  “If we were to be ambivalent about this it would give tacit approval to put our country and our citizens under threat.”

The President – one of the figureheads of the Orange Revolution that toppled Moscow’s favoured candidate for the leadership of Ukraine – was careful not
to criticise Vladimir Putin, the Russian Prime Minister, directly.

Even when the 54-year-old economist flew to Tbilisi shortly after the outbreak of the Russian-Georgian war, his words were more carefully chosen than those of the other East European heads of state.

Russians form a strong minority in Ukraine – about 17 per cent of the population, in the east and to the south in the Crimea – and could become a flashpoint in any future confrontation with Moscow.

Yesterday was the eve of Ukrainian Independence Day and it was time for the President to break cover. Over the roofs of Kiev, a Ukrainian jet fighter
howled through the sky. It was preparing for the celebrations, but its presence still induced a vague sense of menace.

This weekend the Independence Day festivities will have a martial edge. It is a good moment to display strength, although in truth the Ukrainian forces
are a mere shadow of those of Russia, which is using oil money to modernise the army and boost military might. New aircraft carriers are planned, and
new equipment across the board.

“Ukraine has to move towards the Nato alliance,” the President said, drumming up support before the Nato summit in December. “It is the only way for our country to protect our national security and sovereignty. When the borders of Nato expand, so too does the region of peace and stability.”

The defence budget of Ukraine – as in other nervous Central European states – is to be raised immediately. “I want to remind all political forces in our country that shout about the possible neutral status of Ukraine that neutrality can come at a very high price,” he said, casting a nod at pro-Moscow
politicians.

As a young man, the President had direct experience of Russia’s fear of encirclement – after graduation he did national service as a KGB border guard on the Soviet-Turkish border. “We need to increase the military budget so that there is no question about what happens tomorrow,” he added.

Russia argues that the West is posing a direct threat on its borders by expanding Nato, but its invasion on behalf of the South Ossetians has cancelled out its claim to have legitimate anxieties.

“The peace and security of Europe are under threat, thus a united Europe should give a robust and appropriate response,” the President said.

Instead, at the beginning of a new Russian presidency, Moscow is demonstrating its readiness to champion Russian minorities everywhere – disturbing for Estonia with 30 per cent of its population of Russian origin; Latvia with 33 per cent; Moldova with 13 per cent, and the Belarussians with 13 per cent. The Central Asian republics such as Kyrgyzstan (with 21.5 per cent Russians) could also become vulnerable.

No one seriously believes the Russians are set to march into the Baltic states – though Moscow has no problems about exploiting their dependency on
Russian oil and gas – but that is President Yushchenko’s point: as full members of Nato, along with Poland, they are more secure than Ukraine. It was now essential, he said, that Ukraine should be enlisted in the Nato Membership Action Plan.

Still pockmarked from a dioxin poisoning attack before the 2005 presidential election, the President has reason enough to be wary about Russian-inspired
dirty tricks.

His face became bloated and disfigured after eating a meal with security chiefs – medical tests later showed that he had consumed several thousand times the safe dose for dioxin – and though the matter has still to be cleared up by the courts, many observers think that it was a typical KGB operation.

“This is my personal tragedy and that of my family,” he said. “Unfortunately it has become an integral part of the political debate in Ukraine.” Once seen as a revolutionary hero, then as a victim of mysterious poisoners, he is now viewed by many as a somewhat ineffective president, struggling to make a mark. Ahead of next year’s presidential elections, his popularity ratings are at a record low.

Paradoxically, the perceived threat from Russia could boost his position and help him to brand himself as a doughty defender of Ukranian independence.
The same goes for leaders across the region: they are all starting to play the nationalist card, playing on the deep suspicion of Vladimir Putin and the Russian generals.

Interview with President Yushchenko
By Roger Boyes
Q: The Russian intervention in Georgia is making everyone in the region nervous.How are you going to guard Ukraine’s independence?
Yushchenko: Recent events in Georgia show how fragile peace and stability can be not just in one country but in the whole region. It is the first time in Europe since the Cold War that a foreign army has invaded the territory of a sovereign state without any internationally accepted legal basis.
 
If we are ambivalent about this it will give tacit approval to put our country and our citizens under threat. In the first days of the conflict, Ukraine clearly demonstrated her position. The territorial integrity and independence of any country are sacrosanct. We have been and will remain loyal to these principles.
The main lesson from Georgia is that no single model of national security can guarantee the defence of national sovereignty. Only collective security can guarantee peace and stability and restrain aggression. Ukraine has to move towards the NATO alliance. For our country it is the only way to protect our national security and sovereignty. When the borders of NATO expand so too does the region of peace and stability.
 
The Russia-Georgia conflict will have a serious geopolitical impact not only on the continent of Europe but for the whole world. Today the peace and security of Europe are under threat so a united Europe should give a robust and appropriate response to this challenge.
I believe that NATO member countries will now support the aspirations of Ukraine to receive a Membership Action Plan invitation during the December session of the Alliance’s ministers. It is very important both for the alliance and for Ukraine. We share common values and a common responsibility.
Q: Are you going to boost your defence?
Yushchenko: After the recent events it is clear that we need to review our defence priorities. In the August or September sessions of the Ukrainian National Security Council we will review the whole system of how we are financing the armed forces in 2008 and the perspectives for 2009.
 
We need to increase the military budget to ensure that there is no question about what will happen tomorrow. I want to remind all political forces in our country that shout about the possible neutral status of Ukraine, that neutrality can come at a very high price.
Q: Russia claims that you are selling arms to Georgia. Is that true?
Yushchenko: It is very difficult to comment on the unsubstantiated claims of Russian officials particularly as they have supplied no evidence. The partnership between Ukraine and Georgia is based on law and on mutual benefit, as with any two countries.
 
We have an inter-governmental agreement on military cooperation signed in 1995 and 1996. No limits have been set by international organisations on military technical cooperation between Georgia and Ukraine, so any comment on this subject amounts to unhelpful speculation.
Q: Are you going to try to box the Russian fleet into Sevastopol?
Yushchenko: We cannot control a foreign fleet”s operational activities. However we can and must demand that our Russian counterparts strictly abide by Ukrainian legislation regarding the stationing of the Russian navy on our territory.
 
It is set out in international law and there is a modus operandi for situations like this. I have issued two decrees to control the re-location of Russian troops and military equipment outside their bases as well as their crossing of the Ukrainian state border.
This fully complies with the core agreement signed between Ukraine and Russia that regulates the situation as long as the Russian navy is stationed on our territory.
We still face a lot of unresolved issues with respect to the Russian navy”s stationing in the Crimea but I am confident that we will be able to reach a compromise.
Q: So when will you start talks with Russia about removing the fleet when their lease runs out in 2017?
Yushchenko: We have repeatedly urged Russia to consider this issue. However every time we face a lack of understanding and outright reluctance on their part to solve this problem.
The withdrawal of such a complex military contingent cannot be accomplished overnight. It will take much political, economic and logistical preparation. That will include the building and upgrading of military bases in Russia where the fleet will be redeployed.
 
International experience suggests that one needs between seven and nine years. So we cannot help but be worried about Russia when it is unwilling even to commence negotiations. When the treaty expires the Russian troops and vessels have to be pulled out of Ukraine.
Q: How do you feel about the poisoning attempt that scarred your face? Do you know now who was behind it?
Yushchenko: The issue of my poisoning is my personal tragedy and that of my family and unfortunately it has become an integral part of the political debate in Ukraine. There is a great deal of speculation about this. We will have to wait for the legal procedures to take their course and draw a line under this matter.
 
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7.  GEORGIA MUST BE WHOLE AND FREE 

William Taylor, U.S. Ambassador to Ukraine
Zerkalo Nedeli (Mirror Weekly), # 31 (710), Kyiv, Ukraine, 23-29 Aug 2008
 
Every four years, the world traditionally puts aside its disputes to cheer on its athletes during the uplifting quadrennial spectacle of the Olympic Games. During this Olympic year, however, we’ve been treated to a spectacle that has been anything but uplifting, as Russian tanks, troops, and planes have swept across the border of one of its small neighbors.
 
Although the neighbor was Georgia, not Czechoslovakia, and the tanks bore Russian, not Soviet Union markings, the scene was chillingly reminiscent of 1968.  These events directly affect Ukraine’s own national security and underscore the importance of Ukraine speaking out with one voice.
 The aftermath of these events has been equally disturbing. Russian troops have refused so far to leave, and have dug in to positions not only in Georgia’s disputed areas of South Ossetia and Abkhazia, but also in Georgia proper, all in violation of Georgia’s territorial integrity.  As President Bush said, “There is no room for debate on this matter…the international community is clear that South Ossetia and Abkhazia are part of Georgia, and the United States fully recognizes this reality.”
 On Tuesday, NATO foreign ministers issued a strong statement in support of Georgia’s territorial integrity, independence and sovereignty, as well as its democratically elected government. U.S. Secretary of State Condoleezza Rice said the statement also “sent a message to Russia that NATO will not permit a new line to develop in Europe between those states that are a part of the transatlantic structures and those states that still aspire.”
 The world’s attention now is focused on two urgent objectives: Bringing a halt to all hostilities and abuses in the conflict area, including those committed by “irregulars” in Russian-controlled areas, and helping the survivors of the conflict. Both Georgia and Russia have signed a ceasefire agreement, but the world is still waiting for Russia to honor it.
 
Meanwhile, there is an urgent need to allow humanitarian workers in. Ukraine, the United States and other countries have already begun delivering medical care and supplies, food, shelter, and other assistance to the survivors. While the exact number of dead and wounded is still unknown, it is clear that the people of Georgia are facing a humanitarian crisis in the swath of destruction left behind.
 Ukraine has played an important role in the support of Georgia’s territorial integrity.  President Yushchenko, along with other European leaders, travelled to Georgia personally to signal this support and to oversee the provision of significant material humanitarian assistance to the innocent victims of this conflict. 
 
Prime Minister Tymoshenko sent Deputy Prime Minister Nemyria to Tblisi immediately as well.  To date, Ukraine has provided to Georgia 132 tons of humanitarian assistance, including medical supplies,  first aid kits, food and other items.  The total value of this assistance is estimated at 30 million UAH.
 Georgia’s separatist regions of South Ossetia and Abkhazia have had a long history of tension. But anyone who takes a closer look at the events of the past year should not be surprised by the events of the last few weeks.  Moscow has been steadily intensifying pressure on Georgia economically, politically, and militarily, launching trade embargos and suspending air and ground transport links. 
 
In the spring, Russia issued a government order to increase its official ties with the breakaway regions of South Ossetia and Abkhazia, completely bypassing the Georgian authorities.
Russia’s challenges then became more ominous. Last April, a Russian fighter jet shot down a Georgian drone over Georgian airspace, and in that same month, Russian combat troops and artillery began moving into Abkhazia, all on the pretext of augmenting the peacekeeping force – but without any consultation with Georgia. 
 
In May, Russia sent railroad construction troops into Abkhazia – with no apparent legal mandate – to repair the railway leading south from Russia to the conflict zone, ostensibly for “humanitarian reasons.”  By July, incidents of violence were occurring in South Ossetia, including attacks on Georgian police vehicles and an attempted assassination of a pro-Georgian South Ossetian leader.
Throughout this period, U.S. officials urged the Russian and Georgian governments to exercise restraint and find a way to resolve their differences peacefully. On August 7, after Georgia responded to shelling of Georgian villages that came from Russian peacekeeper-controlled territory in South Ossetia and moved to reclaim parts of South Ossetia, an overwhelming Russian force swarmed through South Ossetia and into Abkhazia and Georgia proper. 
 
Russia is now questioning Georgia’s territorial integrity, just as it has done in recent statements about Ukraine and intimating that it may recognize the independence of both disputed areas, despite numerous U.N. Security Council resolutions aimed at resolving their status diplomatically.
The scenes of Russian aggression – and now the threats, both direct and indirect, against other countries such as Poland and Ukraine – have brought back frightening memories to the former captive states which have since chosen a Western model of freedom and democracy. But the world we live in today is different from 1968, when the Soviet Union invaded Czechoslovakia.
 
Since then, Europe, the transatlantic community, and the world have moved forward. Russia has sought to integrate into the diplomatic, political, economic, and security structures of the 21st century, and the United States has strongly supported those efforts.
But through its actions Russia has now put its international reputation and aspirations at risk.  The impact of its actions is already being felt as questions are being raised about Russia’s suitability for admission into the World Trade Organization, and the prestige of an eighth seat at the G-7 economic forum.
 
Some critics are even questioning the appropriateness of Russia hosting the next Olympics in Sochi, which is only a marathon’s race away from the disputed territory of Abkhazia. The Russian people may learn that the cost of last week’s aggression will be measured in ways that their leaders never considered.
 If Russia wants to repair the damage to its reputation – and to its relations with the rest of the world – the first step it must take is to respect the ceasefire its president has signed and stop all hostilities, including those committed by irregulars in the areas it is now occupying.
 
In accordance with the terms of that ceasefire, it must immediately remove from Georgia the troops it introduced after August 6. It must also permit international monitors and a more robust international presence in South Ossetia; allow humanitarian aid to be delivered; and adhere to Russia’s previously professed policy of supporting Georgia’s territorial integrity.
Without those actions, Russia will further isolate itself.  As Sec. Rice said after the NATO meeting: “There can be no business as usual with Russia while this kind of activity is going on.”
 
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8.  FOREIGN DIRECT INVESTMENT IN UKRAINE SOARS 170% IN H1

Interfax Ukraine, Kyiv, Ukraine, Wed, August 20, 2008

KYIV – Foreign direct investment in Ukraine totaled $6.918 billion in the first half of 2008, up almost 170% from the same period of 2007, the State
Statistics Committee said. Accumulated FDI in the Ukrainian economy stood at $36.451 billion on July 1, up 23.4% from the start of 2008. Per capita FDI
totaled $786.8.

Investment from Cyprus rose $2.361 billion in the half, Germany – $838.9 million, Italy – $740.2 million, Russia – $645.3 million, the Netherlands –
$618.3 million, Austria – $343.7 million, the UK – $275 million and Sweden – $260.9 million.

Ukraine had direct investments in other countries of $42.8 million in the first half of 2008, putting total direct investment in other countries at $6.198 billion, including $5.949 billion in EU countries (96% of the total amount) and $196.8 million in CIS countries (3.2%). Ukraine has direct investment in 51 countries, but mainly in Cyprus.

Loans and borrowings by Ukrainian investors to other countries stood at $123.4 million as of July 1. Total direct investment in the economies of other countries, including borrowed capital, totaled $6.322 billion.

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9.  S&P FORECASTS UKRAINE’S ECONOMIC GROWTH
WILL SLOWDOWN TO 2.5% IN 2009
 
Interfax Ukraine, Kyiv, Ukraine, Friday, August 22, 2008
 
KYIV – The growth of Ukraine’s real gross domestic product in 2009 will slow down to 2.5% from this year’s 6.5% growth forecast and last year’s 7.9% registered indicator, says Standard & Poor’s in a report published on Friday.
S&P experts project the average annual inflation for 2009 at 27% from 12.8% last year and predict its slowdown to 21% in 2009 and 11.6% in 2010.
According to the report, the rating agency expects a deficit of Ukraine’s consolidated budget, which was 0.9% of GDP in 2007, at 1.2% of GDP in 2008, 2.9% of GDP in 2009 and 4.5% of GDP in 2010.
The level of Ukraine’s ratings mirrors the fact that the country’s leadership has failed to take appropriate measures to rein in the growing inflation when the economy is overheated, say S&P experts.
An increase in domestic lending where loans extended to households in foreign currency without hedging tools account for a larger part remains excessively high, which pushes up the growth of nominal imports and a rise in the deficit of the current balance of payments, according to the report.
Considerable spending along with monetary stimulation measures were conducive to the fast growth of inflation, thus undermining the real growth of incomes and creating prerequisites for the higher volatility of the economy, the experts stress.
According to their estimates, the considerably high inflation compared to that in Ukraine’s major trading partners will prompt the growth of the deficit of the current balance from 8.4% from receipts on the current account in 2007 to 27% in 2009.
S&P projects that the deficit of the current account of the balance of payments will be financed at the expense of the fast growing banking system of Ukraine and with the involvement of foreign direct investments (FDIs), although the imperfect methods for the assessment of the balance of payments may lead to the overestimation of FDIs.
 
Thus, demand for external financing (in gross) in interest from current account receipts will grow over the period from 117% to 152%, according to the report.
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10.  UKRAINE STILL EIGHTH BIGGEST STEELMAKER IN WORLD
IN JULY, PUTTING OUT 3.68M TONNES OF STEEL
 
Interfax Ukraine, Kyiv, Ukraine, Thursday, August 21, 2008
 
KYIV – Ukraine remained the eighth largest of the world’s 66 main steel producing nations in July 2008, and it increased steel production by 5.8% year-over-year to 3.683 million tonnes. The rating is published by the International Iron and Steel Institute (IISI).
 
Along with Ukraine, the top ten steelmakers in July 2008 were [1] China (44.886 million tonnes, a 7.5% rise), [2] Japan (10.189 million tonnes, a 1.7% rise), the [3] United States (8.5 million tonnes, a 2.7% rise), [4] Russia (6.125 million tonnes, a 0.9% rise), [5] South Korea (4.830 million tonnes, a 13.1% rise), [6] India (4.475 million tonnes, a 6.2% rise), [7] Germany (3.765 million tonnes, a 5.7% decline), [8- Ukraine]; [9] Brazil (3.198 million tonnes, an 11.5% increase) and [10] Italy (2.740 million tonnes, a 4.9% rise).
 
In July 2008, Ukrainian producers increased steel output by 36,000 tonnes compared to June 2008. A rise in steel production compared to the previous month was also registered in the United States, South Korea, India, and Brazil.
Last month the key steel producers, accounting for 98% of world output, smelted 117.229 million tonnes of steel, which was 6.2% up on July 2007.
In the seven months of 2008, all 66 countries on the rating produced 815.119 million tonnes of steel, which was 6.1% up on the same period of 2007.
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U.S.-Ukraine Business Council (USUBC) www.usubc.org.
Promoting Ukraine & U.S.-Ukraine business & investment relations since 1995. 
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11.  SOFTLINE COMPANY PERMITTED TO PURCHASE OVER 50% OF EKOTEKH

 
Mark Pollok, Ukrainian News Agency, Kyiv, Ukraine, Sunday, August 17, 2008
 
KYIV – The Antimonopoly Committee of Ukraine has permitted the Softline company (Kyiv) to purchase over 50% of the shares in the Ekotekh scientific-research institute of automatized computer systems (Kyiv). This reads the statement of the AMCU. Softline is a closed joint-stock company.
Ekotekh, registered as a limited liability company, renders services on software engineering, its implementation and maintenance. 57% of shares in Softline belong to the Cypriot UKRN III NEW WORLD GROWTH CO.LIMITED, 16% — to the SigmaBleyzer Ukraine limited liability company.
As Ukrainian News earlier reported, Softline is the Ukrainian designer and supplier of software, information analysis systems, and works as a project integrator.
Softline ended 2007 with a net profit of UAH 12.601 million, having increased its net revenue by 43.7% or UAH 32.148 million to UAH 105.776 million, compared to 2006.
 
NOTE:  Softline company is a member of the U.S.-Ukraine Business Council (USUBC), Washington, D.C., www.usubc.org.
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12.  DLA PIPER AWARDED INTERNATIONAL LAW FIRM

OF THE YEAR 2008 IN UKRAINE 
 
DLA Piper, Kyiv, Ukraine, June 2008

KYIV – DLA Piper’s Kyiv office was named “International Law Firm of the Year 2008” at the Yuridicheskaya Practika Weekly’s Legal Awards, which took place on 30 May at the Hyatt Hotel in Kyiv.

DLA Piper was selected for the coveted title by an independent panel of legal experts.  The panel of nine judges included representatives from the Ukrainian Ministry of Justice, the Ukrainian Council for National Security and Defence, Ukraine’s Supreme Court, professors of well-known Ukrainian legal departments, as well as practising lawyers both in-house, and in private practice.
Margarita Karpenko, Managing Partner of the Kyiv office, said: “Winning this award is yet another testimony to the effort and commitment of the entire Ukrainian team since its arrival in the market in 2005.  I see this award as a commendation of our progress in the Ukrainian market, the strength of our international presence and the value that we are able to add to the work of our clients.”
Commenting on the win Constantine Lusignan-Rizhinashvili, Regional Managing Partner for the CIS, said: “We have an excellent team in Ukraine and this is a great accolade, which recognises their progress within the market.”
The Yuridicheskaya Practika Weekly Legal Awards are now in their second year.
 
ABOUT DLA PIPER UKRAINE
 
DLA Piper Ukraine LLC is part of DLA Piper, the largest global legal services organisation.  The Kyiv team comprises more than 40 lawyers and is headed by Managing Partner Margarita Karpenko.
 
DLA Piper is the largest global legal services organisation with offices across Europe, Asia, the Middle East and the US.  Over 3,700 lawyers across 64 offices and 25 countries provide a broad range of legal services to businesses that operate on a local, regional and global level.  DLA Piper is relationship driven and committed to meeting the ongoing legal needs of its clients. (www.dlapiper.com)
 
DLA Piper Ukraine is a member of the U.S.-Ukraine Business Council (USUBC), Washington, D.C., www.usubc.org
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13.  RUSSIA SEES GEORGIA OUTCOME AS PROOF
OF ITS DOMINANCE, ANALYSTS SAY
The U.S. and other Western nations may not like what Russia is doing, but officials in Moscow
believe those countries lack the leverage, strength or unity to intervene, analysts say.

NEWS ANALYSIS: By Megan K. Stack, Los Angeles Times Staff Writer
Los Angeles Times, Los Angeles, CA, Monday, August 25, 2008

MOSCOW — In this historic hub of expansion and empire, Russia’s military victory over U.S.-backed Georgia was cheered as evidence that Moscow has
regained its global dominance — and proof that the rest of the world can’t risk standing in its way.

As Russian soldiers poured into neighboring Georgia this month and Russian warplanes bombed fleeing, ill-equipped Georgian troops, U.S. and European
officials condemned Moscow. But the image of Russia that appeared over and over in media here was that of a country rising from its knees.

The United States and the nations of Europe may not like what Russia is doing, but officials in Moscow now believe those countries lack the leverage, strength or unity to intervene, analysts here say. Several of them repeated the same idea: that the West no longer exists as a unified force.

With the U.S. floundering economically and bogged down in two costly wars, Russian officials were confident that it could not and would not come
rushing to Georgia’s defense with a military intervention, analysts here say. Europe, meanwhile, depends upon Russian oil and gas exports, and was
leery of a conflict with Moscow that could further raise fuel prices, they said.

“There is no West anymore. It’s eroding and weakening,” said Sergei Karaganov of the Council on Foreign and Defense Policy, a Moscow think tank.
“We are feeling very strong, and we don’t trust anybody. Especially the United States.”

Three or four years ago, he said, Russia would have been nervous to hear threats of expulsion from the Group of 8 leading industrialized nations, as
Republican presidential candidate John McCain suggested. Now, Karaganov said, many Russians laugh at the notion.

“I mean, who are these nations? Russia is probably stronger than any country in the G-8 except for the United States, and it has more credibility because
it hasn’t killed hundreds of thousands of people recently,” he said. “It has won wars, and the other countries are losing them.”

He paused. “There is arrogance in my statements,” he said, “but that’s the way people see things.”

Many here read the current conflict not as the defeat of a smaller, poorer Georgian army but as a strike against the U.S., which has backed Georgian
President Mikheil Saakashvili and trained his troops. After years of fuming while the U.S. built up ties with former Soviet republics and Eastern
European nations, many Russians view the Georgian conflict as an important turning of the tide.

“As far as the Russian elite is concerned, it’s another very important step in Russia’s restoration of its position in the world,” Andrei Piontkovsky, a
visiting fellow at Washington’s Hudson Institute, said in a telephone interview. “The public and government is so proud not only because they defeated Georgia, but because they humiliated and defeated their great geopolitical rival, the United States of America.”

With war raging between Russia and Georgia, which has hopes of someday joining NATO, the U.S. was limited to sending humanitarian aid and railing
against Moscow. Badly needed aid is still pouring in: The U.S. Navy guided-missile destroyer McFaul arrived at the Georgian port of Batumi on
Sunday with baby food, bottled water and other supplies.

Georgia now finds itself on the front line in a broader, deeper and slower ideological war. Since the Soviet collapse, the last vestiges of the Cold
War have lingered in the form of a struggle between Washington and Moscow for influence in the former U.S.S.R.

“Moscow is very much concerned with the meddling of the United States in the post-Soviet space,” said Sergei Markov, a Russian analyst close to the
Kremlin. “We have been watching for a long time how the United States, under the guise of helping new democracies, has in fact been gaining managerial
control over these countries.”

Nations once firmly under Moscow’s thumb, especially Ukraine, Georgia, Latvia and Estonia, have pulled away from Russia and worked to develop new
alliances in the West.

With regional tensions inflamed over Georgia, other neo-Cold War fights are brewing. Many Russians are keeping a close eye on Ukraine, whose loss
remains an existential challenge to a Russian culture that traces its empire to the banks of the Dnieper River. Moscow has long resisted the notion that
Ukraine is an independent nation.

Some analysts believe that watching Georgia get pummeled by Russia may have given Ukrainians a more visceral sense of vulnerability. That could result
in the opposite reaction sought by Moscow, helping to entice reluctant citizens to support Ukraine’s own bid for NATO membership.

At the same time, there is increasing tension over historic Russian claims to Ukraine’s Crimea peninsula, home to many ethnic Russians as well as
Russia’s Black Sea fleet.

If Ukraine joins the North Atlantic Treaty Organization, Karaganov said, “it will be seen as an act of belligerence.”

 
“Ukraine is the cradle of Russia,” he said. “It’s more Russian than Russia.”

Meanwhile, Poland enraged Moscow last week by agreeing to host a U.S. missile defense base that the Bush administration insists is designed to bring down weapons launched from nations such as Iran. Russian officials, who regard the missile shield as deterrence meant to curb Moscow’s military
might, responded by saying that Russia would be “forced to react, and not through diplomatic channels.”

But for now, the biggest fight remains in the Caucasus. Russian military officials this weekend vowed to beef up their forces in Georgia in direct proportion to American military spending to rebuild the Georgian army.

Russia charges Georgia with starting the current conflict by launching a military operation meant to reassert control over the breakaway republic of South Ossetia.

In the popular Russian narrative, Moscow is the defender and peacemaker, not the aggressor and invader.

U.S. officials argue that Russia wedged itself between Georgia and its breakaway republics of South Ossetia and Abkhazia in a de facto annexation, then labored for months to provoke a conflict in order to formalize the arrangement.

 
Russia then reacted far too forcefully to the Georgian operation in South Ossetia, they say, exaggerating the death toll while dropping cluster bombs on Georgian civilians and occupying swaths of Georgia proper that it has yet to relinquish.

American propaganda, Russians say. Alongside a newfound sense of might, Russians appear firm in their belief that they hold the moral high ground.

“This crazy, trigger-happy monster was killing civilians in South Ossetia,” said Vyacheslav Nikonov, a political analyst and head of the Russian World foundation, which promotes Russia and its language. “What else could [Russian President Dmitry] Medvedev do?”

After watching the West’s reaction to the conflict, Russia’s elite is rethinking its strategic planning along military lines, Nikonov said.

“We took for granted that we had some working relationship with the West, and it looks like that’s not the case,” he said. “There will be a serious strategic debate in this country, rethinking many things: alliances, military spending, the role of the nuclear component in the armed forces.”

But other Russian analysts were more critical of Moscow. By boosting hopes for independence in Abkhazia and South Ossetia, Medvedev and Prime Minister Vladimir Putin have taken the first step toward redrawing post-Soviet borders, Piontkovsky said. There is a strong parallel between today’s resurgent Russia and the rise of Germany in the 1930s from broken country to would-be empire, he argued.

“Under the same slogan of rising from the knees . . . Hitler was getting away with everything, and every demonstration of weakness from the West emboldened him to the next adventure,” Piontkovsky said. “Now we can say that Putin has gotten away with dismembering countries.”

CONTACT: megan.stack@latimes.com. Times staff writer Sergei L. Loiko contributed to this report.

LINK: http://www.latimes.com/news/nationworld/world/la-fg-russia25-2008aug25,0,1310864.story?page=1
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14.  RUSSIAN ACTIONS REIGNITE TENSIONS OVER STRATEGIC PORT IN UKRAINE

By David L. Stern, The New York Times, New York, NY, Aug 25, 2008, Page A6
 
SEVASTOPOL, Ukraine — Russia’s guided missile cruiser Moskva appeared suddenly on the horizon, dark and imposing like a fortress in the twilight, and steamed on Saturday into this Black Sea port, where its sailors were given a hero’s welcome. “Russia! Russia!” chanted hundreds of supporters from the embankment, as fireworks burst.
The ship, more than 600 feet long and bristling with guns and missile launchers, was one of several from the Black Sea Fleet that patrolled the coast of Georgia during the conflict between it and Russia. The fleet — which the Russians say sank a Georgian gunboat that fired on them — is based here in Sevastopol, a city populated mainly by ethnic Russians.
The next day, in the Ukrainian capital, Kiev, President Viktor A. Yushchenko presided over the first military parade in years — with a massive display of tanks, armored personnel carriers and missile launchers — to celebrate his country’s 17th year of independence from the Soviet Union.
 
Russia’s willingness to send troops into Georgia, another former Soviet republic, to settle their territorial dispute this month has made Ukraine jittery, and the pro-Western Mr. Yushchenko used the celebration to again push for inclusion in the North Atlantic Treaty Organization.
“We must speed up our work to achieve membership of the European system of security and raise the defense capabilities of the country,” Mr. Yushchenko said in a televised speech to thousands gathered in the city’s main Independence Square. “Only these steps will guarantee our security and the integrity of our borders.”
The dueling celebrations, one rejoicing in Russia’s military might and the other overshadowed by it, underscore the tensions between Russia and Ukraine, where leaders had hoped the days of Russian dominance were long over. They also highlight Sevastopol’s status as something of a fault line between the two countries.
Though it is in Ukraine’s southern Crimean peninsula, Sevastopol — home to thousands of Russian naval personnel and their families — is ethnically and culturally very much a Russian town.
Crimea, connected to Ukraine by a slender causeway, was in fact considered a part of Russia, until Nikita S. Khrushchev, the Ukrainian-born Soviet leader, bequeathed it to Kiev as an act of good will in 1954.
What was considered a purely symbolic gesture at the time, however, assumed monumental importance with the breakup of the Soviet Union. Crimea — wrested from the Turkic Tatars in the late 18th century under Catherine the Great — was now a part of Ukraine.
And with it went Sevastopol, the strategic base for the Black Sea Fleet for more then 200 years and a city of deep emotional resonance for Russians. Twice it has been besieged — by British-led forces in the 19th-century Crimean War, and then for 250 days before falling to the Germans in World War II.
After the Soviet breakup, Moscow and Kiev wrangled first over the ownership of the fleet — of which the Kremlin finally took the lion’s share. Then they argued over the terms by which Russia could continue to use the base. The two countries agreed on a 20-year renewable lease in 1997.
With the ascension of Mr. Yushchenko’s pro-Western government after the 2004 Orange Revolution, and with Russia’s new assertiveness as petrodollars flow into its coffers, Sevastopol has once again been thrust under the klieg lights.
Crimea was a stronghold of Mr. Yushchenko’s political opponent, the pro-Russian Viktor F. Yanukovich.
Russian nationalists have begun agitating to reclaim Sevastopol and Crimea, although taking such an action is far from a mainstream sentiment. The mayor of Moscow, Yuri M. Luzhkov, raised Ukrainian hackles in May when he called for Russia’s western neighbor to return “what doesn’t belong to it,” The Associated Press reported.
The Ukrainians, for their part, have struck back. Mr. Yushchenko, who traveled to Tbilisi in a display of solidarity with the Georgian president, Mikheil Saakashvili, threatened to ban Russian warships from returning to Sevastopol, saying their movements were subject to Ukrainian approval. Yuriy Yekhanurov, the country’s defense minister, later said that the fleet could move unhindered.
As with his Independence Day remarks, the Ukrainian leader has also amplified his rhetoric for joining NATO, despite Russia’s clear indications that it opposes expanding the alliance to its border. Many analysts say that Europe is not seeking a battle with Russia and that the Georgian conflict has reduced, rather than enhanced, Ukraine’s chances of joining the alliance.
At the same time, the idea of eventually rejoining Russia has strong support among many in Sevastopol, though no one here is yet speaking of pushing the matter politically, let alone militarily.
“Everyone wants for Crimea to become part of Russia,” said Nina Vakula, a local resident, as she watched the Moskva.
Ms. Vakula is living proof of the ties that bind Russia and Ukraine. She is a Ukrainian citizen, but her son-in-law serves in the Black Sea Fleet and both he and her daughter hold Russian passports. The couple’s 2-year-old son, Yura, a Slavic portrait with hair bleached white from the sun, was born in Ukraine.
Ms. Vakula says that Ukrainians and Russians are part of one Slavic family, and that divisions between them are artificial.
Those sentiments are not shared by those who not only fear Russia’s return, but also worry that Sevastopol’s importance could provide a pretext for Moscow to extend its reach here.
“These people are separatists,” said Oleg Yatsenko, a student leader who traveled from Kiev to stage pro-Ukrainian rallies during the warships’ return, referring to the those who had gathered to welcome home the sailors. “They want to do the same thing here that was done in Georgia.”
 
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15.  RUSSIA STOKES PRO-KREMLIN FEELING IN UKRAINE

 
By Damien McElroy in Sevastopol, Telegraph, London, UK, Sat, 23 Aug 2008
 
The Crimean port of Sevastopol is a Ukrainian city, but it is Russian to its core. Moscow’s Black Sea fleet retained its historic base in the port after Ukraine’s emergence as an independent nation in the 1990s.
Moscow’s war in Georgia has frightened the Ukrainian government, however, and President Victor Yushchenko has said he will not renew Russia’s lease of the port when it expires in 2017.
Russia’s Georgian onslaught was deeply unpopular in many parts of Ukraine, but in Sevastopol, the sailors of the Russian fleet walk the streets in uniform and are hailed as heroes. A fervour of Russia patriotism has taken hold. Emboldened locals proclaim contempt for all things Ukrainian, newly confident of Moscow’s future support for their wish to see the Crimean peninsula absorbed back into the Russian motherland.
Pro-Russian organisations are flourishing. “This city is totally Russian,” said Mikhail Brytsyn, leader of the pro-Russian front organisation, the Slavic Party of Sevastopol. “People don’t want anything to do with Ukraine here. Sevastopol is where we can reconstruct the historical truth and rejoin the whole of Russia. If Moscow wants, it will be able to do it, because it has the tools here.”
The Crimea, which is attached to Ukraine by a slender causeway, is fertile ground for such rhetoric. An estimated 100,000 of its 2 million inhabitants hold Russian passports, while a majority of the peninsula’s residents are Russian speakers and would happily return to Moscow’s fold.
A swaggering entrepreneur, Mr Brytsyn recruits young men to his movement from the chain of snooker halls he owns, staging ultra-patriotic rallies. He makes no effort to hide strong Kremlin support, including funding, for his efforts.
“We are a third force,” he boasted, sitting in a quay-side restaurant. “We are the cordon that supports the Russian fleet. We will defend them against the Ukrainian bailiffs who want to end the fleet’s lease in 2017.”
It is not an empty boast. The most powerful institution in town is the Russia navy, followed closely by the pro-Moscow city authorities. As a street level enforcer, Mr Brytsyn ranks next – ahead of any presence Kiev can muster.
The Charge of the Light Brigade catapulted the Crimea into the British imagination. Despite their eventual defeat in 1856, the tsars held on to the outpost but their Soviet successors laid the ground for future problems by annexing to Ukrainian provincial rule in 1954.
After the Soviet Union fell apart, Moscow was forced into the humiliation of seeking a 20-year lease on the home of its fleet, which was signed in 1997.
Its future is now back in play. A Kiev think tank last week accused Russia of deliberately cultivating civil unrest in the Crimea. The Centre for Research on the Army, Conversion and Disarmament reported that Russia had created “all the pre-conditions” for war in the Crimea.
Sevastopol’s streets are already in ferment. Its inhabitants vow to defend their interests from any possible Ukrainian threat. A permanent picket surrounds a statue of Catherine the Great, the 18th century empress who founded the port, supposedly because Kiev wants to tear it down.
Last month tensions erupted into a violent showdown between the Ukrainian and Russian sides when a mob seized a bronze Ukrainian plaque and dumped it in the harbour.
Mrs Makarova proudly clutched pictures of the incident, in which Russians broke through a line of Ukrainian marines. “This showed we are strong,” the matronly politician said. “Ukraine does not respect us and our rights. We might have another Kosovo. We want Russia intervention to defend us and after Georgia we believe they will defend us.”
Ukraine’s recent declaration that it will not renew the Russian lease on Sevastopol has inflamed anti-Kiev sentiment, as has its ongoing application to join Nato. “As long as the fleet is here, there will be no problems,” said Anatoly LItvinov, 59, who works in the base. “I suspect people in the Ukrainian government do not understand the meaning of the fleet for Sevastopol. The fleet is a protection against everything, including Nato.”
Paranoia over Ukraine’s pro-Western president, Mr Yushchenko, abounds. There are unmistakable parallels with South Ossetia and Abzhakia in Georgia, where Russia nurtured local grievances against a democratic leader.
“The Ukrainian politicians do not look after the people,” said a tour guide. “They have destroyed friendly relations with Russia. They are losers. Yushchenko is worse than hell.”
Russia has spared no expense to lavish its largesse on Sevastopol. On a ridge above the city, a huge campus of white tower blocks has been built as an outpost of the Moscow State University, despite Kiev’s protests.
Perhaps too late, pro-Ukranian forces have emerged to challenge the Crimea’s slide towards Russia. Oleg Yatshenko, one of the pioneers of Ukraine’s 2004 democratic Orange Revolution, has brought Ukrainian students to Sevastopol.
He laments the absence of foreign backing, however. “The Russians support separatists here,” he said. “We want to take them on. We want to protest against the break-up of our country but everybody, including the local administration, is against us.”
 
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16.  A RESPECTABLE RUSSIA, VLADIMIR PUTIN’S WAR HAS
INTENSIFIED THE DEBATE OVER HIS NATION’S FUTURE
The war in Ossetia is all about drawing a line under further NATO expansion
 
By Owen Matthews, Newsweek magazine, New York, NY, Sat, Aug 23, 2008

On a concert podium set up last week in the ruins of the South Ossetian capital of Tskhinvali, Russia’s greatest conductor took a deep breath of smoke-scented air and raised his baton.

 
Valery Gergiev, a native Ossetian and godfather to Vladimir Putin’s younger daughter, launched into a passionate rendition of Shostakovich’s Leningrad Symphony as Russian troops looked on from their armored personnel carriers.

Millions more Russians watched via satellite link. Officially, the concert was a tribute to the victims of this month’s fighting in the breakaway republic. But to many Russians, the concert was freighted with political symbolism. For viewers with an eye for such things, it was a mirror image of Leonard Bernstein’s rendition of Beethoven’s Ninth Symphony at the fallen Berlin wall in December 1989.

Gergiev was playing for dead Ossetians, no doubt—but for many, he was also marking the symbolic end to Russia’s post-cold-war retreat. And, indeed, this triumphalist turn in the aftermath of its lightning invasion of Georgia earlier this month suggests that after almost 20 years of humiliation, Russia has finally recovered what it has been so longing for: respect.

“We do not wish to aggravate the international situation,” Russian President Dmitry Medvedev told a group of Red Army veterans in Kursk recently. “We simply want respect for our state, for our people, for our values.”

Such a goal was the hallmark of Vladimir Putin’s two terms as president. Ever since he came to power in 2000, Putin, now prime minister, has dreamed of reversing the decline in Russia’s power over its own backyard. But while he talked a big game, harking back to the rhetoric of Soviet and tsarist Russian imperialism, Russia’s actual power shrank dramatically.

Between 2000 and 2004, pro-Moscow regimes in Ukraine and Georgia were replaced by pro-Western ones. NATO expanded to include the Baltics, in clear violation of security guarantees that Putin’s predecessor, Boris Yeltsin, claimed were given to him in the 1990s. And Russia has proved to be powerless in stopping the United States from stationing missile defense radars and missile batteries in Poland and the Czech Republic.

The war in Ossetia is all about drawing a line under further NATO expansion—and sending a strong signal to Georgia, Ukraine and Europe that Russia won’t be pushed around. And from the moment Russian tanks rolled into Georgia, Russia’s neighbors started to take its threats more seriously.

 
The invasion marked the end of Russia’s browbeaten, humiliated post-cold-war era and the beginning of a new, more assertive, more imperial Russia. What will Russia’s next move be?

In Georgia, according to Col. Gen. Anatoly Nogovitsyn, the deputy chief of Russia’s General Staff, Russia will establish a “security zone along the administrative border of South Ossetia” that will include 18 strongpoints manned by Russian peacekeepers. Just where that border runs will be defined by Russia.

On the ground last week, Russian backhoes were seen digging in just north of the Georgian city of Gori—well beyond the old front line, and close enough to Georgia’s main east-west road to cut Georgia in half within minutes.

What worries Russia’s neighbors now is that the messy breakup of the Soviet Union left millions of ethnic Russians stranded in other post-Soviet states. Ukraine is 17 percent ethnic Russian; Estonia and Latvia nearly 40 percent; Kazakhstan 26.1 percent. And there are signs the Kremlin is systematically reaching out to these Russian-speaking communities through a range of lavishly funded cultural programs designed to boost Russia’s soft power in the region.

Other programs are more overtly political: the Kremlin-backed annual Foros Forum convenes in Crimea, a majority ethnic Russian region in Ukraine, and aims to “shape a new generation of young Russian politicians,” according to one of the organizers, Duma deputy Sergei Markov.

A selection of young activists from Kremlin-created youth groups like Nashi and the Youth Guards join the leaders and activists of Ukrainian pro-Russian movements to listen to lectures by the likes of Aleksandr Dugin, a leading light of the Eurasia movement, which preaches a Russian-led power block as an alternative to the West.

“People gather to support our fraternal Ukrainian nation, which is groaning under the pressure of NATO,” says Gennady Basov, leader of the nationalist Russian Bloc Party, a pro-Moscow pressure group based in Crimea.

If Russia invaded Ossetia to end Georgian hopes of NATO membership, could Crimea be next? While he was president, Putin spoke of “dismembering” Ukraine if it continued to pursue its dreams of NATO membership. Then, the Ukrainians dismissed the threat as so much hot air. Now it no longer seems such an idle threat.

“Of course Ukraine is easy to split—it is two different countries,” says Basov, who also heads Russian Choice, a campaign for recognition of Russian as an official language, and for Russian language schools in Crimea. “The east’s economy depends on Russia, the west’s depends on Europe; the east is Russian-speaking and Orthodox, and the west is Ukrainian-speaking and Roman Catholic.”

Ukraine’s government was rattled by the fear that Russia’s occupation of Georgia would inspire secessionism in the Crimea. The leadership immediately ordered a survey of how many Crimeans had Russian passports (dual nationality is illegal under Ukrainian law). The count turned up only about 6,000, out of a Russian population of more than 1 million.

And, reassuringly for Kiev, support for rejoining Russia has slipped from more than 60 percent in the late 1990s to about 25 percent now, according to Vladimir Kozarin, deputy mayor of Sevastopol, a majority-Russian Crimean port city.

NATO has been deeply divided over how to respond to this threat to potential future members. Germany and Italy—not by coincidence two of Russia’s biggest gas customers—sought to keep what German Chancellor Angela Merkel called “an open dialogue.” George W. Bush gave unambiguous support to Tbilisi and threatened Russia with “serious consequences” if it did not withdraw from Georgia.

 
The Poles immediately signed up to a U.S. plan to station antimissile defense rockets on their territory—drawing an immediate threat from Russia’s Nogovitsyn that “Poland, by deploying [the system], is exposing itself to a nuclear strike—100 percent.”
But the far more immediate danger is to Russia itself. In the wake of the Georgian conflict, the Russian Stock Exchange took one of its biggest hits of the past decade. It dropped nearly 6 percent in a single day. Investors’ greatest fear is of a new era of military confrontation between Russia and its neighbors.
 
In the meantime, Medvedev’s ambitious agenda for reform has been hijacked by Putin’s ambitions. Medvedev, when he came to office, spoke of ending Russia’s culture of “legal nihilism,” extortion and corruption.
 
Just last month Medvedev told Russian bureaucrats to stop “terrorizing” businessmen with enforcement of petty regulations and demands for bribes; he also promised to reform the justice system and property rights. But just as Medvedev was getting traction, and feeling a little more confident in his role as president, he found himself mugged by history, in the form of Putin and a small, festering little post-Soviet conflict that blew up into a full-scale war.
More profound, the “war has intensified a conservative backlash in Russia,” says Lilia Shevtsova of Moscow’s Carnegie Center. “The country is now highly unified against the West.” Even traditional liberals have lined up to blast the Georgian aggression.
 
In that respect, the war has escalated a two-decade-long internal debate over whether Russia would join the international community of values, broadly defined as the West, or go over to the dark, anarchic world of rogue states and totalitarian regimes.
 
The war won’t decide that debate either way, but if it pushes Russia into a spiraling confrontation with its neighbors and the West, it will mark a turning point in which Russia veered off in a new and unpredictable direction. (With Anna Nemtsova In Crimea)
 
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17.  THE REAL WORLD ORDER
For the Russians the strategic break point was Ukraine 

On Aug. 8, the Russians invited us all to the Real World Order

By George Friedman, Founder and CEO
Stratfor geopolitical intelligence, Austin, Texas, Mon, Aug 18, 2008 

On Sept. 11, 1990, U.S. President George H. W. Bush addressed Congress. He spoke in the wake of the end of Communism in Eastern Europe, the weakening of the Soviet Union, and the invasion of Kuwait by Saddam Hussein.

 
He argued that a New World Order was emerging: “A hundred generations have searched for this elusive path to peace, while a thousand wars raged across the span of human endeavor, and today that new world is struggling to be born.
 
A world quite different from the one we’ve known. A world where the rule of law supplants the rule of the jungle. A world in which nations recognize the shared responsibility for freedom and justice. A world where the strong respect the rights of the weak.”
After every major, systemic war, there is the hope that this will be the war to end all wars. The idea driving it is simple. Wars are usually won by grand coalitions. The idea is that the coalition that won the war by working together will continue to work together to make the peace. Indeed, the idea is that the defeated will join the coalition and work with them to ensure the peace.
 
This was the dream behind the Congress of Vienna, the League of Nations, the United Nations and, after the Cold War, NATO. The idea was that there would be no major issues that couldn’t be handled by the victors, now joined with the defeated. That was the idea that drove George H. W. Bush as the Cold War was coming to its end.
Those with the dream are always disappointed. The victorious coalition breaks apart. The defeated refuse to play the role assigned to them. New powers emerge that were not part of the coalition. Anyone may have ideals and visions.
 
The reality of the world order is that there are profound divergences of interest in a world where distrust is a natural and reasonable response to reality. In the end, ideals and visions vanish in a new round of geopolitical conflict.
 
NEW WORLD ORDER ENDED ON AUG 8, 2008
The post-Cold War world, the New World Order, ended with authority on Aug. 8, 2008, when Russia and Georgia went to war. Certainly, this war was not in itself of major significance, and a very good case can be made that the New World Order actually started coming apart on Sept. 11, 2001.
 
But it was on Aug. 8 that a nation-state, Russia, attacked another nation-state, Georgia, out of fear of the intentions of a third nation-state, the United States. This causes us to begin thinking about the Real World Order.
The global system is suffering from two imbalances.
 
[1] First, one nation-state, the United States, remains overwhelmingly powerful, and no combination of powers are in a position to control its behavior. We are aware of all the economic problems besetting the United States, but the reality is that the American economy is larger than the next three economies combined (Japan, Germany and China).
 
The U.S. military controls all the world’s oceans and effectively dominates space. Because of these factors, the United States remains politically powerful — not liked and perhaps not admired, but enormously powerful.
[2] The second imbalance is within the United States itself. Its ground forces and the bulk of its logistical capability are committed to the Middle East, particularly Iraq and Afghanistan. The United States also is threatening on occasion to go to war with Iran, which would tie down most of its air power, and it is facing a destabilizing Pakistan. Therefore, there is this paradox:
 
The United States is so powerful that, in the long run, it has created an imbalance in the global system. In the short run, however, it is so off balance that it has few, if any, military resources to deal with challenges elsewhere. That means that the United States remains the dominant power in the long run but it cannot exercise that power in the short run. This creates a window of opportunity for other countries to act.
The outcome of the Iraq war can be seen emerging. The United States has succeeded in creating the foundations for a political settlement among the main Iraqi factions that will create a relatively stable government. In that sense, U.S. policy has succeeded. But the problem the United States has is the length of time it took to achieve this success. Had it occurred in 2003, the United States would not suffer its current imbalance.
 
But this is 2008, more than five years after the invasion. The United States never expected a war of this duration, nor did it plan for it. In order to fight the war, it had to inject a major portion of its ground fighting capability into it. The length of the war was the problem. U.S. ground forces are either in Iraq, recovering from a tour or preparing for a deployment. What strategic reserves are available are tasked into Afghanistan. Little is left over.
 
EXPANSION OF NATO TO INCLUDE UKRAINE AND GEORGIA
As Iraq pulled in the bulk of available forces, the United States did not shift its foreign policy elsewhere. For example, it remained committed to the expansion of democracy in the former Soviet Union and the expansion of NATO, to include Ukraine and Georgia.
 
From the fall of the former Soviet Union, the United States saw itself as having a dominant role in reshaping post-Soviet social and political orders, including influencing the emergence of democratic institutions and free markets.
 
The United States saw this almost in the same light as it saw the democratization of Germany and Japan after World War II. Having defeated the Soviet Union, it now fell to the United States to reshape the societies of the successor states.
Through the 1990s, the successor states, particularly Russia, were inert. Undergoing painful internal upheaval — which foreigners saw as reform but which many Russians viewed as a foreign-inspired national catastrophe — Russia could not resist American and European involvement in regional and internal affairs.
 
From the American point of view, the reshaping of the region — from the Kosovo war to the expansion of NATO to the deployment of U.S. Air Force bases to Central Asia — was simply a logical expansion of the collapse of the Soviet Union. It was a benign attempt to stabilize the region, enhance its prosperity and security and integrate it into the global system.
As Russia regained its balance from the chaos of the 1990s, it began to see the American and European presence in a less benign light. It was not clear to the Russians that the United States was trying to stabilize the region.
 
Rather, it appeared to the Russians that the United States was trying to take advantage of Russian weakness to impose a new politico-military reality in which Russia was to be surrounded with nations controlled by the United States and its military system, NATO.
 
In spite of the promise made by Bill Clinton that NATO would not expand into the former Soviet Union, the three Baltic states were admitted. The promise was not addressed. NATO was expanded because it could and Russia could do nothing about it.
 
FOR RUSSIA THE STRATEGIC BREAK POINT WAS UKRAINE
From the Russian point of view, the strategic break point was Ukraine. When the Orange Revolution came to Ukraine, the American and European impression was that this was a spontaneous democratic rising. The Russian perception was that it was a well-financed CIA operation to foment an anti-Russian and pro-American uprising in Ukraine.
 
When the United States quickly began discussing the inclusion of Ukraine in NATO, the Russians came to the conclusion that the United States intended to surround and crush the Russian Federation.
 
In their view, if NATO expanded into Ukraine, the Western military alliance would place Russia in a strategically untenable position. Russia would be indefensible. The American response was that it had no intention of threatening Russia.
 
WHY ARE YOU TRYING TO TAKE CONTROL OF UKRAINE?
 
The Russian question was returned: Then why are you trying to take control of Ukraine? What other purpose would you have? The United States dismissed these Russian concerns as absurd. The Russians, not regarding them as absurd at all, began planning on the assumption of a hostile United States.
If the United States had intended to break the Russian Federation once and for all, the time for that was in the 1990s, before Yeltsin was replaced by Putin and before 9/11. There was, however, no clear policy on this, because the United States felt it had all the time in the world. Superficially this was true, but only superficially.
 
[1] First, the United States did not understand that the Yeltsin years were a temporary aberration and that a new government intending to stabilize Russia was inevitable. If not Putin, it would have been someone else.
 
[2] Second, the United States did not appreciate that it did not control the international agenda.
 
SEPT. 11, 2001 TOOK AWAY AMERICAN OPTIONS IN THE FORMER SOVIET UNION
 
Sept. 11, 2001, took away American options in the former Soviet Union. No only did it need Russian help in Afghanistan, but it was going to spend the next decade tied up in the Middle East. The United States had lost its room for maneuver and therefore had run out of time.
And now we come to the key point. In spite of diminishing military options outside of the Middle East, the United States did not modify its policy in the former Soviet Union. It continued to aggressively attempt to influence countries in the region, and it became particularly committed to integrating Ukraine and Georgia into NATO, in spite of the fact that both were of overwhelming strategic interest to the Russians.
 
Ukraine dominated Russia’s southwestern flank, without any natural boundaries protecting them. Georgia was seen as a constant irritant in Chechnya as well as a barrier to Russian interests in the Caucasus.
Moving rapidly to consolidate U.S. control over these and other countries in the former Soviet Union made strategic sense. Russia was weak, divided and poorly governed. It could make no response.
 
Continuing this policy in the 2000s, when the Russians were getting stronger, more united and better governed and while U.S. forces were no longer available, made much less sense. The United States continued to irritate the Russians without having, in the short run, the forces needed to act decisively.
The American calculation was that the Russian government would not confront American interests in the region. The Russian calculation was that it could not wait to confront these interests because the United States was concluding the Iraq war and would return to its pre-eminent position in a few short years. Therefore, it made no sense for Russia to wait and it made every sense for Russia to act as quickly as possible.
The Russians were partly influenced in their timing by the success of the American surge in Iraq. If the United States continued its policy and had force to back it up, the Russians would lose their window of opportunity. Moreover, the Russians had an additional lever for use on the Americans: Iran.
The United States had been playing a complex game with Iran for years, threatening to attack while trying to negotiate. The Americans needed the Russians. Sanctions against Iran would have no meaning if the Russians did not participate, and the United States did not want Russia selling advance air defense systems to Iran. (Such systems, which American analysts had warned were quite capable, were not present in Syria on Sept. 6, 2007, when the Israelis struck a nuclear facility there.)
 
As the United States re-evaluates the Russian military, it does not want to be surprised by Russian technology. Therefore, the more aggressive the United States becomes toward Russia, the greater the difficulties it will have in Iran. This further encouraged the Russians to act sooner rather than later.
The Russians have now proven two things. [1] First, contrary to the reality of the 1990s, they can execute a competent military operation. [2] Second, contrary to regional perception, the United States cannot intervene.
 
RUSSIAN MESSAGE WAS DIRECTED AGAINST UKRAINE MOST OF ALL
 
The Russian message was directed against Ukraine most of all, but the Baltics, Central Asia and Belarus are all listening. The Russians will not act precipitously.
 
They expect all of these countries to adjust their foreign policies away from the United States and toward Russia. They are looking to see if the lesson is absorbed. At first, there will be mighty speeches and resistance. But the reality on the ground is the reality on the ground.
We would expect the Russians to get traction. But if they don’t, the Russians are aware that they are, in the long run, much weaker than the Americans, and that they will retain their regional position of strength only while the United States is off balance in Iraq.
 
If the lesson isn’t absorbed, the Russians are capable of more direct action, and they will not let this chance slip away. This is their chance to redefine their sphere of influence. They will not get another.
The other country that is watching and thinking is Iran. Iran had accepted the idea that it had lost the chance to dominate Iraq. It had also accepted the idea that it would have to bargain away its nuclear capability or lose it.
 
The Iranians are now wondering if this is still true and are undoubtedly pinging the Russians about the situation. Meanwhile, the Russians are waiting for the Americans to calm down and get serious.
 
If the Americans plan to take meaningful action against them, they will respond in Iran. But the Americans have no meaningful actions they can take; they need to get out of Iraq and they need help against Iran. The quid pro quo here is obvious.
 
The United States acquiesces to Russian actions (which it can’t do anything about), while the Russians cooperate with the United States against Iran getting nuclear weapons (something Russia does not want to see).
One of the interesting concepts of the New World Order was that all serious countries would want to participate in it and that the only threat would come from rogue states and nonstate actors such as North Korea and al Qaeda.
 
Serious analysts argued that conflict between nation-states would not be important in the 21st century. There will certainly be rogue states and nonstate actors, but the 21st century will be no different than any other century. On Aug. 8, the Russians invited us all to the Real World Order.
 
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18.  “THE BIGGEST THREAT TO UKRAINE IS US”

INTERVIEW: With Anatoliy Gritsenko, Chairman
Verkhovna Rada Standing Committee on National Security and Defense
Author: Tatiana Silina, Zerkalo Nedeli (Mirror-Weekly) # 30 (709)
Kyiv, Ukraine Saturday, 16 – 22 August 2008
  
Even though most MPs were enjoying their summer vacations, the Verkhovna Rada standing committee on national security and defense convened for an extraordinary meeting on Thursday to discuss the situation in and around Caucasus and ways to minimize negative impacts for Ukraine. The committee also invited representatives of different political forces and government officials. Journalists were not admitted.
On the eve of the meeting we approached the committee’s chairman Anatoliy Gritsenko with several questions of concern for most Ukrainians.
“This Is a War”
Zerkalo Nedeli — For several days we watched with horror what was happening in Georgia. The West said shyly that Russia “exceeded the limits of the peacekeeping mission” and Russia accused Georgia of aggression against South Ossetia and “ethnic cleansing”. What do you call all this?
Anatoliy Gritsenko  — We need to assess what has happened in order to localize the conflict and especially its consequences. It’s important to refrain from “black-and-white” judgments, because the situation is very complicated and the terms “aggressor” and “victim of aggression” don’t apply here.
It was clear after the Kosovo precedent that the frozen conflicts in South Ossetia and Abkhazia would erupt sooner or later. We must admit that in South Ossetia the conflict entered the “hot phase” when President Saakashvili resorted to force. I think his step was wrong and fatal. Moreover, he took it without informing NATO, EU partners, or the Ukrainian President. A head of state has no right to make emotional decisions. He must remain composed under any circumstances, even if he is provoked.
I express my solidarity with the people of Georgia as objects of military aggression, but I disagree with the Georgian President’s decision.
One month ago I supported his powerful initiatives aimed at normalizing relations with Abkhazia. Saakashvili offered Abkhazia unprecedented privileges: the post of Vice President, a representation quota in the central bodies of government, exceptional terms for its economic development, and even the right of veto in the Georgian parliament. I see two reasons why his proposals were rejected: deep mutual distrust and Abkhazia’s reliance on Russia.
As to the consequences of this military conflict, the use of force produced a result totally different from what Saakashvili counted on. I think that now, despite all efforts for preserving territorial integrity, Georgia has de facto lost both republics – Abkhazia and South Ossetia.
Zerkalo Nedeli — For ever?
Anatoliy Gritsenko  — Firstly, in history one can never say “for ever”. We all remember the empires that believed they would exist forever. They broke up, and new states and new unions emerged… But I don’t see any objective possibilities for Tbilisi to regain constitutional control over Tskhinvali or Sukhumi in the next decade or two.
Secondly, I condemn the use of Grad volley missile launchers by the Georgian army. They fired at their own territory and their own citizens. The Grad launcher is not the right weapon to fight terrorists and guerillas. Instead, they should have used mobile groups or precision air strikes. Missile volleys destroy everything and leave no one alive in the target zone. Such a way to restore constitutional order is unacceptable. That’s why I believe that those officials who ordered volley missile firings must be prosecuted.
Zerkalo Nedeli — What if the order was given personally by Saakashvili?
Anatoliy Gritsenko  — I said: the official who gave the order – whoever he is.
As to Russia’s actions, I have two remarks. Firstly, Russian authorities ought to be the last to call for morality and lament about civilian victims, genocide, and “ethnic cleansing”. We remember too well how they shot their parliament and practically razed the Chechen capital Grozny to the ground.
Russian brass hats had better keep their moralisms to themselves. Authoritative opinions on that score can only be expressed by the leaders who managed to find peaceful solutions to separatist conflicts. The Czech and Slovak leaders have this moral right because they managed to divide the country peacefully.
 
Ukraine also has this right because tanks did not crush separatist demonstrations in Crimea, because there was no bloodshed during the Orange Revolution, and because force was never used against separatists in Severodonetsk…
Secondly, Russia’s response was obviously inadequate by its power and scale. Russia violated international norms when its troops entered the territory of the sovereign state and launched offensive military operations against Georgia. It is anything but peacekeeping. It is a war.
Combat actions took place everywhere – in the air, in the sea, and on land. There were artillery and air strikes on the entire territory of Georgia and a blockade by Russian warships. There were also elements of info- and cyber-war.
Russia’s plan was quickly understood in another self-proclaimed republic – Abkhazia – and military action spread to that region as well. Abkhazian paramilitary units left the boundaries of Abkhazia and attacked Georgia with bombs, shells, and missiles.
 
Then Russia additionally dispatched two divisions – one to each breakaway republic – that included armored, mechanized, artillery, airborne, and special task forces. They were joined by “volunteers” whose number was never reported.
“Russia Drove Itself into a Trap”
Zerkalo Nedeli — Can we be sure today that the conflicting sides will not resume military actions? On one hand, President Saakashvili has announced Georgia’s secession from the CIS, denounced the agreements on CIS peacekeeping missions, and called Russian “peacekeepers” occupants. On the other hand, President Medvedev has announced completion of the military operation in Georgia but ordered his military commanders “to exterminate the aggressor in the event of Georgia’s new aggression”. How strong or fragile is today’s truce?
Anatoliy Gritsenko — The answer is not short. The causes of this conflict have two aspects.
 
[1] First, they are deeply rooted in the past. Second, they are directed to the future. Why to the future? I can explain it figuratively: between the lines of operation orders given by Russian military commanders and the Russian Foreign Ministry’s press releases one can read the words “Kosovo” and “Great Russia”.
Wasn’t it known that the precedent of Kosovo was directly projected on South Ossetia, Abkhazia, and more than 150 other frozen conflicts? Russia was strongly against recognizing Kosovo’s independence, and I believe that Ukraine should not recognize the self-proclaimed republic, either. Manifestations of separatism may spread like wildfire across the globe. So the first factor was Russia’s decision to punish the West for recognizing Kosovo’s independence.
[2] The second factor is “Great Russia”. The External Policy Concept of the Russian Federation (published under Medvedev’s presidency) states that “the influence of the West on global processes decreases” and that Russia’s potential increases. This is true. The Russian leaders must have reckoned that the time has come to regain the status of a superpower that would influence all global processes and all important regions, starting from the neighboring countries. The Baltic countries are an exception – they caught the last train to NATO and the EU. That’s why I say that the causes are deep-rooted and lasting.
And yet, could Russia have acted otherwise? Could it have won tactically by strengthening its positions in the Caucasus and not lost strategically by marring its image and undermining international trust? It could have but failed.
If Russia, in response to Saakashvili’s forcible action, had brought troops into South Ossetia to back up the peacekeepers there and then coerced him to cease fire but had not gone beyond the boundaries of South Ossetia, the assessment of its actions would have been different. And even though it would have been an encroachment on Georgia’s sovereignty, the world would have taken it calmly and Saakashvili would have faced the music. But Russia didn’t stop.
I must admit that the Russian troops acted very competently in professional terms: they struck at the second echelon – communications, logistics, infrastructure, etc. – to disable Georgian strikes. But apart from military logic there are norms of international law.
 
There is a sovereign state with its civilian facilities strikes at which are inadmissible in any war. That’s where Russia overstepped the line and its further actions are aggression and disproportional use of force.
Russia drove itself into a trap. With every strike and every destroyed house that millions of families all over the world saw on TV its authority shrank. I think only Fidel Castro said a few words in support of Russia. Even Belarus expressed tight-lipped concern. The world shuddered at remembering the USSR in 1956, 1968, and 1979…
The Georgian army turned out to be weaker than it was believed to be, and not because of soldiers but because of commanders who acted unprofessionally.
It’s to early yet to make final conclusions, but some actions taken during the war looked at least strange. During a war the commander-in-chief should not organize mass rallies if bombs fall not far from the capital city.
 
It also looks strange that the Rock Tunnel was not blocked and Russian tanks were let deeper into the country. There are many questions, but one thing is clear: the Georgian army failed to make the most of its potential.
Now let me say a few words about ceasefire. Having no consolidated support of EU countries and no mandate for a tougher position, French President Sarkozi accepted six principles of settlement written by the Kremlin. One of them was ceasefire. Saakashvili disagreed with some of them but had to accept them, too, because he was in no position to dictate his will. The main thing now is to stop the war and get the country back to peaceful life.
I think the Georgian and Russian troops will cease fire, but it’s hard to predict the Abkhazian leadership’s further steps. It wants to gain full control of the Kodor Gorge. There are many armed groups of “volunteers” in Abkhazia. They are out of control of authorities and nobody knows whose commands they will obey.
Zerkalo Nedeli — Will the sides abide by the rest of the principles?
Anatoliy Gritsenko — Although with difficulties and problems, they will. I’d like to remark that one principle is not mentioned: Georgia’s territorial integrity. Despite efforts of many countries, including Ukraine and some member states of the EU and NATO, I don’t believe that Georgia will retain South Ossetia.
 
I think the Kosovo precedent will repeat itself in the Caucasus: both South Ossetia and Abkhazia will proclaim independence and will be recognized by some countries. I don’t rule out that in the future they might want to join the Russian Federation.
As to Russia’s political actions, they look rather irrational, because even before the war it practically had both republics under control. All top positions there are occupied by Russian citizens who have always looked Moscow’s way and never reckoned with Tbilisi.
 
And then, why does Russia want to enlarge its territory? It doesn’t have enough people to inhabit what it already has. Besides, why does Moscow need to bear additional expenses for restoring those two republics? Does it need additional problems?
This war is sure to have negative political and economic impacts, and not only on Georgia and Russia. Georgia will have to borrow billions of dollars to stabilize its economy and financial system. Armenia – Russia’s strategic partner – is also in a bind. 70 percent of Armenia’s foreign trade turnover goes via the Georgian port of Poti which is blocked by the Russian Black Sea Fleet. Besides, Russian natural gas is delivered to Armenia via Georgia.
Azerbaijan and the countries that depend on its energy resources also have problems. The Baku-Tbilisi-Ceyhan – the only alternative pipeline for transporting Caspian fuels which doesn’t run via Russia’s territory – is insecure. There will be a lot of direct and indirect impacts of this war, and Ukraine will feel them, too.
“Even the Strong Can Be Snubbed”
Zerkalo Nedeli — As far as the international reaction is concerned, it was shamefully overcautious. Everybody talked about ceasefire but nobody gave a definite assessment of Russia’s behavior in terms of international law. On the day after Russia bombarded Gori, after European journalists were killed, and after the outrageous utterances by Russian top leaders Sarkozi said he “came to talk with the Russian friends about peace”.
 
I guess we all know that the Russians might as well have broken into Tbilisi and captured Saakashvili. I’m sure that not a single tank or plane of the European Union or NATO would have budged to defend their partner state and its lawfully elected president. It looks like Russia can do whatever it likes on any territory of its “interests”. Do you see anyone or anything that can stop Russia?
Anatoliy Gritsenko — We are talking about Russia, but let’s take a broader look at this matter: is there any international organization that could firmly and quickly stop China, the United States, Great Britain, or France? Let me remind your readers that back in 1999 I dwelt on this matter in my ZN article “Does Ukraine Need a New Defense Doctrine?” It is still topical.
Let’s begin with the United Nations. It is the only global organization, but it is incapable in case a permanent member of the Security Council is involved in a military conflict – just because it has the right of veto. This means that the United Nations can’t do anything about it. By the way, in the event of a conflict around Ukraine one of the participant or interested sides would always be a permanent member of the Security Council. So it’s clear about the United Nations.
The OSCE is the only international organization that unites all European states plus the USA and Canada. With all my respect for the OSCE, it’s always been sluggish in making decisions, and in case of a military conflict the best it can provide is a mediatory or diplomatic mission or humanitarian aid.
The CIS and GUAM [Georgia-Ukraine-Azerbaijan-Moldova – A.B.] are not even worth mentioning.
As far as NATO or the European Union are concerned, they are sure to defend their members. They will act promptly and resolutely, and their leaderships will even interrupt their vacations to meet immediately. But if the object of aggression is a country that is not their member, all it can count on is consolidated political and diplomatic support. And, as we can see today, this support may not always be consolidated.
And should the situation demand military assistance with serious material and human resources and predictable human losses, I have very big doubts on that score. Few NATO or EU countries would be ready to respond adequately and defend a non-member country, even if its political vector is directed at membership in these organizations.
It is evident now that in this situation no one, including the United States, was ready or willing to render military assistance to Georgia, even though a Georgian peacekeeping brigade was on a mission to Iraq – shoulder to shoulder with NATO and EU peacekeepers.
Zerkalo Nedeli — Does this mean that Russia is free to do whatever it likes?
Anatoliy Gritsenko — No, it’s not. The world order is imperfect and unjust and powerful states can afford to act aggressively, but we shouldn’t take it with fatalism. The strong have always ruled, but even the strong can be snubbed if their aggression goes too far. Remember how the world wars ended. Besides, today nations are interdependent as never before. Even the most powerful states are unable to exist on their won – without active economic exchange. They are vulnerable like the rest of the world. The awareness of this truth plus democratic values that make the third millennium different from the previous history may be a factor of restraint.
In this particular case Russia could have seized Tbilisi overnight and toppled Saakashvili, and no one would have stopped it, but the war wouldn’t have ended there and then.
“A Military Conflict between Ukraine and Russia Is Impossible”
Zerkalo Nedeli — You know, watching TV reports from Gori razed by Russian bombs, I was thinking of Ukrainian towns… Yes, most Ukrainians would call it stuff and nonsense and say that Russia would never unleash a war against Ukraine, but just a few weeks ago Georgians couldn’t imagine Russian bombers over Gori.  Do you think that Russia’s military aggression against Ukraine is possible?
Anatoliy Gritsenko — Don’t let’s frighten ourselves. We must think, draw conclusions, and act.
Zerkalo Nedeli — OK, those Ukrainian experts and journalists who presumed that Ukraine would be next after Georgia must have been overfilled with emotions. But a number of Western journalists and analysts, including well-known British expert James Sherr and experienced U.S. diplomat Richard Holbrooke are sure that Russia, when waging a war against Georgia, was bearing in mind Ukraine.
Anatoliy Gritsenko — In spite of mistakes and faults in building relations between Ukraine and Russia, we have been able to avoid such conflicts. I think it will be so in the future, despite numerous differences in many areas.
Obviously, a conflict between Russia and Ukraine – the two largest countries in Europe – would be a catastrophe for the entire continent in all aspects: political, economical, ecological and energy. We should proceed from the following principal: conflict between Ukraine and Russia is impossible.
However, let’s overlook the concrete situation and focus on theory. Yes, a mighty state X might try to conquer a weaker state Y and it might succeed in the first stage of the war due to its military strength and element of surprise.
Nevertheless, it is not the state possessing more planes, warships and troops which wins the war, but the state which has a stronger “state power-nation-army” triangle and which is able to destroy such enemy’s triangle. The Chinese strategist Sun Tdzy taught this many centuries ago.
It is not just a mighty army that is necessary, but mostly – a strong state power supported by the entire nation. Concerning military aspects, there are a lot of possibilities for unequal actions. Shamil Basayev demonstrated that a state with just one battalion is able to discourage a big state with a two-million-army from continuing the war. I don’t approve of the actions of Basayev, but I give this example just because our readers are aware of it.
We should let the professional military-men develop their military schemes and require that our politicians manage the country effectively and responsibly since at the time being, there is no bigger threat to Ukraine than we ourselves.
Zerkalo Nedeli — I am also not inclined to predict future fatality, but during the entire conflict between Russia and Georgia, Moscow talked to Kyiv in the same tone as to Tbilisi. Ukraine was accused of arming Georgia, of supporting one of the sides of the conflict and of interfering in the Black Sea Fleet’s actions.
 
On the one hand, it is offensive to be silent about these accusations. On the other hand, it is obvious that Russia is trying to provoke Ukraine. How should Ukraine carry on a dialogue with Russia to keep its national dignity but not to aggravate its relations with the northern neighbor?
Anatoliy Gritsenko — How should we carry on a dialogue? Calmly, professionally and responsibly. To begin with, both sides should admit that Ukraine and Russia have never been sister nations and will never be. Relations between the states should be equitable and mutually beneficial.
I would like now to comment on the tone of Russia’s statements. Recent statements of the Russian Ministry of Foreign Affairs resemble the ones in the 1950s and 60s and are full of diplomatic sarcasm: “Ukraine has armed Georgia inciting it to intervention and ethic purges.” It is a provocative, irresponsible and untrue statement.
 
I asked Mrs. Loskutov, counselor of the Russian embassy to Ukraine (the ambassador is on vacation), a question: who exactly among the Ukrainian leaders incited intervention and ethic purges? Yushchenko? Tymoshenko? Yanukovych? Bohatyriova? Khinakh? Yekhanurov? Gritsenko? Who? – No one!
These statements reflect the Russians’ hostility and dissatisfaction accumulated over many years. Ideologists of the “Great Russia” don’t want to accept the right of the sovereign state to conduct its own policy and independently define its top tasks without approving them with the Kremlin.
Zerkalo Nedeli — Are we able to stand up for at least our priorities in the issue with the Black Sea Fleet?
Anatoliy Gritsenko  — I have already noted that our relations with Russia should be equitable and mutually beneficial. I think that we should immediately start implementing procedures stipulated in the basic agreement on the Black Sea Fleet of 1997–procedures which are for some reason not being discussed in the Cabinet of Ministers today.
This agreement says: beginning from 2008, Russia must pay Ukraine for the facilities rented by its fleet in accordance with Ukrainian law. Ukrainian law states that rented facilities must be appraised and Russia is to pay a market rent for them. Experts estimate this rent to be around USD 1 billion per year.
And what do we have today? Beginning from 1997, Russia has been writing off USD 97 million per year from the total Ukrainian debt to Russia for gas. This year or actually next year, we could transfer to a new system of rental payments, but only if we pay off our debt for gas. Today, our debt to Russia for gas is USD 1.3 billion.
In connection with this, I propose to the government, the Verkhovna Rada and the president that USD 1.3 billion be earmarked in the new amendments to the 2008 budget law in September to pay off the debt for gas to the Russian Federation. And after that, we will be able to charge market rent for the stationing of the Black Sea Fleet of the Russian Federation in Crimea.
Yes, we will lose money this year, but we will gain during the next nine years. And all these steps can be accomplished absolutely legally according to the bilateral agreements. Sevastopol and Crimea will receive additional resources for their development. No one will contend that the Russian Black Sea Fleet is supporting the region.
 
We ourselves will be able to create dozens of times or hundreds of times more jobs in Crimea for USD 1 billion per year. If the government doesn’t include such an article in the amendments to the 2008 budget law, I won’t vote for this law even if my vote will be the 226th. This should be necessarily done: Russia has got a base for its fleet, and Ukraine should receive real compensation for the rented facilities and land.
Sharp-cornered triangle
Zerkalo Nedeli — Are we strong enough to conduct our own independent policy?
Anatoliy Gritsenko — Strong foreign and defense policy can be conducted only when the state and the society are united, when the state power is strong and consolidated and when the army is battle-worthy – the triangle drawn by the Chinese strategist.
What is happening in our country today when the war between our two strategic partners has broken out and we are also being drawn into this conflict?
Leaders of the political forces introduced in the parliament (except for the Communist Party of Ukraine) haven’t declared their standpoints concerning the war. And it doesn’t really matter what their standpoints would be, it is important to have them. If our leaders don’t have standpoints, what single position of the Verkhovna Rada can we talk about? Should we wait until September?
We are in general aware of the position of the President of Ukraine regarding the war as it is expressed through the statements of the Ministry of Foreign Affairs of Ukraine. Unfortunately, the President didn’t convoke the National Security and Defense Council.
 
He didn’t recall from vacations the Secretary of the National Security and Defense Council, the ministers, the heads of the special services and law enforcement bodies as well as the heads of the intelligent service and frontier service and the head of his own Secretariat.
As a result, 24 hour work of all services coordinated at the interdepartmental level wasn’t organized, the flows of operative information were not regulated and a systematic analysis of all incoming information wasn’t conducted.
That’s why we hear today the statements and demands on behalf of our state which our officials are not able to carry out or be responsible for. The decision about not letting in the warships of the Russian Black Sea back to the base in Sevastopol is possible to execute; however, is the President of Ukraine ready to be responsible for the negative consequences of such a step?
And what about one more apex of the triangle – the army? The army is waiting for promised money and 8000 apartments which there is no chance of their receiving since the amendments to the state budget were not adopted.
 
The army is using up today the supplies assigned for November and fuel bought for a price much higher than the price of fuel at the regular gas stations (according to the report of the Central Auditing Commission). And having all these problems, the army is helping people, rescuing them from floods and constructing bridges.
However, all the above is not important. The parade is what is more important. It doesn’t matter that the money for the parade was taken from the funds assigned for combat training; it doesn’t matter that tanks will break the asphalt with their tracks as there is no time to produce rubber covers; it doesn’t matter that Kyiv city administration didn’t permit the military planes to fly over the capital. This is not important. The parade should be carried out anyway even if, as the President says, there is a “second Chernobyl” and a war at the border of Ukraine.
Zerkalo Nedeli — Nevertheless, we really need a mighty army today despite all sharp disputes in the mass media on whether Ukraine needs an army or not.
Anatoliy Gritsenko — Now, there will be fewer of those that doubt the necessity of the army. It is not necessary to invent anything new to create a strong army.
 
[1] First, it is necessary to implement the State program for the development of the Armed Forces of Ukraine for the period up to 2011 drafted by the Defense Ministry, approved by the two governments (Tymoshenko’s and Yekhanurov’s) and supported by the members of the National Security and Defense Council.
The program is not fully implemented due to insufficient financing. The Prime Minister promised to allot 2% of GDP, and actually allotted a little more than 1% of GDP. This means that the program will fail; the army won’t be re-equipped with the modern military systems which our national military industry is now able to produce.
[2] Second, it is necessary to implement the Program for conversion of the armed forces to the contract principals of formation. This program is also being upset. It is clear that without any extraordinary measures, Yushchenko won’t be able to fulfill his pre-election promise – to create a professional contract army before 2010.
 
[3] Third, it is necessary to implement the Program for the development of the forces of special military operations. It was the last bill I signed in my post of Defense Minster in December 2007.
Special military forces are the most battle-worthy elements of our Armed Forces. Without any exaggeration, these forces are able to carry out strategically important tasks. They are the elite of the army. They are able to act on land, in the air and under the water. A group of four to five people can block any enemy’s headquarter, control point, airdrome or port; capture the missile starting emplacements.
 
They are professionals ready to carry out asymmetric tasks inside the country and abroad to convince the aggressor (it doesn’t matter what country the aggressor is) that aggression against Ukraine is fraught with serious consequences and problems even in its own territory.
And this very important program failed. At the initial stage of the program when the budget of the program was approved in the Joint Staff of the Defense Ministry, only around UAH 160 million instead of UAH 300 million were allotted. And those 160 million were allotted on paper; actually there was even less money than that. This means that modern communication systems, armament and ammunition, parachutes and so on won’t be purchased.
Why? This is happening because our defense officials are unprofessional and irresponsible. Ukraine has got no Minister of Defense, just a minister of surplus military property. There is only one professional who actually understands the military principals among five deputies of the current Defense Minister of Ukraine, and he is given only minor tasks (maybe because he worked on my team?).
 
No one from the leadership of the Defense Ministry told the President that it is more important to earmark money for the development of the special military forces than organize a parade (more than UAH 80 million) and construct just another, 18th, lyceum in Baturin (UAH 50 million this year for documentation and hundreds of millions next year for construction).
I don’t want to continue mentioning examples of inefficient actions or culpable omission of the state power in situations critical for the country. The main point is clear – the state power is not just weak, it doesn’t work; and when it works, this brings only negative results.
“The civilized world today is weak as never before”
Zerkalo Nedeli — Are we the weakest country in this world?
Anatoliy Gritsenko — Today, we’re talking about the war between Russia and Georgia. However, believe me, there are other global processes in the world. The analysis of these processes shows that not such conflicts and not the threats of that kind will become a real challenge for the entire civilized world.
 
I dare to contend that the civilized world today is weak as never before. And the existing threats are on the contrary strong as never before. I hope that when fighting against these threats, both Russia and Georgia will be on one side.
We can draw a line on the map starting at Northern Korea, through Pakistan, Afghanistan, Iraq, Iran, the Near East, Sudan and finish at the Balkans. This would be not the only but the most dangerous conflict zone.
 
It contains everything: frozen and burning conflicts; uncontrolled transnational terrorists and criminal organizations; tremendous financial resources; nuclear and other kinds of weapons of mass destruction, their technologies and elements; a huge number of the most dangerous regular destruction arms; world drug-business. There are a lot of troops from different countries there; the governments are inefficient there; new terrorists’ acts and new victims occur there every day.
It is very important that those criminal organizations do not follow democratic values and are ready for very decisive actions everywhere around the world. The threat is serious for any country of the world, even for very powerful ones.
 
By the way, the USA tried to localize those threats by applying components of biological arms. As a result – millions of victims and nothing more. It is impossible to localize this threat by only one country’s efforts. And that is the USA! What can we say about Ukraine, Georgia, and Russia in this connection?
I contend that the entire civilized world is weak as never before. Why? I can give you the four most important in my opinion reasons for that.
[1] First. During all elections (presidential or parliament), people in all developed and stable democratic countries vote approximately 50 to 50. Let’s look at Western Europe, the USA or even Ukraine. It is not possible to receive 80-90% of votes or full support there. This is possible only in authoritarian systems or in the countries experiencing a transition period. And in the entire civilized world – it is 50 to 50.
 
What does this mean? This means that the political leadership of most countries is weak and vulnerable especially before the elections since in this situation, it is very hard to make important, responsible and unpopular decisions. We saw how in separate EU member states and NATO member states, for instance in Spain, peace-makers were withdrawn immediately after the elections – in two weeks. A similar situation is today in the USA.
[2] Second. The next level is military-political or the level of defense ministers. It is the defense minister who should offer the political leaders of his or her state options of preliminary evaluated and thoroughly considered military-political decisions, be able to stand up for the most optimal options. And this level is not ready for such tasks in most countries of the world today.
 
I worked as a defense minister for two years and ten months. When I was leaving the post, only five of 40 defense ministers, with which I had started to work, kept their posts: in Belarus, Azerbaijan, Tajikistan, Turkey and Denmark.
 
In all other countries, the defense ministers changed and in some of them, even several times. Additionally, in many countries of the world, people from the spheres of medicine, finances, culture, and journalism are being appointed to the posts of the defense ministers.
[3] Third. The next level is high-ranking military leadership or, as a rule, heads of joint staffs. In what countries of the world are these officials battled-tried generals experienced in military planning and combat operations? Just in a few: in the USA, Turkey, Israel, and Britain. And that’s all. All others read books written according to analysis of other wars. Thus, the leaders of most states can’t count on professional advice on the part of military-men in difficult situations.
[4] The fourth reason is inefficiency of international organizations, their slow decision making process. Democratic principals also have weak features since most democratic alliances are built on principals of consensus, and a decision of, for example, NATO might be blocked by one single state.
I am sure that the leaders of democratic states must realize the weakness of separate countries and international organizations as soon as possible. Perhaps, it would be easier for them to do this today, after the conflict between Russia and Georgia when some weaknesses became obvious.
And what about Ukraine? Our leaders talk about coalition and elections… Serious regional and global problems are not interesting to them.
“I would recall Ukraine’s application for joining NATO Membership Action Plan”
Zerkalo Nedeli — I can’t help asking you: should Ukraine accelerate the process of joining NATO after the Georgian events? Or maybe this is not important to us anymore? Are our chances of joining NATO Membership Action Plan in December bigger or smaller?
Anatoliy Gritsenko — I don’t consider this issue to be important today since we aren’t talking today about real NATO membership.
Obviously, none of the countries of the world can stand alone against a serious threat. The consolidation of efforts is also more profitable from an economical point of view. And it is clear that the only effective military union on the planet is NATO. There are no other ones. There is a line to join NATO, unlike the Tashkent Treaty, from which countries are leaving.
I think that the issue of joining the NATO Membership Action Plan is not important because we are able to implement it today not waiting for NATO to make a corresponding decision in December or in April or not make it at all.
If the Ukrainian power realizes the necessity to raise the economy, develop the ecological sphere, judicial system, and military system, it would be a membership action plan. When I was a defense minister in 2005, I understood that and introduced my initiative at the meeting with the defense ministers of the NATO member states.
 
I said that Ukraine would like to develop its own membership action plan to raise the standards of the Armed Forces of Ukraine to meet NATO standards. “Fine, develop your own plan,” followed the answer.
Incidentally, the program “Ukrainian Break Through” is actually a membership action plan. I told Yuliya Tymoshenko that before her visit to Brussels: we shouldn’t be afraid of public opinion on this matter. The program contains points regarding a normal election system, the economy development, fighting with corruption – all things that we and not they need today. A strong battle-worthy army is necessary to us, not to the USA, as they have one.
I am sure that if in July 2006, when the meeting of the Commission on relations between Ukraine and NATO took place, there had been a coalition and new government in our country, we would certainly have received MAP. Then, at every meeting with the defense ministers of NATO member states, I reported on our new achievements. NATO knew that the Ukrainian Army understood the goals clearly and was gradually but successfully moving to meet them.
Our current government only talks about MAP but doesn’t do anything. The President could long ago have issued a decree which would oblige every minister to develop its part of MAP and implement it. However, Yushchenko didn’t do that.
That’s why a formal decision to grant or not grant Ukraine MAP in December is not of fundamental importance. I will say even more. If I were in Yushchenko’s place, I would recall Ukraine’s application to receive MAP from NATO headquarters. However, I would provide for its actual implementation without any NATO decisions.
Zerkalo Nedeli — May the Georgian events encourage the alliance member states that had doubts about Ukraine to make a positive decision for Ukraine? Or do you think on the contrary, they will be frightened?
Anatoliy Gritsenko — Some will be encouraged and some will be frightened. It is hard to make any forecasts today. However, I think that there won’t be any principal changes in the NATO position regarding Ukraine.
I am not sure that the initiative to recall the application for receiving MAP will be supported by the public. However, I would concentrate on creating an effective system of state power and achieving concrete results. And if our citizens start to feel that their life is improving every day and week, they will respect the power. They will trust the power and support any strategic decisions without any referendums.
That’s why we shouldn’t pass our problems on Europe. We should implement our own MAP. I would like to note that many countries became NATO members without any MAP. There are European states which are not NATO members and are not implementing or going to implement any MAP. Nevertheless, due to their effective domestic and foreign policy, they might be accepted to the alliance any moment they apply.
“We shouldn’t exchange our values for prices”
Zerkalo Nedeli — You wanted to talk about energy aspect…
Anatoliy Gritsenko — All EU and NATO member states provide their security collectively, however every country negotiates with Gazprom on its own. And here, some of them face with a real challenge, and some (like our government) – with temptation to exchange strategic goals and democratic values for cheap gas.
I don’t want Ukraine exchange values for prices. We did that several times. And we see the results now. There is no cheap gas there. The Russians will gain the rest of the price through illegal schemes and by controlling our economy.
We should fight and pay for our country’s independence. However, we know that gas lobby is very strong. Gas issue has become fatalistic (they say that the economy and the social sphere will collapse) since it is exactly the gas sphere which gives some businessmen opportunity to earn billions of dollars. And it is exactly the gas sphere which is a source of the biggest corruption no matter who the president or the prime minister is.
In my opinion, if our state power could conduct a rational and effective policy, the price of gas wouldn’t be really important. Yes, the price of gas will be much higher than today. However, let’s analyze this problem and see what our country has in this sphere that other countries don’t.
[1]  First. Our country has its own gas – more than 20 billion cubic meters per year. Most European countries don’t.
[2] Second. We have a gas pipeline which will attract more attention after the conflict in Georgia. Most countries in Europe don’t have such a pipeline. And I would like to remind that this pipeline contributed to our gas balance additional 28 billion cubic meters of gas per year in 2004-2005 (for comparison: this year – only 9 billion).
[3] Third. We have underground gas storage facilities. Most European countries don’t.
[4] Fourth. We have coal which will be enough for approximately 400 years. Yes, the coal industry has got a lot of problems today, but still it has a potential for further development. Most European countries don’t have such coal fields.
[5] Fifth. We have nuclear power industry. Most European countries don’t.
[6] Sixth. We have hydro-power industry thanks to big rivers which most European countries don’t have.
[7] Seventh (perhaps, the most important). Energy consumption per unit of manufacturing output in our country is 4-6 times higher than in developed European countries. This gives us a possibility to reduce gas consumption starting with the housing and utilities services and every apartment.
Market price of gas will be a good stimulus to reduce our energy consumption. None of the Cabinet’s decisions is more powerful stimulus than a high price of gas.
Additionally, we should more clearly define the role of our state. Our high-ranking officials, ministers and presidents shouldn’t grovel at somebody’s feet during negotiations seeking for low price of gas to suite people who increase their capitals by 5 or 10 billion dollars every year. Let these people pay market price for gas.
The state shouldn’t negotiate on the price of gas for business. Mittal Steel, Mr. Firtash, Mr. Akhmetov. Mr. Pinchuk and others sell their products at the world market for market prices. At the same time, they don’t pay their workers salaries according to the world standards. They are able to buy gas for market price. And the state should support the budget sphere and the municipal utilities sector as it should.
Remember, they said that if the price of gas is higher than USD 130, our economy will collapse? We are buying gas for USD 296 today and most enterprises are OK. Certainly, the state should support those enterprises that experience problems. It is possible to resolve these problems in a very short period of time – 3-4 years – and then, we can forget about gas issue.
 
Not to mention the reserves we could have if we inspect the existing oil and gas fields, find out whose gas is in the underground storage facilities and develop new fields in the Black Sea shelf not with Vanco but with some serious investors.
If we want to be a sovereign state, we should become stronger. And MAP will not be so important then.
 
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19.  RUSSIA COULD HELP UNITE A DRIFTING WEST 
A French academic who pondered the possible demise of the

U.S.-Europe alliance now believes that Russia will give it a raison d’etre.

By Sebastian Rotella, Los Angeles Times Staff Writer
Los Angeles Times, Los Angeles, CA, Monday, August 25, 2008

MADRID — Three years ago, an influential French academic named Francois Heisbourg made a splash with a book with a provocative question as its
title: “The End of the West?”

Heisbourg asserted that the traditional concept of the West, defined as a strategic entity formed by the United States and Europe, belonged to the past. After this month’s tepid response by Western powers to the Russia-Georgia clash, many on the continent were inclined to agree.

Not so fast, says the very man who raised the question. Heisbourg is now taking a contrary view that sharpens the debate. Russia blundered in seeking
revenge for perceived humiliations at the hands of what it sees as a soft and weak West, he said in an interview Friday.

As a result, Russia provided precisely the kind of urgent catalyst that can renew the ailing transatlantic alliance, he said.

“There’s a strong element of paradox,” he said. “The one thing that could re-create the West is Russia acting in opposition to the West. . . . NATO had lost its way. The Russians have created a situation which gives NATO a raison d’etre again: to contain Russia.”

Few observers characterize the Western reaction to the Georgia crisis, which caught Europe in its August vacation slumber, as united or vigorous. The
disarray in European capitals and Washington no doubt reaffirmed Russia’s “dim view of our ability to act coherently,” Heisbourg said.

“The immediate response was pathetic,” he said. “There was no NATO meeting, no EU meeting. . . . The Russians assume there are divisions, and they are
right.”

Divisions are inevitable because of the anti-Russian bent of new member states in Central and Eastern Europe and varying degrees of enthusiasm elsewhere for Washington’s tough stance, analysts say.

“There’s no unity at all within Europe. The newer EU countries are far more anti-Russian than the older ones,” said Margot Light, a Russian foreign policy expert at the London School of Economics and Political Science.

In addition, the realities of economics and energy constrict the abilities of many European leaders when it comes to taking on Moscow.

“Europe will remain overwhelmingly dependent on Russian gas,” said Oksana Antonenko, a Eurasia expert at London’s International Institute for Strategic Studies. “Of course, many countries like Germany and Italy that buy their oil and gas from Russia, they have to worry that if the relationship deteriorates, it will have an impact on their economy.”

But Heisbourg believes that Russia’s power to use energy resources as a weapon is being exaggerated.

Not only must Russia worry about the vagaries of oil prices, it also runs up against the fact that the Eastern European countries most dependent on Russian fuel are the most defiant, he said. In addition, Russia has less energy leverage on key powers such as Britain and France, whose electricity comes mostly from domestic nuclear plants, he said.

The West also has economic clout of its own, with Russia’s government and its wealthy businessmen plugged into the international financial system.

And the West has shown signs of closing ranks after its initial stumbles, Heisbourg said. Chancellor Angela Merkel of Germany, which is the biggest
European economy and a major recipient of Russian fuels, sounded hawkish recently when she said she favored Georgia’s eventual admission into the
North Atlantic Treaty Organization.

“That’s not what the Russians were bargaining for,” Heisbourg said. “The way it unfolds in Germany will be tremendously important because Germany is an in-between country.”

Russia shouldn’t underestimate Washington’s ability to lead a resurgence of Western unity once a new president replaces the Bush administration, which
is hamstrung by its lame-duck status and accumulated international resentment, Heisbourg said.

Moreover, Europe’s history could enable it to complement a tough American stance by playing the role of mediator as it has in the past, analysts said.

“If you look back to Cold War history,” said Light, the Russia expert, “during the Cold War Europe always had a more moderate position than the
United States had, a more pragmatic position — just for reasons of geographic proximity and because Europe tends to have a more pragmatic
policy than the U.S.”

NOTE: Contact rotella@latimes.com. Times staff writer Janet Stobart in London contributed to this report.

LINK: http://www.latimes.com:80/news/nationworld/world/la-fg-west25-2008aug25,0,540493.story

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20.  EU MUST COMMIT TO UKRAINE AFTER GEORGIA SAYS THINK TANK

Reuters, Brussels, Belgium, Monday, August 25, 2008

BRUSSELS – A European Union think tank said on Monday the bloc should make
specific commitments to Ukraine after Russia sent troops into Georgia.

The European Council on Foreign Relations (ECFR) said the EU should respond
to Russia’s August 8 military incursion with “stronger engagement for
democracy, prosperity and security in the broader region” but keep “tough
measures towards Moscow on the table if Russia resists”.

Relations with Ukraine, with which the EU holds a joint summit on September
9, should be a key plank of such a strategy. Ukraine, like Georgia, is a
former Soviet state with a large Russian minority population whose leaders
have irked Moscow by seeking closer ties with the West, including membership
of NATO.

“The EU should … make a special commitment to Ukraine,” the think tank
said in a policy brief.

“It should recognise the right to EU membership in future, agree to a more
liberal visa regime, offer a solidarity clause backing Ukraine’s territorial
integrity, and move to integrate Ukraine into the EU’s energy market.” Harsh
actions against Russia would be counterproductive, the ECFR said.

EU diplomats are considering the 27-nation bloc’s response to Russia’s
assault on Georgia, which followed an attempt by Tbilisi to retake control
of its separatist, pro-Russian province of South Ossetia.

A ceasefire — signed by Georgia and Russia on August 15 and 16
respectively — ended the brief war but Moscow has so far ignored Western
demands it remove its remaining soldiers from Georgia’s heartland.

In its policy brief, the ECFR said the EU should also strengthen its
membership pledge to Moldova, which borders Ukraine. It should push for a
mandate to supplement Russian and Georgian troops in South Ossetia and
another separatist province, Abkhazia, with international peacekeepers, and
contribute several hundred soldiers to such a force.

The EU should also back an international commission of inquiry into the
Georgia conflict to establish its causes, the think tank said.

The EU has taken a more cautious line towards Russia than the United States,
which has said Moscow’s actions could affect Russian membership of the
Group of Eight industrialised nations and its bid to join the World Trade
Organisation. (Reporting by Huw Jones; Editing by Catherine Evans)

LINK: http://www.alertnet.org/thenews/newsdesk/LO382906.htm

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AUR#899 Aug 22 Economic Outlook; Inflation; Gas Price May Double; Russian Energy; Investors Quit Russia; No Chicken Kiev

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

Ukrainian History, Culture, Arts, Business, Religion,
Sports, Government, and Politics, in Ukraine and Around the World       
 
CELEBRATE INDEPENDENCE DAY !
17th Anniversary, Sunday, August 24 
                     
ACTION UKRAINE REPORT – AUR – Number 899
Mr. Morgan Williams, Publisher and Editor, SigmaBleyzer
WASHINGTON, D.C., FRIDAY, AUGUST 22, 2008
 
INDEX OF ARTICLES  ——
Clicking on the title of any article takes you directly to the article.               
Return to Index by clicking on Return to Index at the end of each article
EIU Business Newsletters Eastern Europe
Economist Intelligence Unit Limited
New York, New York, Monday, August 11, 2008
 
2 UKRAINE 2008 INFLATION TO SLOW DOWN TO 18.2% SAYS RAIFFEISEN 
Business Digest, Sofia, Bulgaria, Wednesday, August 20, 2008
 
ROVER, VOLVO & PORSCHE
U.S.-Ukraine Business Council (USUBC), Washington, D.C., Mon, July 28, 2008
EIU Business Newsletters Eastern Europe
Economist Intelligence Unit Limited, New York, NY, July 2008
 
EMISSIONS, CUT GAS COSTS AND ENHANCE WORKPLACE SAFETY
Cogeneration Project in Donetsk Region Taps into GE Energy’s Jenbacher Gas
Engines to Generate On-Site Power as Coal Industry Modernizes Mine Operations
Business Wire, Jenbach, Austria, Wednesday, August 20, 2008
 
FROM RUSSIAN ENERGY TRADE
Investment atmosphere in the energy trade: corruption and non-transparency
Presentation in London, By Keith C. Smith
Center for Strategic and International Studies (CSIS), Washington D.C., June 2008 
 
Charles Clover in Moscow, Financial Times, London, UK, Thu, Aug 21 2008
 
By Chrystia Freeland, U.S. Managing Editor, FT
Financial Times, London, UK, Thursday, August 21 2008
 
Analysis: By Thomas Deters, Office Director
First International Resources, Washington, D.C.,
Action Ukraine Report (AUR), Washington, D.C., Friday, Aug 22, 2008
 
Analysis: By Elizabeth Piper, Reuters, Kiev, Ukraine, Thu Aug 21, 2008
 
Ukraine’s prime minister has sharply criticised the country’s president for restoring displays
of military hardware to Sunday’s independence day parade amid fears of provoking Russia.
By Damien McElroy in Kiev, Telegraph, London, UK, Thursday, 21 Aug 2008
12UKRAINE TO BEEF UP MILITARY POTENTIAL IN AREAS AT RISK FROM RUSSIA
By Fedir Oryshchuk, Ukrainian daily Delo
Kyiv, Ukraine, Tuesday, August 19, 2008
Published by Kyiv Post, Kyiv, Ukraine, Thursday, Aug 21 2008
 
By Diane Francis, National Post, Don Mills, Ontario, Canada, Thu, August 21, 2008
14THE GEORGIA-UKRAINE ANALOGY: WHAT’S THE REAL LESSON?
With Putin pushing a Russian Imperialist agenda, it’s crucial that former
Soviet republics strengthen their alliances with the West
Analysis & Commentary: Oleh S. Ilnytzkyj, Freelance
Edmonton Journal, Edmonton, Alberta, Canada, Wednesday, August 20, 2008
 
Commentary & Analysis: By Vitaliy Voznyak
Transitions Online (TOL), Prague, Czech Republic, 20 August 2008
 
16.  POLAND, UKRAINE AND THE BALTICS, NERVOUS NEIGHBORS
Russia’s war in Georgia troubles its western neighbours
The Economist, London, UK, Thursday, August 21, 2008 

17.  RUSSIAN EFFORTS AT REGIME CHANGE
OP-ED: By Ethan S. Burger
Action Ukraine Report (AUR), Wash, D.C., Friday, August 22, 2008
By Askold Krushelnycky in Kiev, The Independent
London, United Kingdom,Wednesday, 20 August 2008
Investors Business Daily (IBD), New York, NY, Monday, Aug 18, 2008
20 THE DRIVE TO SECEDE
Georgian provinces likely to join Russia
OPINION: By Eric Margolis, Winnipeg Sun
Winnipeg, Manitoba, Canada, Sunday, August 17, 2008
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1
 ECONOMIC OUTLOOK: UKRAINE
 
EIU Business Newsletters Eastern Europe
Economist Intelligence Unit Limited
New York, New York, Monday, August 11, 2008
 
Although the baseline scenario of the Economist Intelligence Unit is that overall macroeconomic stability will be preserved, the threats from rapidly rising inflation and a widening current-account deficit have intensified. The growth in incomes seen in recent years is unsustainable, and under our baseline scenario, real growth in private demand will ease over the forecast period.
 
In combination with slower expansion in the global economy and the impact on Ukrainian industry of several years of steep rises in the cost of gas imports, this is expected to slow real GDP growth in 2008-09. High export prices should continue to soften the blow on the crucial metals sector. Assuming a soft landing in 2008-09, growth should pick up in the later years of the forecast period.
Short-term economic outlook
 
Real GDP growth picked up to 7.2% year on year in May. However, there are indications that income and credit growth, which have been fuelling consumption, are beginning to ease, supporting our existing forecast that real GDP growth will slow to 6.2% in 2008.
 
In the light of the risk of a substantial rise in the price of gas imports in 2009, the risks to our 5.8% forecast for 2009 growth are on the downside. Annual real GDP growth is forecast to average more than 6% in 2008-12, helped by solid domestic demand and high steel prices.
Although the Ukrainian banking sector is generally sound, the tightening of credit conditions globally promises a less favourable external environment for Ukraine’s corporations and banks, which have increased their borrowing abroad in the past few years to fund domestic credit growth.
The government’s populist spending measures will support household consumption in the short term, but this could translate into even higher inflation, eroding income growth in real terms.
Although our forecast of a 65% rise in global steel prices in 2008 suggests an improving external environment for the sector during the year, output increases will be constrained by the high cost of energy and raw materials used in the metallurgy sector, such as iron ore and coking coal.
Ukraine remains dependent on Russia for most of its energy imports, and Russia is still an important market for Ukrainian metals and machine-building exports. Ukraine has nonetheless made strides in diversifying into new markets. Exports to the EU now consistently exceed those to Russia, but are heavily weighted towards low value added products.
Ukraine’s services sector will continue to benefit throughout the forecast period from strong growth in household incomes. Retail trade turnover increased by over 25% annually in 2005-07, reflecting rapidly rising real incomes and consumer confidence, as well as considerable pent-up demand. Demand for financial services will also continue to grow strongly over the medium term, helped by economic expansion and deepening confidence in the financial sector.
Longer-term outlook
Real GDP is forecast to grow at an average rate of around 4.4% annually in 2008-30. However, this long-term average masks a general trend towards slower rates of expansion, and average annual GDP growth is forecast to slow from just over 6% in 2008-10 to 4.7% in the subsequent decade, and to 3.5% in 2021-30.
 
The slowdown in the long-term growth rate primarily reflects poor demographics, with the result that the deceleration in growth rates on a per-head basis will be considerably less marked. It also reflects the slow pace of institutional change and reduced scope for catch-up as Ukraine becomes richer.
 
However, the economy will grow significantly more quickly than the developed west European economies, with the result that that Ukrainian GDP per head—in purchasing power parity (PPP) terms—will continue to rise closer to EU levels, from around 24% of the EU15 level in 2003.
The real GDP growth rates expected over the longer term are far below what was achieved in the past five years, with considerably less scope for bounce-back following the economic collapse of the 1990s.
 
The far more modest growth rates expected over the long term represent a best-case scenario. They include optimistic assumptions on labour productivity and the growth in capital stock, and presuppose that sound policies bring further economic liberalisation, disinflation and only limited fiscal deficits. The risk is that policymaking will be worse than expected, given the continued strength of vested interests, resulting in even more modest growth rates.
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2.  UKRAINE 2008 INFLATION TO SLOW DOWN TO 18.2% SAYS RAIFFEISEN BANK
 
Business Digest, Sofia, Bulgaria, Wednesday, August 20, 2008

Raiffeisenbank Ukraine’s inflation for the full 2008 will slow down to 18.2 pct from the 26.9 pct year-on-year rate recorded in July, according to a
research by Ukrainian Raiffeisen Bank Aval.

The consumer price index (CPI) declined by 0.5 pct on the month in July and eased on an annual basis to 26.9 pct from 29.3 pct in June. The traditional
summer seasonal fall in fruit and vegetable prices decelerated the food prices growth to 39 pct year-on-year at the end of July from 50.2 pct at the
end of May.

Taking into account the extremely good harvest this year, Raiffeisen’s analysts expect another deflation month in August and a relatively low monthly inflation rate in September. Inflation pressures, however, are unlikely to subside in the face of skyrocketing production prices and expansionary fiscal policy, Raiffeisen noted.

The producer price index (PPI) picked up 3.6 pct month-on-month in July, bringing the annual growth rate up to 46.4 pct. The fastest growers, the
prices in the steel, mining and oil-processing industries, marked a rise of 65.9 pct, 46.8 pct and 41.2 pct, respectively, since the beginning of the
year.

Moreover, the authorities are reportedly considering a substantial gas tariffs hike for households by the end of the year, which could speed up
inflation to over 20 pct if its magnitude reaches 30 to 40 pct.
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3.  WINNER IMPORTS UKRAINE, LTD, JOINS U.S.-UKRAINE BUSINESS
COUNCIL (USUBC), OFFICIAL IMPORTER FOR FORD, JAGUAR, LAND
ROVER, VOLVO & PORSCHE

U.S.-Ukraine Business Council (USUBC)
Washington, D.C., Monday, July 28, 2008

WASHINGTON, D.C. The executive committee of the U.S.-Ukraine Business Council (USUBC), on behalf of the entire membership, is most
pleased to announce that Winner Imports Ukraine, Ltd., has been approved for USUBC membership. Winner Imports Ukraine, Ltd, is the official importer for Ford, Jaguar, Land Rover, Volvo and Porsche. 

During a Wimbledon championship in 1991 one of Ford’s top managers in the United States suggested to John Hynansky, the owner of Ford dealerships in
Delaware and Pennsylvania, known under the name of Winner, that he go into a new business in Ukraine.

Mr. Hynansky had worked in the automobile industry for over 25 year at that time. He had built a vast network of automobile dealerships on the East Coast
of the United States and won several awards which highlighted his commitment both to business and to the customer.

John Hynansky, an American with Ukrainian heritage, said he was not quite interested in buying another firm but liked the idea of helping Ford start a
network of dealerships in Ukraine.

Encouraged by this idea, John Hynansky first traveled to Ukraine in 1992, shortly after the republic declared its independence. It was not long until he
came to love the country of his origin. His parents were born in Ukraine but left the country in the late 1930’s and came to the United States.

At the end of 1992, the first Winner Ford dealership was launched in Kyiv. This flagship facility was deemed as the largest facility in Ukraine and set
the benchmark for an automobile industry that was still in its infancy.

VOLVO, JAGUAR, LAND ROVER & PORSCHE

Due to it’s commitment to customer service and high level of professionalism, Winner Imports Ukraine was awarded as the official importer of Volvo cars
to Ukraine in 1999.  This was a monumental step as it was a commitment from another major manufacturer to Winner Imports Ukraine.

In 2004, Winner Imports Ukraine was awarded the Jaguar, Land Rover, and Porsche franchises for Ukraine.  This again, was another prize for Winner as
it showed the high level of commitment and trust from the manufacturer to the importer, as these marquee brands believed in Winner’s commitment to
provide the best automotive experience to the consumer.

In 2006, Winner Automotive, a sister company of Winner Imports Ukraine opened the largest multi-brand concept dealership in Eastern Europe.  This
dealership, located in Kyiv, houses the Ford, Volvo, Jaguar, and Land Rover brands.  This $10,000,000 project reconfirmed Winner’s position as the clear
leader in the Ukrainian automobile business.

35,000 VEHICLES SOLD, 50 SALES & SERVICE POINTS

Winner Imports Ukraine, during the past 16 years has sold more than 35,000 vehicles and has developed a network of more than 50 sales and service points throughout Ukraine.  Winner Imports Ukraine constantly strives to optimize its processes and personnel in order for the consumer to have the best automobilepurchase and service experience possible.

Mr. Bohdan Kulchyckyj is General Director of Winner Imports Ukraine.  An American with Ukrainian heritage, he has lived and worked in Ukraine for the
last 16 years.

Additional information about Winner Imports Ukraine, Ltd and Winner Automotive can be found on their website at: http://www.winner.ua/en.

“The U.S.-Ukraine Business Council (USUBC) is most pleased to have Winner Imports Ukraine, Ltd. join the rapidly expanding USUBC membership.” said Morgan Williams, SigmaBleyzer, who serves as President of USUBC. “Winner has certainly earned its place among the leading automotive companies in Ukraine.”

MEMBERSHIP IN USUBC KEEPS GROWING

Winner Imports Ukraine is the 36th new member for 2008, and the 66th new member since January of 2007. USUBC membership has quadrupled in the
past 19 months, going from 22 members in January of 2007 to 87 members in July of 2008. Membership is expected to top 100 very soon.

The other new members in 2008 are MaxWell USA, Baker and McKenzie law firm, Och-Ziff Capital Management Group, Dipol Chemical International,
MJA Asset Management, General Dynamics, Lockheed Martin, Halliburton, DLA Piper law firm, EPAM Systems, DHL International Ukraine, Air Tractor,
Inc., Magisters law firm, Ernst & Young, Umbra LLC., US PolyTech LLC, Vision TV LLC, Crumpton Group, American Express Bank, a Standard
Chartered group company, TNK-BP Commerce LLC, Rakotis, American Councils for International Education, Squire, Sanders & Dempsey LLP,
International Commerce Corporation, IMTC-MEI, Nationwide Equipment Company, First International Resources, the Doheny Global Group, Foyil
Securities, KPMG, Asters law firm, Solid Team LLC, R & J Trading International, Vasil Kisil & Partners law firm, AeroSvit Ukrainian Airlines
and ContourGlobal. 

The complete USUBC membership list and other information about USUBC can be found at: http://www.usubc.org.

BUSINESS INVESTMENT DRIVES UKRAINE’S INTEGRATION

Ukraine’s Euro-Atlantic integration is first and foremost today being driven by the private business community in Ukraine, Europe, and the United States.


“Ukraine’s aspirations for Euro-Atlantic integration, to be a major member of the world’s community of strong, democratic, independent, prosperous,
private business sector driven nations, will be realized largely through the present leadership and investments from the business community and then
hopefully with some real support later from the politicians and government leaders,” wrote Morgan Williams, SigmaBleyzer, who serves as President
of USUBC, in a recent article published by the “Welcome to Ukraine” magazine.
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4. UKRAINE: COMING CRISIS GAS PRICE COULD DOUBLE NEXT YEAR

 
EIU Business Newsletters Eastern Europe
Economist Intelligence Unit Limited, New York, NY, July 2008

The gas price for Ukraine could double next year, threatening both economic meltdown and gas transit to Europe.

Ukraine is facing the threat of the its imported gas price soaring in 2009. Potentially this would be ruinous for Ukraine, thus putting Russian gas supplies to Europe into doubt again. It is not clear whether Ukraine has the means to negotiate with Russia a more gradual transition to EU prices; if it does, the political price is likely to be high.

The price that Ukraine pays for imported gas could double next year, Gazprom CEO Alexei Miller told Russian prime minister Vladimir Putin in a meeting on July 8th. Mr Miller had previously remarked that the price paid by Ukraine could rise from US$179.50/1,000 cu metres this year to US$400 in 2009. Mr Miller’s latest comment is noteworthy because it underlines the Russian state-run gas monopoly’s insistence on a higher price.

Speaking after a meeting on June 28th with Ukrainian prime minister Yuliya Tymoshenko, Mr Putin said that the price paid by Ukraine would rise gradually to market levels. He did not specify a time period, nor indicate how high prices might rise in 2009. Moreover, he noted that the Central Asian states were eager to achieve a “European price” from the start of 2009.

A day later Ms Tymoshenko claimed that the outcome of the meeting was for prices to rise to a Euro-pean level over a period of three-four years. Ukraine’s fuel and energy minister, Yuri Prodan, claimed in an interview published with newspaper Delo on July 9th that Ukraine had an outline agreement to avoid a sharp price rise in 2009. However there is no corroboration of this from any Russian official.

Ukraine has contracted to buy 55bn cu metres of gas each year from Central Asia, via the intermediary RosUkrEnergo. This accounts for the lion’s share
of the country’s consumption, which is high by European standards. BP data show that Ukraine produced 19bn cu metres of gas and consumed 64.6bn cu
metres in 2007.

Ukraine has tried unsuccessfully to re-establish direct contact with the Central Asian gas producers. In mid-March, following a meeting with them,
Gazprom announced that from 2009 the Central Asians would receive a European price for their gas.

Crunching numbers
The so-called European price refers to the cost of Russian gas at Germany’s eastern border, which is determined by a formula linked with the price of
crude and oil products. Recently the price has been around US$335/1,000 cu metres, according to World Gas Intelligence, but the same source has
predicted that prices could soon rise to nearly US$400/1,000 cu metres.

If the import price did rise to this level it would represent an eightfold increase on the price Ukraine paid throughout 2005. The current import price
of just under US$180 per 1,000 cu metres equates to a domestic retail price of around US$240, to cover internal transit costs, a supplier margin and
value-added tax (VAT). So if import prices were to double, the price for end-users would be close to US$500 per 1,000 cu metres.

Apocalypse soon?
The imposition of such a high gas price on Ukraine would have direct and potentially devastating effects.

 
[1] First, it would have a serious impact on industry. The country’s energy-intensive firms have responded well to the tripling of prices since 2005, by making quick and cheap energy-saving changes and where possible shifting to cheaper fuel sources. Anecdotal evidence suggests that these possibilities have been largely exhausted.

Metallurgy enterprises began investment programmes several years ago to introduce more advanced energy-saving equipment into their plants, but a
number of these programmes are two years away from completion and may not in any case have been predicated on such high gas prices.

Ukrainian industry is dominated by metallurgy and chemicals. Base metals and products accounted for 42% of goods exports in 2007, and chemicals a further 8%. It is believed that fertiliser producers would struggle to turn a profit if the gas price rose above US$300/1,000 cu metres.

For steel plants, the tolerance level is understood to be considerably higher, at approximately US$400/1,000 cu metres. The one uncertainty concerns prices for these companies’ output, which determines their margin. Fertiliser prices fell in the early months of this year, but steel prices thus far have remained high.

[2] Second, it would impact on the current-account balance, which has already deteriorated from a peak surplus equivalent of over 10% of GDP in 2004 to a deficit of 4% of GDP in 2007 under the weight of strong domestic demand and several years of steep rises in energy import costs. The deficit is heading for a further widening to well over 5% of GDP in 2008.

To date, the deficit has been comfortably covered by rising inflows of foreign direct investment (FDI) and external borrowing by the Ukrainian
banking sector and corporates, with the result that the domestic currency, the hryvnya, has remained under upward pressure (this led the central bank
to revalue the official exchange rate against the US dollar by 4% in May).

However, concerns over whether Ukraine can continue to finance its current-account deficit in 2009 are intensifying. If gas import volumes remained unchanged and the gas price rose to US$400, the import bill would increase by US$8bn or 4% of GDP, to 7.3% of GDP.

[3] Third, it would place a huge strain on Ukrainian households and public institutions, which combined consume around 25bn cu metres of gas annually.

Thus far the government has cushioned the impact of higher import prices on households by maintaining a regulated end-user price that is lower than the
wholesale price. Losses have been directed onto municipal budgets and the state gas utility Naftohaz. This situation could not continue were gas
prices to double.

Fourth, given the centrality of gas to Ukraine’s economy, it would deliver a huge boost to inflation directly and through second-round effects. Consumer
prices rose by an average of 22% in the first quarter of this year, and over 30% in the second quarter. Although price-growth may now have peaked, a
doubling or more of gas prices would throw that deceleration into reverse.

Taken together, these effects would inflict ruinous damage right across the economy. In such a situation it is not certain whether Ukraine could be
relied upon to deliver the sizeable gas volumes that Russia ships to Western markets via Ukrainian territory.

Some 80% of Russian gas exports to the EU, approximately 120bn cu metres, cross Ukraine. This year the figure may be even higher: in the first half of
the year, according to Ukraine’s fuel and energy ministry, transit volumes rose by 23% to an all-time high of 65.3bn cu metres.

Unattractive options
Facing these problems, Ukraine’s government has several options.

[1] First, it could raise transit fees for Russian gas. The current rate of US$1.70/1,000 cu metres per 100 km is low by European standards; Poland applies a tariff of approximately euro2.50. However, even increasing transit fees to US$3.50/1,000 cu metres per 100 km would not do much to offset the shock of such a rise in the gas import price.

Data on Ukrainian receipts for gas transit are not readily available, but on the basis of a transit fee of US$1.70 and volumes of 120bn cu metres per year it could be approximately US$2.25bn. It follows that by increasing the transit fee to US$3.50 per 1,000 cu metres, receipts to Ukraine would increase by no more than US$2.4bn. This increase pales in comparison with the prospective US$8bn increase in the import bill. However, it would go some way to meeting the increased cost of gas for households and public institutions.

[2] Second, the government could reduce the end-user price by cutting or abolishing VAT, which is currently levied at a rate of 20%. This would offer
limited help to Ukrainian consumers, but at the same time it would reduce the government’s financial possibilities to help cushion the impact of higher prices. Nor would it sit well with the task of narrowing the budget deficit, which is already difficult because of Ms Tymoshenko’s populist
spending programmes.

[2] Third, the government could choose to decapitalise Naftohaz as a partial solution to its problems. However the scope for doing so is limited, given
Naftohaz’s already parlous financial state and the existence of a sovereign guarantee to the company. Moreover, there is a high human and political cost
to decapitalisation; in 2007, 52 people died in Dnipropetrovsk when their apartment building exploded because equipment to regulate gas pressure was
not installed.

Putin’s ponderables
For Russia’s government, a gas-price shock for Ukraine would be a mixed blessing. On one hand, it would have certain advantages. By damaging Ukraine’s
economy, it would undermine the legitimacy of the government that emerged as a result of the 2004 Orange Revolution that Russia opposed.

Ukraine currently represents the greatest challenge to the political and economic development model that Russia champions; its failure would increase
the sense of security felt by Russia’s own elite, which has been anxious to prevent what it terms the “Orange virus” spreading to Russia.

On the other hand, severe socioeconomic instability in Ukraine is not in Russia’s interest, given the strong political, economic, military and human ties between the two countries.

 
If gas became unaffordable for many Ukrainians, or if Naftohaz and Gazprom were at war over prices or transit tariffs, Russian gas exports to Europe would be in jeopardy. Oil transit could be affected too, conceivably. Europe is the major market for these Russian commodities, which together dominate Russia’s export profile.

The Russian calculation with regard to Ukrainian gas prices is also affected by the position of the Central Asian countries. Russia cannot simply dictate
terms to the Central Asians, as the gas price has risen so far and now the EU and especially China have emerged as rival customers for the region’s
hydrocarbons.

It is conceivable that Mr Putin and president Dmitry Medvedev could persuade Turkmenistan, Uzbekistan and Kazakhstan to accept a graduated shift to
European prices, over a period of perhaps two-three years, but the Russian leadership would have to spend significant political capital to achieve this.

For Gazprom’s EU customers, the struggle over Ukrainian gas-pricing next year should be a source of enormous concern. About 80% of the Russian gas
they receive comes via Ukraine; there is little scope for increasing deliveries via Belarus, which may itself soon be in conflict with Russia over the gas trade terms for 2009. The mooted Ukrainian bypass routes Nord Stream and South Stream are years away from completion.

The prospect for gas cut-offs because of disagreements on price or transit fees, or because of theft from the pipeline, is considerable. Ukraine’s government has stressed in the past two years that it is a reliable transit partner and would not take any such steps lightly. But when gas for the population and swathe of industry becomes unaffordable, desperate measures should probably be expected. SOURCE: Business Eastern Europe
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U.S.-Ukraine Business Council (USUBC): http://www.usubc.org
Promoting U.S.-Ukraine business relations and investment since 1995.
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5.  UKRAINE’S COAL MINE INDUSTRY CONTINUES WORK TO REDUCE
EMISSIONS, CUT GAS COSTS AND ENHANCE WORKPLACE SAFETY
Cogeneration Project in Donetsk Region Taps into GE Energy’s Jenbacher Gas
Engines to Generate On-Site Power as Coal Industry Modernizes Mine Operations
 
Business Wire, Jenbach, Austria, Wednesday, August 20, 2008
 
JENBACH, Austria – The JSC Coal Company Krasnoarmeiskaya Zapadnaya is the latest Ukraine company to modernize its coal mining operations by signing a framework agreement with GE Energy. Under the agreement, JSC plans to install up to 20 of GE’s ecomagination(TM)-certified Jenbacher coal mine gas-fueled cogeneration units.
 
The engines will use the active mine’s own methane gas to generate about 129 MW in total power output, covering the mine’s on-site power and heat requirements. The initiative will also reduce site emissions and support workplace safety initiatives. The privately owned mine is located near the town of Krasnoarmeisk in the coal-rich Donetsk region in eastern Ukraine.
While many coal mines in Central and Eastern Europe have traditionally utilized a small portion of their coal mine methane (CMM) for generating steam, Ukraine has become a regional leader in installing the latest technology to expand the use of the gas for on-site power generation.
Being one of Europe’s leading coal-producing countries, Ukraine is a founding member of the United Nations-backed Methane to Markets Partnership, an international initiative supporting the cost-effective recovery and utilization of methane, a potent greenhouse gas. Recycling the gas to generate on-site power can offer significant economic benefits.
When the Krasnoarmeiskaya Zapadnaya project reaches full operation, it is expected to potentially reduce the equivalent of more than two million tons CO(2) emissions per year, compared to venting the gas into the atmosphere – qualifying the plant for carbon emission trading certificates.
“Ukraine is encouraging its coal mines to modernize their operations, including the use of mine gas as a new source for on-site power to improve energy efficiency and support the nation’s economic and energy security objectives,” said Alex Pavlov, GE’s Jenbacher gas engine Sales Manager for the Ukraine.
 
“GE is helping operators accomplish this goal by supplying Jenbacher specialty gas engines to help lower their energy costs and reduce methane emissions.
“Generating nearly 129 MW of power with mine gas could save about 122 million cubic meters of natural gas a year,” Pavlov noted.
The project will also enhance workplace safety in the mine. As part of the mine’s new gas utilization initiative, the operator is installing an improved mine gas ventilation system, which will further improve worker safety.
 
By capturing mine gas for on-site power, less of the gas will be available to mix with oxygen and create a potentially explosive combination–one of the most significant hazards that coal miners face.
The power project’s engineering and procurement contractor (EPC) Sinapse CHNPP of Kiev secured the framework agreement to install up to 20 of GE’s 3-MW, JMS 620 GS-S.L. systems, which are designed specifically for projects with low methane contents. Sinapse is also GE’s authorized Jenbacher engine distributor for the region.
The cogeneration units will operate in parallel to the local grid. The mine gas-fueled plant will have total electrical and thermal outputs of 60.9 MW and 67.8 MW, respectively, with the electrical and thermal power being used to support mine operations.
The Jenbacher units are scheduled to be delivered to the site between 2008 and 2011. GE is also supplying a complete heat utilization system, emergency cooling, control and synchronization system, as well as start-up and commissioning. Long term service for the Jenbacher units will also be provided by Sinapse, enhancing the value of this alternative energy project.
The Ukraine coal mine industry has now ordered a total of 44 of GE’s J620 GS Jenbacher gas engines for several CMM projects. GE’s previous successful installations were a factor in Krasnoarmeiskaya Zapadnaya selecting the Jenbacher units for its CMM project.
About GE Energy’s Jenbacher Gas Engines
GE Energy’s Jenbacher gas engine business, based in Jenbach, Austria, is a leading manufacturer of gas-fueled reciprocating engines, packaged generator sets and cogeneration systems for power generation.
Jenbacher engines cover an output range of 0.25 to 4 MW and operate on natural gas or a variety of specialty fuels, including flare gas and coal mine gas or alternative fuels like biogas, landfill gas, wood gas, sewage gas and industrial waste gas.
 
Patented combustion systems coupled with advanced engine and plant management systems enable customers to meet stringent international emission standards while offering high levels of efficiency, durability, and reliability.
About GE Energy
GE Energy ( http://www.ge.com/energy) is one of the world’s leading suppliers of power generation and energy delivery technologies, with 2007 revenue of $22 billion. Based in Atlanta, Georgia, GE Energy works in all areas of the energy industry including coal, oil, natural gas and nuclear energy; renewable resources such as water, wind, solar and biogas; and other alternative fuels.
Numerous GE Energy products are certified under ecomagination, GE’s corporate-wide initiative to aggressively bring to market new technologies that will help customers meet pressing environmental challenges. GE’s Jenbacher biogas, landfill gas and coal mine methane engines have received ecomagination certification, underscoring the environmental and economic benefits offered from the utilization of generating energy from high methane content waste streams.
About GE
GE 28.75, +0.10, +0.4%) is a diversified global infrastructure, finance and media company that is built to meet essential world needs. From energy, water, transportation and health to access to money and information, GE serves customers in more than 100 countries and employs more than 300,000 people worldwide. GE is Imagination at Work. For more information, visit the company’s Web site at http://www.ge.com.
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6.  CORRUPTION, NOT DEPENDENCY IS THE RISK TO
WESTERN EUROPE FROM RUSSIAN ENERGY TRADE
INVESTMENT ATMOSPHERE IN THE ENERGY TRADE:
CORRUPTION AND NON-TRANSPARENCY
 

PRESENTATION IN LONDON: By Keith C. Smith
Center for Strategic and International Studies (CSIS), Washington D.C., June 2008 
 
The growing dependency in Europe on non-transparent financial transfers in the energy trade is as great a danger to Europe as is the increasing dependency on Russia as the primary energy source.  Non-transparent and corrupt business practices can have a corrosive effect on European governments, and especially on the new EU member states of East Central Europe.
 
Western energy companies trying to conduct business in Russia, Ukraine or in Central Asia confront constant pressure from local officials and energy companies to engage in shady business practices when considering investment decisions.  Record high energy prices have increased opportunities for non-transparent Russian state companies to secure influence among Western governments and with political and economic elites in neighboring states.
 
Dubious or outright corrupt business practices are distorting the energy decision-making processes in both consumer and supplier countries.  According to Russian economists, the business climate within the Russian energy sector has become even less transparent and more corrupt in recent years. 
 
Increasing corruption, along with the re-nationalization in Russia of the large energy companies has led to a decline in new investment in exploration and development.  This has resulted in tighter energy markets, higher prices and greater uncertainty among potential importers and investors in the ability of Russia to fulfill its long-term energy contracts.
 
Corruption and re-nationalization has also weakened the bargaining position of Western firms using best practices when engaging in East-West energy trading.  The increasing dominance of Russian state-controlled energy companies has also led to a marked reduction of alternative investment possibilities for Western companies. 
 
This further increases the temptation by Western firms to agree to demands by Eastern energy suppliers to engage in practices not acceptable when dealing with another Western firm. It also raises the likelihood that some Western governments will ignore questionable practices by their countries’ energy suppliers.
 
Predictability in making business decisions is already difficult for Western energy firms.  This is more the result of the increased danger of intervention at any point by elite cartels who dominate the energy trade, particularly in Russia and Central Asia. 
 
These cartels are composed of governmental leaders, intelligence officials and favored business oligarchs.  The composition of these elite groupings can suddenly change, with a shift in the local political balance, only adding to business uncertainty. 
 
Western businesses are often compelled to work with partners favored by elite cartels, with Gazprom and Rosneft as prime examples.  The same often holds true in Ukraine, Kazakhstan and Turkmenistan.
 
The purpose of these elite cartels is to build national and transnational networks and alliances that solidify their own power while they stave off opposition by more transparent and democratic business groups.  The result is to enrich networks of higher level elites, making it even more difficult for reform elements to bring about political and economic change.
 
Polling among Russian business leaders indicates that corruption has significantly increased in the past six to eight years. Why should we in the West assume that the increase in business corruption in Russia has not already spilled over into the activities of these same state-directed firms when they operate in the EU, or even in the U.S.?
 
The Swedish economist Anders Aslund, who has worked for many years in Russia and Ukraine, estimates that 50 percent of Gazprom’s investments are lost through corrupt practices. 
 
William Browder who is now barred from entering Russia, but for years has been active in Hermitage Capital Management, a firm that is heavily invested in Gazprom, has questioned publicly why Gazprom voluntarily foregoes significant profit each year by consigning a large amount of its business to murky intermediaries?  Many commentators assume that Browder is being “punished” for having the temerity to question the practices of a firm indirectly managed from the Kremlin. 
 
However, Browder asks a good question, one that any Western firm dealing with Gazprom or any other state-controlled Russian company should consider before increasing its financial exposure in the energy sector.  Some Western energy companies attempting to negotiate joint ventures with Russian state firms have called off talks with potential Eastern partners rather than agree to funnel profits through off-shore accounts or to intermediary firms that bring no added value to the venture. 
 
Cyprus and other off-shore havens are filled with companies that are reportedly intermediaries in the energy business between Russia, Central Asia and Europe, but bring no added value to the transactions.  It would be an exaggeration to think that all Cyprus-based firms are laundering operations, but many of them appear to have been established for that reason.
 
The highly-publicized asset losses and contractual problems of Shell, BP, Exxon, Matsui and Mitsubishi in Russia are only the most highly publicized cases of contracts being arbitrary changed.  It seems that when doing business in Russia, a contract is not a contract – even if there are solid international arbitration clauses written in to the original agreement.  The recent legal troubles of TNK/BP should be closely studied by Western companies contemplating new energy ventures in Russia.
 
Western firms are rarely in a position to bid on projects where there is a transparent well-supervised tender.  Too often, in Russia, Ukraine and in Central Asia, taking in a “local partner” who is a member of one or another elite oligarchic group is the admission ticket.  Paying the admission fee, however, often leads to a watering down of the Western partner’s assets or ultimately to a complete takeover by the local “investor.” 
 
One European observer said, “Russia pretends to adhere to international business standards, and Europe pretends to believe that this poses no risk to Europe or international security.”
 
The feeble reaction of Western governments and the EU to non-transparent actions by Moscow only encourages the Kremlin to believe in the effectiveness of its aggressive energy policies. As evidence of the West’s weak reaction we could point to their willingness to ignore politically motivated energy disruptions in East Central Europe by Transneft or Gazprom, and to the acceptance by Europe of monopoly and anti-trust practices on the part of Russian companies.  These anti-trust and anti-competition practices are a clear violation of Article 82 of the EC Treaty and of Article 45 of the Energy Charter Treaty
.
There continues to be reluctance on the part of Western governments to investigate and enforce EU and OECD anti-bribery laws and regulations.  The lack of a common EU approach to Russia and Central European energy policies allows Moscow to carry out a “divide and conquer” strategy that plays to the particular vulnerabilities of each European state.
 
Market liberalization and the privatization of energy assets in European states with weak judiciaries or anti-trust enforcement has been an advantage for Russian state companies competing with Western firms – especially when the latter adhere to the OECD convention on anti-bribery of foreign officials.  There is a danger that this may lead, or may have already led, to the enrichment of some well-positioned individuals in European member states.
 
The new democratic governments of Central Europe have been relatively passive in dealing with transparency and anti-corruption issues.  This may be a result of the large number of political and economic leaders who are holdovers from the communist period. 
 
The attention to these matters by the EU has also been diverted by the need to deal with “widening and deepening” issues.  Not enough focus has been given to transparency issues in new member states once EU membership has been achieved, with the exception of Bulgaria and Romania.
 
The weak state of transparency in Central Europe facilitates the formation of new alliances between East European elites and the former communist/intelligence elite in Russia who dominate the major energy companies.  This puts Western firms at a clear disadvantage when negotiating for facilities acquisition or pipeline construction.  With the re-nationalization of Russian energy assets, more of the negotiations with the West are carried out by top governmental officials. 
 
 Fewer agreements are seriously negotiated at the company level.  It is fair to ask whether there are many Western leaders who can negotiate effectively with the seasoned intelligence officers in the Kremlin who are in charge of Russia’s energy policies?  Western leaders rarely have the skills or the ability to fully mobilize state resources required to negotiate on an equal basis. 
 
In addition, Western firms that attempt to carry out due diligence on prospective partners or on government ministries and regulatory agencies are often frustrated by either a lack of information or the reliability of the data fed back to them.  I
 
in some cases, it is impossible for the Western firm to know if those doing the due diligence are really objective agents – even in cases where the firm is headquartered in the West and staffed with Western personnel.  Too many Western energy firms have been taken by surprise by issues that should have been flagged during the due diligence phase. 
 
RECOMMENDATIONS:
 
[1] The EU Commission and Council should push for full implementation of the Parliament’s September 26, 2007 resolution that called for a “common European foreign policy on energy.”  Carrying out the Parliament’s recommendations would help “level the playing field” for Western investors, reduce opportunities to engage in non-transparent or corrupt business practices in the East-West energy business and decrease the large profit that stems from monopoly control of piped natural gas exports from the Caspian Sea countries and Russia to Europe.
 
[2] Western firms should petition the EU, DG COMP and national governments to enforce more vigorously existing anti-trust and competition policy, particularly in regards to Russian state companies.  Greater import competition would lower prices for consumers and for Western power and refinery operators. 
 
Opening existing Russian pipelines to competitors would also increase the supply of oil and gas coming from Russia and Caspian countries and bring more predictability in supply.  The “unbundling” policies being pursued by DG COMP would be a positive step forward.
 
[3] The Council and Parliament should consider establishing an independent regulatory agency with the authority to monitor (but not approve or disapprove) all major energy agreements between EU and non-EU companies. It would report to the Commission regarding the likely effect of the proposed agreement on the broader EU energy market. 
 
The agency could enforce a minimum level of revenue transparency in international energy contracts, extending to all companies (domestic or foreign) that do business within EU member states.
 
[4] Require all member governments to notify the Commission at the start of negotiations with foreign entities regarding the construction of new energy pipelines, the offering of tenders for energy contracts and when conducting talks for the sale of existing facilities within their border. This might counteract the “divide and conquer” activities of Russian state-owned energy firms, thereby leading to greater cooperation by EU states.
 
[5]  Western energy companies would benefit from a uniform reporting requirement that applied to domestic and foreign firms doing business within the EU; one that mandates revenue transparency reporting for their operations at home and abroad. This would weaken the present advantage held by firms from countries with high levels of business corruption and an unwillingness or inability to enforce existing contracts.
 
[6]  Firms should be barred from including confidentiality clauses that hide revenue transparency in contracts with foreign energy companies.
 
[7] The EU Commission should be more active in defending member states against politically-motivated disruptions in energy flows from Russia, such as occurred in Lithuania and Latvia. An unwillingness to defend EU members from this kind of disruption only disadvantages the energy firms and the state interests targeted by Moscow.  It also further encourages those elements in Russia who oppose domestic reform and enforcement of the rule of law. 
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NOTE: Keith C. Smith is a Senior Associate with the Energy and national Security Program at the Center for Strategic and International Studies (CSIS) in Washington. He also serves as a Senior Advisor to the U.S.-Ukraine Business Council (USUBC), www.usubc.org.   He is a former U.S. Ambassador to Lithuania. The views expressed above are solely those of the author and do not necessarily represent those of the Center for Strategic and International Studies or the USUBC.
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7.  INVESTORS QUIT RUSSIA AFTER GEORGIA WAR 
By Charles Clover in Moscow, Financial Times, London, UK, Thu, Aug 21 2008
Investors pulled their money out of Russia in the wake of the Georgia conflict at the fastest rate since the 1998 rouble crisis, new figures showed yesterday.
Russian debt and equity markets have also suffered sharp falls since the conflict began on August 8, with yields on domestic rouble bonds increasing by up to 150 basis points in the last month.
 
The moves come as President Dmitry Medvedev faces pressure from business leaders concerned that the impact of the global credit crisis is starting to be felt in Russia.
Credit conditions are to be discussed at next month’s “summit of oligarchs”, the Russian Union of Industrialists and Entrepreneurs meeting that former President Vladimir Putin held annually to discuss economic issues.
Vladimir Potanin, head of Interros, one of Russia’s largest industrial groups, has complained about the shortage of long-term credit to Mr Medvedev, the financial newspaper Vedomisti reported yesterday.
The tight credit conditions have been exacerbated by foreign capital flight since the war. Data released by Russia’s central bank showed a drop in foreign currency reserves of just over $16.4bn in the week beginning August 8. This was one of the largest absolute weekly drops in 10 years, according to Ivan Tchakarov at Lehman Brothers.
The only larger drop in reserves since 1998 was $16.5bn in June 2006, when Russia paid off the bulk of its Paris club debt.
Gennady Melikyan, the central bank’s deputy chairman, said the sell-off had been triggered by the “political situation”, adding: “Foreigners are pulling out of some assets and stock markets and the exchange rate has suffered most. I think we have come close to the bottom now.”
While the value of the rouble has stayed relatively stable since the start of the conflict, with the help of central bank intervention, the stock market has fallen 6.5 per cent since August 7 and companies have found it harder to raise capital as investors demand sharply higher yields to buy their bonds to reflect the perceived risk.
The moves show that Russia’s economy, in spite of having one of the strongest national balance sheets in the world, is not immune to global market sentiment, which could end up being an important check on Kremlin decision-making.
“The million-headed hydra of the bourgeoisie has sent a signal: ‘change your course, comrades!'” wrote the popular internet columnist Dmitry Oreshkin on www.ej.ru  in a joking reference to the communist background of Russia’s leadership.
Alexei Kudrin, finance minister, said the capital flight had largely subsided and would be more than made up for by projected inflows. Russia’s foreign currency reserves, at $581bn, are the world’s third largest. “There is nothing that has happened that could cause us to change any of our plans,” he said.
But the ebbing of foreign investor confidence will make it harder for Russian companies to raise debt and equity finance since foreign sources account for a disproportionate share of long-term capital for Russian corporate borrowers.
“The market is vulnerable to foreign capital flight,” said Kingsmill Bond at Troika Dialogue, the investment bank. “The major Achilles heel of the Russian market is that there is very little domestic long-term capital.” Partly as a result of the Georgian conflict, yields on domestic rouble bonds have increased in the last month by between 75 and 150bp, Mr Bond said.
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8.  THE OLIGARCHS COULD BE RUSSIA’S BEST BET 

 
By Chrystia Freeland, U.S. Managing Editor, FT
Financial Times, London, UK, Thursday, August 21 2008

One of the great debates about Russia is now over. We no longer need to argue about whether Russian leader Vladimir Putin’s reassertion of state power is good for the economy and thus essentially benign.

 
We do not need to ponder whether the selection of the “liberal” Dmitry Medvedev as president means the country?will soon, again, become freer. We can cast aside discussions about whether strong-arm Kremlin chiefs will make more reliable partners for the west than the shambolic democrats who preceded them.
The war with democratic Georgia has created a new, sharp consensus across Europe and North America, as voiced with surprising harmony at Nato’s
emergency summit in Brussels this week. Mr Putin’s neo-authoritarian regime – and it is clearly his state and his fight, no matter that we now call him “prime minister” – is a country with which, as the Nato summit concluded, we cannot continue “business as usual”.
But this sad conclusion has left us with another, trickier dilemma: what can we do instead? The initial answers have been sobering. Having finally agreed
that the new Russia is nasty – and not just to its own journalists or human rights activists – western leaders are also coming to the view that it may be hard to influence, let alone contain.
For one thing, there is Russia’s petro-wealth. Your pain at the pump has resurrected Moscow from a humble recipient of International Monetary Fund
financing in the 1990s to the swaggering holder of more than $581bn in central bank international reserves it is today.
 
Some of that money has gone to Russia’s military, which we now remember is vast, has nuclear capability and, as of August 8, is prepared to strike beyond the borders of the Russian Federation. Its actions too are emboldened, at least in part, by what the Kremlin is keen to portray as Washington’s morally equivalent foray into Iraq.
Moreover, like long-suffering vegetarians who have rediscovered the pleasures of eating meat, Russian leaders have bitten into their new role as
the world’s tough guys with relish. They have had all the best lines of the conflict, with even the small and scholarly-looking Mr Medvedev growling
that “if anyone thinks they can kill our citizens . . . we will come out with a crushing response”.
But, for all the parallels between the current conflict and the stand-offs of the cold war, it is worth remembering that today’s Russia has not yet regressed to the days of the USSR. Russians are less free than they were one decade ago, but vastly more free than they were two decades ago.
 
Mr Putin and his siloviki have done an impressive job restoring central political control, but they are Amnesty International compared with the comprehensive, totalitarian grip of the Communist party of the Soviet Union.
Most importantly, notwithstanding Mr Putin’s efforts to reassert state authority over what Lenin called “the commanding heights of the economy”, this time Russia has private property, private businesspeople and growing ties with the world economy.
 
Russian capitalism – and, more crucially, Russian capitalists – may be our best bet if we hope to limit Russia’s malign actions abroad. Crazy though it may sound to contemplate right now, they could even be critical to Russia’s eventual return to a more democratic path.
Of course, thinking of the Russian oligarchs as the good guys will take some getting used to. For one thing, one of the casualties when Russian tanks rolled past Gori was the beguiling “Golden Arches Theory of Conflict Prevention” proposed by Thomas Friedman, the New York Times columnist: “No two countries that both have a McDonald’s have ever fought a war against each other.”
 
Alas, you can buy Big Macs in both Moscow and Tbilisi, so we now know a little consumer capitalism is insufficient immunisation against old-fashioned clashes between imperialism and independence.
Moreover, when it comes to the oligarchs themselves, kowtowing to the Kremlin is their first commandment: the ones who did not realise that have long since been subject to expropriation, exile or imprisonment. Indeed, Russia’s remaining magnates are those who have figured out how to profit from Mr Putin’s neo-authoritarian policies; they would, no doubt, be happy to help harvest whatever economic fruits might come within their reach as a result of any further neo-imperialist incursions.
Yet even with all of those caveats, business is the most progressive force with any remaining power in Russia today. The oligarchs are crony capitalists, but they are global ones, too. Western capital markets, western consumers, western acquisitions and even western MBAs have all become an essential part of the way they do business. That gives them a powerful vested interest in maintaining good relations with the west that the politburo never had, and that the siloviki do not fully share.
Psychologically, they are different, too. Russia’s capitalists did not experience the collapse of the USSR as the humiliation that it was to Mr Putin and his KGB comrades. The turning-point year of 1991 transformed the siloviki from being a feared and privileged elite into ill-paid civil servants, and occasionally publicly reviled ones. For Russia’s magnates, the end of Soviet rule was a winning ticket in the world’s richest lottery, granting them money, power and international prestige.
This brings me to my modest proposal. The west must, of course, be determined in using the few formal tools it has for hemming in a resurgent Russia, particularly denying it membership of the World Trade Organisation and stepping up support for vulnerable neighbours such as Ukraine. But why not take a page from the Kremlin’s own unconventional and deviously brilliant play-book?
 
Mr Putin, as we have seen, is not squeamish about direct confrontations, but sometimes Moscow finds it more convenient to harass the countries, companies and non-government organisations on its blacklist with the subtler tools if denied visas and zealous tax inspectors – you could call it the TNK-BP technique, in honour of BP’s recent Russian joint venture travails.
 
With their lavish foreign holiday homes, healthy foreign bank accounts and appetite for buying foreign assets, Russia’s tycoons are vulnerable to the same pin-pricks.
 
An oligarch recently told me that Mr Putin’s tragedy is that he wants to rule like Stalin but live like Roman Abramovich, the Russian plutocrat. We need to make it clear to him and his business buddies that they cannot do both.
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http://www.ft.com/cms/s/0/aee68316-6faf-11dd-986f-0000779fd18c.html
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9.  THE GEORGIAN CONFLICT’S IMPACT ON UKRAINIAN POLITICS, ENERGY & INVESTMENT
 
ANALYSIS: By Thomas Deters, Office Director
First International Resources, Washington, D.C.,
Action Ukraine Report (AUR), Washington, D.C., Friday, Aug 21, 2008
There is broad consensus that Russia’s invasion of Georgia following Georgia’s incursion into the disputed region of South Ossetia represents a resurgence of Russian influence among former Soviet states, and the return of Russia as the main military and political force in the region. There is also consensus that Russia will attempt to block any move by Ukraine to join the NATO alliance.
 
The more important questions now are how will Ukraine respond, and how that response will impact Ukrainian politics, energy security, and foreign investment. Our analysis in these three areas points to one conclusion: regardless of NATO or Russian action, a resolution of the current political dispute between President Yushchenko and Prime Minister Tymoshenko is the single most important step in guaranteeing Ukrainian security.
Ukrainian Politics: the Yushchenko – Saakashvili Relationship
Four days after the crisis began, Ukrainian President Viktor Yushchenko organized a trip to Tbilisi that included political leaders from the Baltic countries as well as Poland. President Yushchenko also recently issued a decree restricting the use of the port of Sevastopol by Russian Black Sea Fleet vessels and said that vessels based in Sevastopol could not participate in combat operations off Georgia’s coast. Additionally, President Yushchenko announced that Ukraine could offer NATO the use of Ukraine’s early warning radar system.
The Ukrainian President will face a difficult challenge in ensuring Ukrainian security through closer ties with the West while attempting to counter any Russian action in response. Especially dangerous will be President Yushchenko’s close relationship with Georgian President Mikhail Saakashvili.
 
While there is no volatile ethnic issue like South Ossetia that could easily escalate into a military crisis threatening Russia-Ukraine relations, Russian perception of the close ties between Presidents Saakashvili and Yushchenko could be a wild card, since many of Russia’s statements during the crisis have been directed personally at President Saakashvili.
 
For example, in response to NATO’s August 19 announcement of support for Georgia, Russian Foreign Minister Sergey Lavrov said NATO was trying to “whitewash a criminal regime” and take a “path to the rearmament of the current leaders in Georgia.”
There is most likely a less than positive portrayal in Ukraine of President Saakashvili’s actions leading up to and during the current crisis. If President Yushchenko is seen as personally supporting the Georgian President, he could threaten his already fragile domestic support.
Ukrainian Politics: the Tymoshenko-Yushchenko Feud

Although she did send her Deputy Prime Minister, Grigory Nemirya, to Georgia last week, it is surprising that Prime Minister Tymoshenko, who has made criticism of Gazprom a central theme of her administration, has not commented in public on Russia’s incursion into Georgia.
 
Considering Tymoshenko’s previous habit of railing against foreign powers in her accusations of corruption, an argument that she is not commenting on Georgia since foreign affairs are not in the purview of the Prime Minister is somewhat thin.
 
A possible explanation of Tymoshenko’s silence came on August 18, when President Yushchenko’s office accused the Prime Minister of remaining silent to secure Moscow’s political and monetary support during Presidential elections in 2010. According to a statement from the President’s office, prosecutors were being presented with documents about Tymoshenko’s cooperation with Russian interests.
Even if Tymoshenko is counting on Russian support to assist her in a Presidential bid, the support of the Party of Regions will almost certainly be more important to the winning candidate. Tymoshenko has been a vocal opponent of the industrial groups from the east and south of the country who provide significant support to the Party of Regions.
 
Additionally, recent reports indicate that key players in the Party of Regions may not automatically favor Russia in the current crisis and could possibly view European Union and NATO membership as beneficial for Ukraine’s long term economic interests. Any potential ally of Tymoshenko will also keep in mind that historically, her political alliances have not survived over the long term.
In any event, the only realistic outcome from this most recent episode of the Tymoshenko-Yushchenko feud is continued political deadlock in Kiev, to the detriment of Ukrainian economic growth and security. Indeed, the Fitch credit ratings group last week said it remains more concerned about Ukrainian inflation, debt, and natural gas prices than any military threat posed by Russia.
Ukraine Politics: NATO Accession

Since the conflict started, pundits have commented on what the current crisis means for Ukraine’s NATO accession. Predictions have ranged from accelerated NATO membership due to the threat posed by Russia to an indefinite delay in any Ukraine-NATO interaction. Russian leaders have been clear in asserting that Ukrainian membership in NATO is something that they cannot accept.
 
Earlier this year Russia threatened to aim nuclear weapons at Ukraine if it joined the alliance. There is certainly a concern that as Europe’s dependence on Russian energy continues, countries like Germany may not want to address Ukrainian membership in NATO during the December 2008 meeting out of fear of provoking Russia.
On Tuesday, August 19, NATO released a statement urging Russia to immediately withdraw from Georgia, saying there could be no “business as usual” between the alliance and the Kremlin while Russian forces maintain a presence in Georgia. NATO also announced a new commission between the alliance and Georgia, intended to strengthen the country’s ties with the organization.
 
While these statements could be interpreted as falling short of a security guarantee to Georgia and by extension the prospect of a guarantee to Ukraine, both the NATO statement and the public comments of NATO Secretary General Jaap de Hoop Scheffer strongly supported the “territorial integrity” of Georgia.
The December 2008 NATO meeting will provide the next opportunity to understand NATO’s intentions and to find out if the Alliance can gain consensus on offering a membership action plan to Ukraine. If Germany feels that the prospect of Ukrainian membership will provoke Russia too dramatically, it could consider energy considerations as just too important.
 
France, the other country that opposed offering a membership action plan to Ukraine during the most recent NATO summit, played a major role in negotiating the Georgia-Russia cease fire.
 
It is possible that President Sarkozy’s experience in Georgia could influence France’s vote in December. It is also very possible that the U.S. will punt a NATO decision on Ukraine until 2009, especially if Senator Barack Obama wins the November 2008 Presidential elections. If Senator McCain wins, his administration will push hard for NATO membership for Ukraine, and could even offer bilateral military assistance.
What is certain is that Ukraine stands no chance of NATO membership unless the political deadlock in Kiev is broken, since government action is necessary to fulfill the steps required for any country to join. NATO is aware of the opposition to the alliance on the part of a majority of the Ukrainian people. Any effort to help convince people of the benefits of NATO membership will require unity of action from the Ukrainian government.
 
Additionally, the Russian naval base at Sevastopol and Ukraine’s contribution to Russia’s defense industry will need to be addressed before NATO will offer membership. There is little prospect the Kiev can address these issues in the short term. Until that happens, discussions of how external factors will influence Ukrainian membership are premature.
Energy Security

Turning to the issue of energy security, the recent conflict in Georgia resulted in the shutdown of the Supsa oil pipeline, following the earlier shutdown of the Baku-Tbilisi-Ceyhan (BTC) pipeline due to a fire not related to the Georgia-Russia conflict. While the Supsa pipeline remains closed, British Petroleum announced that BTC would reopen the week of August 25.
 
While the fighting so far hasn’t resulted in a dramatic increase in the price of oil, it did call into question future oil and gas pipelines in Georgia, which exports almost 500,000 barrels of trans-shipped oil from its ports each day.
The Nabucco gas pipeline, proposed to span from central Asia to Europe (bypassing Russia), is the project most likely to face delay due to the recent fighting. Although a European Commission energy spokesman said that none of the proposed pipelines going through Georgia was affected, there is growing sentiment that Nabucco will have to surmount regional instability along with supply issues before it is completed.
The tension surrounding the perceived threat to Ukraine and a possible crisis surrounding Ukraine’s NATO bid brings the natural gas trade between Russia, Central Asia, and Ukraine into stark relief. Some analysts have pointed to Prime Minister Tymoshenko’s recent cordial negotiations with Prime Minister Putin on natural gas as a sign that the accusations of her cooperation with Russian interests are true.
 
Several recent studies have shown that the shock to the Ukrainian economy from a sudden increase in natural gas prices would be devastating. If Russia perceives that a Ukrainian move toward NATO is imminent, a cutoff of natural gas or at the very least a demand for price renegotiation could be a first retaliation. The repercussions on Ukraine’s economy would only heighten the level of tension.
Investment Climate
Georgia, of course, will face a terribly difficult challenge in maintaining economic growth, even though several NATO countries have vowed to assist in rebuilding that country’s infrastructure.
 
Russia seems to be in much better shape, regardless of comments from Republican Presidential hopeful and U.S. Senator John McCain, U.S. Secretary of Commerce Carlos Gutierrez, Secretary of State Rice, and Democratic Presidential hopeful Barack Obama, who all called into question Russia’s World Trade Organization bid in light of the recent crisis.
 
The only remaining countries to conclude bilateral WTO agreements with Russia are Ukraine and Georgia. Ukraine opened its bilateral negotiations with Russia soon after joining the WTO this year, and Georgia had already concluded a bilateral agreement with Russia, but pulled it in early 2008 in protest over what Georgia perceived as provocative Russian actions in South Ossetia and Abkhazia. Ukraine could use the WTO bilateral as a lever against Russia, but retaliation in the energy sector would be likely.
Although the cost of managing Ukraine’s debt has risen due to the conflict in Georgia, the need for effective governance in Kiev instead of political deadlock is the single most urgent requirement for expanded foreign investment and economic growth.
 
Even though Citibank recently advised caution in investing in Ukraine, citing a “more aggressive” Russian foreign policy, the same report also highlighted Ukraine’s unique problem with high inflation and political deadlock.
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(NOTE: First International Resources, LLC is an international corporate and political consulting firm with extensive experience in crisis management, strategic communications counseling, international political campaign counseling, political risk analysis and public affairs counseling, www.first-intl.com.)
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10.  UKRAINE FEARS IT MAY BE THE  NEXT TARGET FOR RUSSIA

ANALYSIS: By Elizabeth Piper, Reuters, Kiev, Ukraine, Thu Aug 21, 2008

KIEV – Ukraine fears it could be the next target of Russia’s campaign to reassert influence over countries it long dominated in the Soviet Union, with Moscow well placed to foment separatist feelings in its Russian-speaking regions.

Ukraine stood by Georgia in its war with Russia over the region of South Ossetia. President Viktor Yushchenko traveled to Georgia to show his support and announced tougher rules on Russian naval movements from a base in Ukraine.

And in a departure from his usual careful balancing act between Russian and Western interests, Yushchenko attacked Russia over South Ossetia in a way more akin to Georgian President Mikheil Saakashvili.

Some political analysts say that could heighten the risk. “When Ukraine prioritizes its national interests, it goes against Russia’s interests and, of course, there will be conflict,” said Viktor Chumak, an analyst for Ukraine’s International Centre for Policy Studies.

“And Russia has broken through a psychological barrier to start this kind of war on former Soviet territory … Georgia had created itself in the shape of an enemy of Russia, and many in Russia already see us in the same way … We probably rank third in the list of Russia’s leading enemies.”

Both born out of bloodless revolutions, one orange and one rose, Yushchenko and Saakashvili’s administrations want to join NATO, the European Union and secure close ties with the United States.

Like Georgia, Ukraine was not put on the fast-track to NATO membership at the alliance’s summit last April, but was promised it would be allowed in one day.  All of this has angered Russia which is fearful of having the Western military alliance on its doorstep.

Other former Soviet republics have also been considering their rankings. Moldova, whose Communist government has courted the West rather than traditional ally Russia, fears it has taken the same path as Georgia and has Russian peacekeepers patrolling in its separatist Transdniestria region.

Even Belarus’s leader, Alexander Lukashenko, initially distanced himself from the war, which was criticized in the West. But subsequently, at Moscow’s prompting, he praised Russia’s “wisdom” in the way it handled the crisis.

CRIMEA
Analysts say the Crimea region in southern Ukraine could be used by Russia to destabilize Ukraine. It hosts Russia’s Black Sea fleet in Sevastopol and the majority of people living there are ethnic Russians. Russian-speaking eastern Ukraine could also provide fertile ground, the analysts say.

Chumak said Russia could take advantage if Ukrainian politicians failed to resolve their differences and continued to let legislation slide. Yushchenko and his prime minister, Yulia Tymoshenko, have sparred over almost all policy decisions since she came to power in December.

“In that situation then Russia will start playing games, start provoking Ukraine, especially with Crimea,” he said.

Yushchenko was quick to call on the West to protect Georgia’s territorial integrity.  When we think about our position on Georgia, I have no doubts … The loss of sovereignty, putting into doubt the territorial integrity of Georgia — this means revising the sovereignty of all,” Yushchenko, swept to power by the 2004 “Orange revolution”, said in a statement.

Russia could also hold Ukraine ransom over its gas supplies. Moscow controls about 80 percent of Ukraine’s supplies and in 2006 Russia cut supplies to Ukraine over a pricing dispute.
“There is a reason to be wary in the short-term future, there is a threat in that Ukraine is similar to Georgia in terms of what has happened in recent years,” said political analyst Oleksander Dergachev.
“But I find it difficult to think that the threat posed is a military one. Russia relies on the fact that it has more of an influence over Ukraine economically.”
Most analysts cautioned against scare-mongering and said Ukraine could avoid confrontation by taking a pragmatic stance first and then reforming its economy in the long-term.
“If Ukraine sorts out its domestic situation and consolidates its foreign policy in terms of European and Atlantic integration and this goes at a good pace then we can avoid the South Ossetian scenario,” Chumak said.
“I mean there is no stronger enemy to Ukraine than Ukraine itself, especially its politicians.” (Editing by Richard Balmforth)
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11.  UKRAINE LEADERS DIVIDED OVER RUSSIAN THREAT

Ukraine’s prime minister has sharply criticised the country’s president for restoring displays
of military hardware to Sunday’s independence day parade amid fears of provoking Russia.

By Damien McElroy in Kiev, Telegraph, London, UK, Thursday, 21 Aug 2008

Battle lines between the former political allies are hardening at a treacherous juncture in the country’s history.
As President Victor Yushchenko prepares to fight presidential elections in 2010, Yulia Timoshenko has issued what amounts to a broad scale challenge to her partner in Ukraine’s 2004 Orange Revolution.
Grigory Nemyria, vice-prime minister and Miss Timoshenko’s closest advisor, told The Daily Telegraph that differences over the parade formed part of a much wider divergence between the two leaders. “The prime minister thinks the military parade is inappropriate because of the cost at a time when Ukraine has to cope with severe flooding but also because this flexing of muscles is a provocation,” he said.
Preparations for the parade have given Kiev the feel of a city preparing for occupation. Loud cannon fire has echoed through the canyon-like Soviet-era boulevards during the evening rush hour this week. Newspapers are filled with pictures of tanks. To crown the sense of siege, jets on a fly-past flew fast and low over the city.
Residents were shocked by the sudden militarisation of the Ukrainian capital, which has struggled hard to present a modern image. “This is the first time we’ve seen this in seven years,” said Oleg Pashchenko, a newspaper vendor. “Why now and for what? The president must be crazy to think he is scaring the Russians.”
In the wake of Russia’s assault on Georgia, pressure on the Ukrainian leadership to row back from pro-western policies has escalated. While President Yushchenko resisted with measures that directly targeted Russian interests, the prime minister has shown increasing disquiet.
Mr Nemyria hinted that the prime minister was prepared to put a strategic change of direction before the electorate, a development that would mean breaking a pledge not to run.
“Foreign and security policy has not before been an issue in Ukrainian elections,” he said. “But in the just beginning presidential elections it will be and it will be up to each party to explain their approach in the manifestos.”
Miss Timoshenko has distanced herself from the president’s determined pursuit of Nato membership. Mr Nemyria said the collapse of Georgia’s army proved that upgrading the military of aspiring allies was unequal to the task of preserving peace next to Russia.
“Purely security based arrangements are not enough,” he said. “We need a much more ambitious set of policies. The EU cannot remain on the sidelines. We need to demand that you the countries of Western Europe take a much more proactive approach to stability, particularly in regard to frozen conflicts.”
Miss Timoshenko has also been critical of a presidential decree restricting the movements of Russia’s Ukraine-based Black Sea fleet in its waters.
“This unilateralism on both sides causes problems,” said Mr Nemyria. “The president took unilateral action in his announcement. There must be a mechanism to cover this issue but if it’s not workable and not enforceable, it could act as a pretext for the other side.”
Russia’s intimate relationship with Ukraine stretches beyond the origins of its empire. The two nations share an ethnic Slavic make-up and the Orthodox religion. Ukraine has successfully steered west since 2004 while Russia under Vladimir Putin has become steadily more autocratic, both at home and abroad.
With at least 17 per cent of Ukrainians claiming Russian nationality on census forms, a ready constituency for Moscow lives in Ukraine. If inter-ethnic frictions build, Russia would have a reason to intervene as it did in Georgian.
So far Ukraine has avoided ethnic clashes. Mr Nemyria, a native Russian-speaker, claims that the handling of communal tensions is one of the great achievements of its independence.
However, there are signs that distrust is mounting. Ukrainians increasingly insist on speaking the national language, a development that has left many Russians excluded from both national affairs and small-scale social events.
At a riverside disco in Kiev, Tatania Lytvyn, a 32-year-old IT consultant, visiting from the Russophone city of Donetsk, partied inconspicuously yesterday in a showcase venue for Kiev’s newly prosperous elite. But during a prize giving announcement in Ukrainian, she was suddenly dismayed.
“It’s become really hard for us. Everything is pressure to use Ukrainian and people get really mad if we don’t,” she said. “But who cares about Ukrainian?
 
Who learns that language?
“Russian is known all over the word. It’s disgusting but what can we do.”
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http://www.telegraph.co.uk:80/news/worldnews/europe/ukraine/2596872/Ukraine-leaders-divided-over-Russian-threat.html
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12.  UKRAINE TO BEEF UP MILITARY POTENTIAL IN AREAS AT RISK FROM RUSSIA

By Fedir Oryshchuk, Ukrainian daily Delo
Kyiv, Ukraine, Tuesday, August 19, 2008
Published by Kyiv Post, Kyiv, Ukraine, Thursday, Aug 21 2008

The events in Georgia are making the Ukrainian leadership rethink the country’s military doctrine, a daily has written. Quoting a high-ranking source at the Ukrainian Defence Ministry it said that more attention is going to be paid to protecting national interests in Crimea and Ukraine’s eastern regions bordering Russia. This will be accomplished by deploying new air defence units there.

The following is the text of the article by Fedir Oryshchuk, entitled: Ukraine pointing missiles eastwards published in the Ukrainian daily Delo on 19 August; subheadings are as published:

The war in Georgia is changing the concept of Ukraine’s national security. The military are starting to strengthen defence in the country’s south-east. The Georgian-Russian military conflict is forcing the leadership of Ukraine to step up the state’s defence capability. As early as this autumn the Defence Ministry will demand that parliament increase funding for the army.

Previously the ministry had planned to allocate an additional 2bn hryvnyas, but now the requests of the military will grow significantly. It is planned to spend the extra funds on the formation of new subunits and weapons upgrading in existing army units in the south and east of the country.

In the words of a high-ranking source in the Defence Ministry, the relevant conversation has already been held with the president [Viktor Yushchenko].
The head of state has given preliminary agreement to the proposal of the military.

Newspaper headlines like Crimea will be next did not passed unnoticed for the Ukrainian authorities. Assumptions that Ukraine might become the next
object for Russian aggression are forcing our military to take unprecedented steps.

Starting as early as this year, the state is planning to allocate additional funds for the defence of Crimea and the east of the country from a potential
attack. As the high-ranking source in the Defence Ministry told Delo, the strengthening is due to affect air defence units first of all.

According to the deputy chief of General Staff of the Defence Ministry, Ihor Romanenko, a new air defence anti-aircraft missile regiment was already
formed last year in the east of Ukraine. Its task is to provide a defence umbrella over Donetsk and Luhansk regions.

We are not standing still, but are improving ourselves in accordance with the challenges that are appearing in the world, is how he commented on the
need to create the new regiments on the left bank of the Dnieper.

Apart from that, starting from this year, the Defence Ministry will be focusing on the defence of the state’s southern regions, in particular Crimea. It may be a matter of a numerical increase in air defence forces, redeploying anti-aircraft missile complexes and fighter planes from other regions and upgrading existing missiles and anti-aircraft missile complexes (AMC).

Missiles already being tested

Apart from that, active funding of our own multi-functional missile complex is continuing at the present time. Work on its development has been carried
out for several years, and especially intensively over the past three years. The main designer is the Dnipropetrovsk-based Pivdenmash missile plant. In
the words of Lt-Gen Romanenko, the complex offers the unified use of air defence missiles for infantry and aviation troops, as well as for naval forces.

The same basic missile will be used in the ground to air, ground to ground, shore to ship, ship to shore and ship to air schemes, the General Staff deputy chief says. Testing of individual elements of the multi-functional complex will start after 2010, he said. The new air defence system will be of entirely Ukrainian manufacture, with the exception of an insignificant number of parts.

In the framework of increased funding, in the words of the Defence Ministry source, it is intended to raise in parliament this autumn the question of
allocating additional funds to conduct exercises of air defence subunits. This question, according to Delo’s information, has already been discussed with the president. Yushchenko assured the military that the funds will most probably be allocated.

At the present time firing training from AMCs is being conducted at the only test site in Ukraine, Chauda, near Feodosiya. At the same time, at exercises
here in Ukraine, Ukrainians can use only AMCs like Buk, S-300 and Osa.

Firing from the most powerful S-200 complex, which in 2001 accidentally shot down a Tu-154 Russian passenger plane over the Black Sea, has been banned since then. For this reason, our anti-aircraft forces have been forced to conduct exercises at test sites in Russia.

In Romanenko’s words, depending on the location of the test site, Ukraine pays Russia from one to two million dollars a year for this service. Incidentally, it is not ruled out that following the statements by Russian Federation representatives about the participation of Ukrainian air defence specialists in combat actions on the side of Georgia, the question may arise of a ban on Ukraine carrying out such measures on Russian territory, in spite of the fact that Ukraine has officially denied the participation of its military specialists in the Caucasus war.

Replacement for nuclear weapons

In the words of a former adviser to the president on military questions, Maj-Gen Vadym Hrechaninov (retired), the Defence Ministry raised the question of strengthening the defence capability of Ukraine’s eastern and southern regions back in the early 1990s. After the collapse of the USSR, the army was concentrated primarily on the territory of the western regions of Ukraine.

However, in the 1990s it was difficult to finance the redeployment of troops to the south and east. Apart from that, it was virtually impossible from the
political point of view. For that reason, the reorganization was deferred. But today Russia is strengthening its grouping in the North Caucasus, and this means Krasnodar Territory, our neighbours, and we need to think about this (strengthening the defence of south-eastern Ukraine – Delo), the major-general says.

In Hrechaninov’s words, after renouncing nuclear weapons, Ukraine was forced to look for new means of preventing war. In place of nuclear weapons, a
strong air force and powerful ground-based missiles complexes may serve as such a means for Ukraine.

In any case, the military conflict in South Ossetia gave a chance to the Ukrainian army to draw the attention of the authorities to itself. It is not ruled out that thanks to the new argument – the Russo-Georgian war – the Defence Ministry will succeed in gaining appropriate funding for the army at a level of 2 per cent of GDP. This year, the ministry’s budget amounted to about 10bn hryvnyas, which is only 1 per cent of the country’s GDP.

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13.  UKRAINE: RUSSIA AT THE GATES AGAIN

 
By Diane Francis, National Post, Don Mills, Ontario, Canada, Thu, August 21, 2008
 
With Georgia indefinitely in Russia’s clutches, militarily or psychologically, can Ukraine be far behind?
That’s my 46-million question which is the number of people who live in Ukraine. The country gained independence in 1989 then suffered a succession of corrupt and inept leaders. Russia backed fraudulent elections and its candidate, Viktor Yanokovich, who nearly stole the presidency.
But Ukrainians stood up to this fraud even after their candidate, President Viktor Yushenko, was nearly murdered with poison. In November 2004, the Orange Revolution began as Ukrainians took to the streets and the courts and rescued their country from Moscow’s clutch.
Now Ukraine is a member of the WTO, applicant to NATO and the EU and its Orange Revolutionaries run the country — Prime Minister Yulia Tymoshenko and President Viktor Yushchenko. But there are problems with pipeline disruptions, treaty negotiations and other irritants. Most seriously, however, are indications that a separatist movement is being seeded in the portions of Ukraine that are heavily populated by ethnic Russians.

Russification: the gift that keeps giving

When Ukraine, Georgia and most of central and eastern Europe were controlled by a communist military dictatorship out of Moscow, their countries were “russified”. This consisted of oppressive laws against local languages, in favor of Russian, the relocation of tens of millions of Russians into these countries to form important minorities and then favoritism in government jobs for them.
After 1989, most of these Russians remained in these countries, many of which were more prosperous than back in Russia. But they have still been the breeding grounds for dissidents, separatism and fraudulent, illegal activities against governments from Estonia to Georgia’s two breakaway provinces, Kazakhstan, Azerbaijan and now Ukraine.
Crimea: the next Georgia?
Ukrainian National  Security and Defense Council is investigating claims that Moscow is illegally distributing Russian passports to Russian speaking sympathizers in the port city of Sevastopil. Ukraine leases much of this port to the Russian Black Sea Fleet.
What’s notable about this is that issuing bogus Russian passports to trouble-makers was exactly the same tactic, then excuse, the Russians used to move into South Ossetia and another province in Georgia. Once the separatist movement gained steam, aided by Moscow, Russian “peacekeepers” were sent in to restore the “peace” and have been taunting the government of Georgia ever since.
 
The final result came days ago when Georgia foolishly took the bait, invaded South Ossetia, thus giving Vladimir Putin’s government the reason it needed to invade Georgia. It took over the country militarily, ignored ceasefires and has thoroughly frightened all its neighbors in the region.
For Ukraine, this is very scary. It looks like the Russian military dictatorship is using the same tactic in Crimea and, worse yet, could more easily make trouble for Ukraine because its navy is already well-ensconced in Sevastopil.
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http://network.nationalpost.com/np/blogs/francis/archive/2008/08/21/ukraine-the-next-georgia.aspx
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14.  THE GEORGIA-UKRAINE ANALOGY: WHAT’S THE REAL LESSON?
With Putin pushing a Russian Imperialist agenda, it’s crucial that
former Soviet republics strengthen their alliances with the West

ANALYSIS & COMMENTARY: Oleh S. Ilnytzkyj, Freelance
Edmonton Journal, Edmonton, Alberta, Canada, Wednesday, August 20, 2008
 
If the Georgian conflict holds a lesson for Ukraine and the west, as many commentators suggest, it is important to draw the right conclusions from this painful educational experience. Some say Russia must be allowed its own sphere of influence, for it is her natural and historical birthright as a great power–and that smaller states like Georgia and Ukraine may need to be sacrificed to ensure the European Union’s access to Gasprom’s natural gas.

A truer understanding would be to realize that Russia is resorting to an old imperial mindset in a futile — yes, futile — attempt to re-establish an outdated sense of greatness that can only lead to a pan-European disaster. Vladimir Putin has been laying the groundwork for this outdated national ideology since the day he came to power, by crushing Chechnya and embracing the symbolism of the former empire and Soviet Union.

If the brutal invasion of tiny Georgia is a warning to Ukraine about its European orientation, then it is also a pathetic attempt to resurrect a model of “Russian” nationality and identity that subsumes Ukrainians and Belarusans under Moscow’s rule as “fraternal” East Slavic people, a strategy that stopped working around the Age of Romanticism.

 
Ukrainians have been rejecting a unified East Slavic nation headed by the Russians since at least the middle of the 19th century. The Russians, however, are still pursuing this fantasy, believing they can intimidate Ukrainians into a cultural and political union that will restore Russian control over the heartland of East Slavic culture and Orthodoxy.

MOSCOW’S SPIN DOCTORS

To rebuild a national identity on imperial foundations, the Russians must first colonize the mind of the west, which remains a semi-hostage to Russia’s historical spin and is not entirely prepared to admit the unnaturalness of its ambitions in Eastern Europe and the near abroad.

The post-Soviet era may have been marked by a liberation from some of the worst ideological propaganda that justified Russia’s hegemony in central and eastern Europe, but recognizing the national pathology that is driving Russia to misguided “greatness” in Georgia, and now potentially in Ukraine, is far from complete. There still remains a big temptation to believe Russians when they conceptualize the history of the East Slavic world as their own national space, depriving Ukrainians and Belarusans of history, culture and statehood.

Many western journalists and historians still represent Russia as a 1,000-year-old state, with its first seat of power in Kyiv, thereby falsely conflating the immense influence of the Kyivan state on Russia with Russia itself. Of course, if so-called “Russians” ruled in Ukraine in the 10th century, then why not today?

Putin relies on such deceptive wisdom to disarm the west. At the NATO summit last April, Putin asked U.S. President George W. Bush: “Do you
understand, George, that Ukraine is not even a state?” insisting that most of Ukraine’s territory was “given away” by Russia.

Typically, Russia never admits that much of so-called Russian territory is the result of imperial conquest and the suppression of indigenous populations. Russian propaganda instead creates “fake” countries, questioning the legitimacy of Ukraine and Georgia, in order to dismember them in the name of a “real” Russia.

Russia’s manipulation of cultural and historical issues for its own grandiose purposes is a dangerous game in which only the naïve can believe.
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NOTE: Oleh S. Ilnytzkyj is a professor in the department of modern languages and cultural studies at the University of Alberta and editor of Canadian
Slavonic Papers
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http://www.canada.com/edmontonjournal/news/ideas/story.html?id=b046cb06-0492-4afd-9eb8-2165fa3980d3&p=2
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15.  PUTTING UKRAINE ON THE NATO MAP (MEMBERSHIP ACTION PLAN)

 
COMMENTARY & ANALYSIS: By Vitaliy Voznyak
Transitions Online (TOL), Prague, Czech Republic, 20 August 2008

The Caucasus conflict should not be used as an excuse to keep Ukraine out of the North Atlantic alliance.

The Georgian-Russian war has resurrected the debate about NATO’s enlargement eastward and specifically Ukraine’s future, if any, in the North Atlantic alliance.

Sharp divisions within the 26-member bloc led to a scuttling of the U.S.-backed plan earlier this year to extend a so-called membership action plan to Georgia and Ukraine, with the Bush administration arguing that closer ties with NATO would strengthen democracy in both countries and reward their contributions to alliance-led operations.

 
Opponents believe neither country is politically mature enough and there are concerns about offending Russia – Europe’s main energy partner and fierce opponent of extending the alliance. The result was an ambiguous promise of membership at a future date.

Unfortunately, rather than encouraging dialogue, the Caucasus war has only reinforced each camp’s original position.

Georgia now represents a particularly difficult challenge for NATO, but in the case of Ukraine, there are two pressing reasons to continue with the integration process: regional security and strengthening democratic norms.

REGIONAL SECURITY

Kowtowing to Moscow’s demands by leaving Ukraine and Georgia outside the North Atlantic area is a dangerous signal in an international system that will be interpreted in the Kremlin as yielding to its view of post-Cold War spheres of influence.

Ambiguity on which country is “in” and which is “out” has grave historical precedents. The failure to approve a membership action plan, or MAP, for Georgia has, arguably, emboldened Russian intentions in the Caucasus. Some fear that Ukraine could be next.

Aside from maintaining territorial integrity, further integration with NATO will aid Ukraine in achieving its long-term goal of membership in the European Union. That the road to the EU lies first through membership in NATO is not lost on policymakers in Kyiv.

Of course, this is not a one-way street. Over the years, Ukraine’s troops have actively participated in NATO operations. Today, it contributes to NATO missions in Kosovo and Afghanistan, and has participated in Operation Active Endeavor, an antiterrorism campaign in the Mediterranean Sea. It also has 37 officers and NCOs serving in the U.S.-led operations in Iraq.

STRENGTHENING DEMOCRACY

Ukraine’s 2004 Orange Revolution ushered in a new chapter of that country’s history marked by reinvigorated civic engagement, freedom of the press, and competitive elections, even as corruption and regular power struggles are still very much a problem. The membership action plan and active engagement with other NATO members would help strengthen Ukraine’s European norms and values, and professionalize its military.

Membership action plans have helped other former communist states consolidate their democracies in a cost-efficient manner and to prepare them for full membership. As a vehicle of Euro-Atlantic integration, NATO works by facilitating the transfer of rules and norms of behavior common to all its members.

And yet, the argument for Ukraine’s membership is not immune from criticism.

[1] First, some analysts argue that offering a MAP to Ukraine would overburden NATO and put it in direct conflict with Moscow, which has warned it would not sit idly by as the alliance grew.

 
Others mistakenly argue that if a membership action plan is given to Ukraine, the country would then fall under Article 5 of the North Atlantic Treaty, the mutual defense clause. Such concerns are misleading because Article 5 is binding only on alliance members and does not apply to those in the vestibule.

[2 ]Another argument voiced against Ukraine’s integration with NATO is that this would intrude on what the Kremlin still views as its sphere of influence. Which begs the question, when will Moscow not view Ukraine as part of its blizhneye zarubezhye? its Indeed, geographic and historical factors ensure that Moscow will always feel that Ukraine is part of its “near abroad,” but it does not have a monopoly.

 
Looking from the west, Ukraine is just as much part of Brussels’ “neighborhood.” The EU has a direct interest in seeing that Ukraine does not regress politically and economically the way Belarus and Kazakhstan have done, and that it chooses the democratic route taken by its Polish, Slovak and Hungarian neighbors.

[3] A third argument against membership is the public’s tepid support for it. According to a survey conducted in June by the Kyiv-based Sofia think tank, 40 percent of Ukrainians thought that the government should abandon plans to join NATO; 31 percent wanted a solution mutually agreeable to both Moscow and Kyiv; 17 percent wanted unabated progress toward the alliance regardless of pressure from Russia.

Although the survey suggests that the public is far from overjoyed about joining NATO, this ought to be expected after decades under Soviet propaganda and more lately the Kremlin’s warnings about extending the alliance ever closer to Moscow.

 
Of those who oppose membership, many do so based on incorrect beliefs that being a member means, for example, having to participate in U.S.-led wars (which isn’t true – just ask Germany or Spain), or that Ukraine would become a target for terrorists (Ukraine has so far not faced terrorist attacks despite its involvement in NATO and U.S. operations).
 
Consequently, the public’s opposition to closer integration is grounded not on an intrinsic anti-Western feeling, but on the success of the anti-NATO side in framing the public perception.

Putting Ukraine on the path to membership will undoubtedly promote a broader public debate about NATO and the country’s role in the organization. That debate would be healthy for a nation divided between its pro-Russian east and pro-European west, and it would also show skeptics in the EU that Ukraine is serious about its commitment to democracy and healing its internal rifts.

If Ukraine gets the green light to eventually join NATO, it would be a crucial first step in ensuring the country’s ultimate integration with the rest of Europe. Alliance leaders should take that first step when they meet in December.
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NOTE: Vitaliy Voznyak is a doctoral student specializing in Ukrainian politics and U.S.-Russia relations at the University of Illinois in Chicago. He runs a blog on corruption, democracy, and Eastern European politics. (http://www.tol.cz/)

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16.  POLAND, UKRAINE AND THE BALTICS, NERVOUS NEIGHBORS
Russia’s war in Georgia troubles its western neighbours

 
The Economist, London, UK, Thursday, August 21, 2008 

NOBODY has watched the war in Georgia more anxiously than Russia’s western neighbours. Recently the Russians have been bellicose towards Ukraine, the three Baltic states and Poland. It was no surprise when leaders from the other four flew with the Polish president to Tbilisi to express solidarity with Georgia’s Mikheil Saakashvili.

It was also no coincidence that Poland signed a deal with the Americans to host missile-defence interceptors. The deal marks the end of a game of hardball, with the Poles turning down many American offers (even after the Czechs agreed to host tracking radars). The negotiations were not helped by the frosty relationship of President Lech Kaczynski with the prime minister, Donald Tusk, and foreign minister, Radek Sikorski.
 
The Americans are to modernise Poland’s military defences. The two countries have also agreed to co-operate more closely if faced with external threats. This was a coup, as America tried to convince Poland that NATO membership was enough of a guarantee.
 
“The Poles kept telling me they’d been betrayed before and weren’t falling for it again,” says one American diplomat. Mr Sikorski notes that Poland is not worried about attacks from Iran. But the more firmly the country is anchored to the West, the less the risk of Russia being tempted to take back what it lost in 1989.
Poland had made itself a target for Russian attack, said a Russian general in response to the deal. President Dmitry Medvedev said it was obvious that missile defences were aimed at Russia and called the idea of threats from rogue states a “fairy tale”. Yet Mr Sikorski insists that only “bad people” need fear missile defences. After the war in Georgia, Polish public opinion has swung strongly in favour of the system.
The Baltics have been even jumpier. Like Georgia, Ukraine and Moldova they were once Soviet-ruled. A chunk of their population are ethnic Russians, many of whom are stroppy. The Kremlin has rowed with the Balts over war memorials, energy supplies, cyberwarfare—and language and citizenship laws.
 
Mr Medvedev’s threat to deliver a “crushing response” to anybody mistreating Russian “citizens” sounds ominous. Yet Baltic membership of NATO may give even hawkish Russians pause.
The biggest worrier is non-NATO Ukraine, which has 8m Russians and also hosts Russia’s Black Sea fleet in Sebastopol, at least until the lease expires in 2017. “The vacuum of security has spread from conflict zones to the entire former Soviet space,” notes Hryhory Nemyria, Ukraine’s deputy prime minister.
 
President Viktor Yushchenko said Russian naval vessels engaged in Georgia should not be admitted back to Sebastopol, though two returned this week.
Mr Nemyria wants Ukraine to join Europe’s security and defence policy, which unlike NATO membership is backed by almost all Ukrainians. Yet the war is also a political issue.
 
Mr Yushchenko has accused his prime minister and rival, Yulia Tymoshenko, of cosying up to the Russians. Her government says Mr Yushchenko is behaving irresponsibly. Anatoly Gritsenko, a former defence minister, concludes that the best way to protect Ukraine is to strengthen its institutions against populist politicians.
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17.  RUSSIAN EFFORTS AT REGIME CHANGE
 

OP-ED: By Ethan S. Burger
Action Ukraine Report (AUR)
Washington, D.C., Friday, August 22, 2008

Truth is not arrived at by a majority vote.  As a general rule, a country should seek support for its foreign policy in multi-national institutions such as the United Nations or the Organization for Security and Cooperation in Europe before taking unilateral action.  The rules of both organizations are such that the likelihood of achieving a unanimous position on a particular issue is almost zero, but at least the world’s governments are given an opportunity to focus on a potential threat to peace.

This raises the question what should be done if collective action is not possible.  Who gets to decide questions of war and peace?  The answer unfortunately is whatever state’s government is willing to use force when it is confident it will succeed, even if the objective is the overthrow of another country’s elected leader.  Nonetheless, this does not mean that if a state is successful in the short-term, the same will occur when one takes a long-term perspective.

The Bush Administration may have learned this lesson from its experience in Iraq with respect to Iran (Senators McCain and Obama appear to have learned of the importance of multilateral action when carrying out military actions abroad).  It also apparently warned Georgian President Mikheil Saakaskvili to avoid taking actions that would give the Russians a pretext for militarily intervening in Georgia.

Perhaps he naively (or arrogantly) thought that the world community would support his country’s right to self-defense, irrespective of his actions.  Unfortunately, he acted impetuously – perhaps he underestimated Russian resolve or wanted to act before a new U.S. president was in the White House.  President  Saakashvili impulsive policies do not excuse Russian behavior, which risks losing a lot of economic and political capital.

In April 2005, then Russian resident Vladimir Putin remarked in a nationally-televised address before the Federal Assembly that the break-up of the Soviet Union was “the greatest geopolitical catastrophe of the century.”  Unfortunately, we may be witnessing only the first stage of a process where Russia is reasserting its power over its geographic periphery.

A number of factors have led to the Russian decision to react in the way if has with regard to Georgia.  The Russian leadership wishes to portray its actions as motivated by a desire to acts as “peacekeepers” that can protect ethnic Ossetians in Southern Ossetia, which happens to be part of the sovereign state of Georgia (Gruzia).  Its actions, however, belie its rhetoric.

For more than a decade, Russia has materially and politically supported Abhazian and Ossetian separatists in Georgia.  While Russia has every right to complain of any alleged discriminatory acts of the Georgian government, there are international fora within which to air and win backing for its concerns.  Nonetheless, Russia does not have a right to militarily intervene unilaterally, particularly in a manner that is its official statements concerning its objectives.  Perhaps regime change in Tblisi is indeed Russia’s ultimate goal.

What could be motivating the Russians at this time of Olympic festivities?  Even if President Dmitrii Medvedev’s declaration that Russian forces will cease offensive operations, it is not clear the Russian forces on the ground are in compliance.  While this could merely be a matter of time (armies often seek to improve their military positions halting operations), or it can reflect that President Medvedev is either playing the “good cop” or lacks the authority to control Russian armed forces.  It is significant that Russian Foreign Minister Sergei Lavrov’s recently Prime Minister Putin’s use of the term “regime change” even after President Medvedev announced the ceasefire.

There are numerous factors behind Russian policy in Georgia.

•       The Russian governing elite has never accepted the demise of the Soviet empire and considers the countries constituting the “near abroad” as being within its sphere of influence.  This is the reason Ukraine’s and Georgia’s indication that they might wish to join NATO is so unacceptable to them.  While the Baltic States may constitute a “special case” that must be tolerated, they do not serve as a model.

•       The Russian Government needs to assert itself on the national stage.  It was humiliated when NATO forces (without UN Sanction) dismembered Serbia – leading the way to an independent Kosovo.  The Russian armed forces could do little more than watch – now NATO will experience what it faced in Hungary (1956), Czechoslovakia (1968), and Poland (1980).

•       Prime Minister had to make clear to both the Russian population and the world community that he remains in control over (at a minimum) the country’s economic, foreign and defense policy.  As the front-line figure for Russia in this conflict, regularly on TV, he appears to continue the role he possessed when he was de jure president.  By contrast, the staging of the conflict demonstrates President Medvedev’s influence is either limited or symbolic.  In either case, Mr. Putin and his principal supporters will not acquiesce in the equivalent of another “color” revolution.

•       Russia will not permit foreign states or private companies to interfere with its “energy weapon” foreign policy tool.  The Baku-Tbilisi-Ceyhan pipeline may be permitted to operate, but only on Russian terms.  Central Asia, China and Europe should harbor no illusions.

•       The Kremlin wants to remind all residents of the Caucuses, both within Russia and abroad (as well as those Caucasians living in other parts of Russia), that Russia will not tolerate separatism or meaningful federalism.

Georgian President Saakashvili has undoubtedly not unified his country politically; indeed there is an active political opposition in the country for whom economic growth and foreign investment are not the barometers of a successful presidency.  He overestimated the degree to which the West could and would support his irresponsible actions.  Attending Columbia University is not the gold standard for being a democratic liberal ruler.  In any case, small countries must learn how to live with powerful neighbors, particularly suspicious ones like Russia.

What will the long-term consequences be of Russia’s flexing its muscles? 

 
While the ruling elites in most Western European countries have short memories, there are certain lessons they probably will not forget: (i) pursuing a policy to achieve energy independence is a high priority, (ii) while the use of force in Europe is probably a thing of the past, Europeans need to maintain credible defense establishments, and (iii) major efforts need to be made to understand the ramifications of Russian energy exports and foreign investment has on their domestic economies – certainly the business community is rethinking its assessment of risks in connection with their activities in Russia.

Perhaps the International Olympic Committee should consider an alternative location for holding the 2012 Winter Olympics so that their athletes will have a place to compete – the Committee has plenty of time to complete this task.

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NOTE: Ethan S. Burger is an Adjunct Professor at the Georgetown University Law Center, Washington, D.C. and a Scholar-in-Residence at School of International Service, American University, Washington, D.C. 
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18.  UKRAINE RISKS WRATH OF RUSSIA AS YUSHCHENKO SIDES WITH THE WEST

 
By Askold Krushelnycky in Kiev, The Independent
London, United Kingdom,Wednesday, 20 August 2008
Nato foreign ministers kept alive the hopes of Georgia and Ukraine yesterday that they could eventually become members of the military alliance. But even without the provocation to Russia of a clear timetable for either country to join, many Ukrainians fear they could be next to face the force of a resurgent Russia seemingly bent on avenging the disintegration of the Soviet empire.
Ukraine had mastered a skilful balancing act since independence in 1991, courting the West while at the same time trying not to overtly offend Moscow.
But, with the outbreak of conflict in Georgia, the Ukrainian President, Viktor Yushchenko, seemed to make what, to many fellow countrymen, looks like a suicide leap off that tightrope.
 
He went to Tbilisi to show support for Georgia, ordered restrictive new regulations for the Russian Black Sea Fleet based in Ukraine’s Crimean peninsula, and offered Ukrainian co-operation in a Western missile defence system despite the knowledge that neighbouring Poland received a chilling warning from Russia for agreeing to allow deployment on its territory of elements of the US missile defence shield.
 
For the first time since independence, Ukrainian television has aired discussion of possible conflict with Russia and even politicians considered to be pro-Moscow have begun warning that Ukraine could be next in the firing line.
“If the West swallows the pill and forgives Russia the Georgian war, the invasion of ‘peacekeeping tanks’ into Ukraine will just be a matter of time,” Oleksandr Suchko of the Kiev-based Institute for Euro-Atlantic Cooperation, said.
Russia has never completely reconciled itself to Ukraine’s independence which Moscow viewed as an affront to the vision nurtured by Vladimir Putin, of Russia restored to its former might. Ukraine humiliated Mr Putin in 2004 when millions joined in demonstrations that became known as the Orange Revolution to overturn the results of a presidential election rigged in favour of a pro-Moscow candidate.
Almost all of Ukraine’s vital gas supplies come from Russia and Russia has tried to punish Ukraine by enormous price increases in gas and even turning off supplies. Moscow’s attempts to install a pro-Moscow government are, to a large extent, governed by its desire for absolute control over the pipelines that are responsible for most of its wealth.
But Ukraine’s last census showed that 17 per cent of the country’s population of around 47 million were ethnic Russians. Most of those are concentrated in Ukraine’s east and south and Moscow has persistently backed Russian groups there which pine for past days of rule from Moscow. Crimea is the only part of Ukraine where ethnic Russians outnumber Ukrainians and its port city of Sevastopol is home to the Russian Black Sea Fleet.
The peninsula is a tinderbox and many have already tried to start a fire. It was from Sebastopol that Russian ships sailed to shell and land invading troops in Georgia last week. Mr Yushchenko said the use of Russian ships for war violated Ukraine’s neutrality and risked drawing it into conflict. Now Ukraine is insisting that the Russian fleet must leave when its lease expires in 2017.
Ukraine’s first president, Leonid Kravchuk, who negotiated the terms of the Sebastopol lease under heavy pressure from the Kremlin, doubts that Ukraine’s small navy could prevent Russian ships from returning. “How do you prevent the Russian ships from coming in?” he said. “I don’t know of any way to do so. If we continue to stick to the point of view of ‘not letting them in,’ this will mean a war between Ukraine and Russia.”
Ukraine had already angered Moscow five years ago when, under the nominally Russian-friendly presidency of Leonid Kuchma, the country applied for Nato membership. Although most Ukrainians want to join the EU, they are deeply divided over whether their country should join the military alliance and many see Mr Yushchenko’s robust rhetroic on Nato as an attempt to win back nationalist votes ahead of 2010 presidential elections.
 
Yet many Ukrainians also believe that the French and German-led opposition to a concrete timetable for membership at the Nato summit held in Bucharest in April encouraged Russia’s current aggression.
During the 2004 Orange Revolution, pro-Russian politicians brought the country to the brink of civil war by threatening to split the country into the half that leaned towards the West and Nato membership and an eastern portion where most want to attach themselves to Moscow.
A Russian military analyst, Pavel Felgenhauer, believes Ukraine could be next on a Russian expansionist agenda. “Russia right now wants at least half of Ukraine to be annexed,” he said.
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[return to index] [Action Ukraine Report (AUR) Monitoring Service]
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19.  UKRAINE: NO CHICKEN KIEV

 
Investors Business Daily (IBD), New York, NY, Monday, Aug 18, 2008
Geopolitics: Another former province of the evil empire wants to participate in U.S. missile defense plans. It’s an offer we can’t refuse. As NATO meets in emergency session, it should welcome two new members.
 
NATO leaders from 26 member countries are scheduled to meet Tuesday to consider possible responses to the Russian invasion of Georgia. A move we would recommend is approve the membership of two former Soviet satellites — Georgia and Ukraine.
The NATO bureaucracy has dragged its feet on the issue. Some members say the two countries are not ready in terms of military strength and structure. Others fret the action might provoke Moscow. The fact that Europe depends on Russia for 25% of its oil and 40% of its natural gas hasn’t helped.
But as its Georgian aggression has shown, Russia is operating on its own timeline and an agenda that includes reconstituting its former empire. Being a democracy under Russian guns should qualify a country for fast-track consideration. As its own historical experience demonstrates, Europe cannot afford, as Winston Churchill once put it, to feed the crocodile hoping it will eat Europe last.
The delay in admitting Georgia to NATO was a clear green light to the new czars in Moscow. Had Georgia been in NATO, today’s conversation would be different.
It’s time to put up a big sign that says “stop” and take down the one that says “yield.” Western attempts to bring Russia into the world community have obviously failed.
Just as Putin’s march through Georgia concentrated Polish and American minds into finalizing a long-delayed agreement calling for missile interceptors to be stationed on Polish soil, Ukraine has made a startling offer to also cooperate on missile defense.
As the London Telegraph reports, Ukraine has offered the U.S. and Europe access to and use of satellite tracking stations on its territory that were once part of the Soviet Union’s ballistic missile defense system. Moscow recently annulled a post-Soviet agreement governing their use.
“The fact that Ukraine is no longer party to the 1992 agreement allows it to launch active cooperation with European countries to integrate its information,” the Ukrainian Foreign Ministry said in a statement.
Ukraine has experienced first-hand the treachery of which Moscow is capable. Putin celebrated New Year’s 2005 by temporarily cutting off gas supplies to Ukraine and tripling the price it charged. The gas shut-off had as much to do with Ukraine’s acceptance of democracy than any sweetheart deal it may have had.
 
Putin opposed the Orange Revolution that sprang up in reaction to a fraudulent election engineered to keep a Russian stooge in power. The Ukrainian people forced a new election and recognition of the victory of Viktor Yushchenko — who survived a poisoning, allegedly by elements of the KGB, permanently scarring his face.
Yushchenko has made noises about the lease agreement by which Russia’s Black Sea fleet operates out of the Sevastopol port in Crimea. The lease extends until 2017, but Ukraine has said it may bar use of its ports for operations against Georgia. Ukrainian officials say they have no intention of renewing the lease.
“In order to prevent the circumstances in which the Ukraine could be drawn into a military conflict, Ukraine reserves the right to bar ships which may take part in these actions from returning to Ukrainian territory until the conflict is resolved,” the Ukrainian Foreign Ministry said on its Web site.
Ukraine in NATO is Moscow’s worst nightmare, as is the prospect of American warships armed with the Aegis anti-missile system cruising the Black Sea from a base in Ukraine. It should not be NATO’s job to help Putin sleep at night. It should admit Ukraine — and Georgia.
When Hitler marched his horse-drawn infantry into the demilitarized Rhineland in 1936, Europe failed to call his bluff.
As Putin marches into Georgia, this time the West’s reaction needs to be quite different.
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[return to index] [Action Ukraine Report (AUR) Monitoring Service]
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20.  THE DRIVE TO SECEDE
Georgian provinces likely to join Russia

OPINION: By Eric Margolis, Winnipeg Sun
Winnipeg, Manitoba, Canada, Sunday, August 17, 2008

On Aug. 8 Russia’s Prime Minister Vladimir Putin swiftly and deftly checkmated the United States on the Georgian strategic chessboard. Georgia’s President, Mikheil Saakashvili, fell right into Moscow’s trap.

Georgia and Russia have been feuding since 1992 over two Georgian ethnic enclaves, South Ossetia and Abkhazia, whose people wanted to decamp Georgia and join Russia.

The young, U.S.-educated Saakashvili became Georgia’s president in 2003 after an uprising, believed organized by the CIA and financed by U.S. money,
overthrew the able former leader, Eduard Shevardnadze. I interviewed Shevardnadze in Moscow when he was Mikhail Gorbachev’s principal ally and
architect of Soviet reform.

Saakashvili quickly became the golden boy of U.S. right wing neocons, who saw him as a model of how to turn former Russian-dominated states into
“democratic” U.S. allies. Critics claim Saakashvili kept power by bribery and vote rigging.

U.S. money, military trainers, advisers, and spooks poured into the former Soviet Republic of Georgia. Israeli arms dealers, businessmen and intelligence agents quickly followed.

The Bush administration brazenly flouted agreements with Moscow made by presidents H.W Bush and Bill Clinton not to expand NATO into the former
U.S.S.R.

Russia’s tough Deputy Prime Minister Sergei Ivanov sneeringly termed Georgia a “U.S. satellite.” This former KGB elite foreign directorate agent certainly knows a satellite when he sees one.

Georgia provided the U.S. with oil and gas pipeline routes from Azerbaijan, Turkmenistan and Kazakhstan that bypassed Russian territory. Russia was
furious its Caspian Basin energy export monopoly had been broken and vowed revenge.

On Aug. 7 Saakashvili, his head swelled by Washington’s promises of additional aid, arms and eventual membership in NATO, rashly sent his little army to invade the breakaway region of South Ossetia. Washington likely backed this attack or at least knew of it.

Putin seized upon Saakashvili’s disastrous blunder and unleashed two Russian divisions against the Georgians, who were quickly routed. Impudent Georgia
and its American sponsors were humiliated.

South Ossetia and Abkhazia likely will move into Russia’s orbit. The West backed independence of Kosovo from Serbia. The peoples of South Ossetia and
Abkhazia have as much right to secede from Georgia.

PUTIN THWARTS BUSH
In one swift blow, Putin thwarted Bush’s clumsy attempt to further advance U.S. influence into the Caucasus. He delivered a stark warning to Ukraine
and the Central Asian states: Don’t get too close to Washington. Putin put the U.S. on the strategic defensive and showed that NATO’s new eastern
reaches – the Baltic, Bulgaria, Romania, and the Caucasus – are largely indefensible.

It’s a good thing Georgia was not admitted to NATO. Is the West really ready to be dragged into a potential nuclear war for the sake of South Ossetia?
Georgia is a bridge too far for NATO.

President George W. Bush, VP Dick Cheney and Sen. John McCain all resorted to table pounding and Cold War rhetoric against Russia. McCain, whose senior foreign policy adviser is a rabid neocon and registered lobbyist for Georgia thundered, “the U.S. has important interests in Georgia.” Interests that are barely a few years old, senator. Russia’s go back two centuries.

The Caucasus is Russia’s backyard. Imagine Washington’s response if Russian troops were deployed to Quebec.

Hypocrisy was thicker than shellfire. Bush, who ordered the invasion of Afghanistan, Iraq and Somalia, denounced Russia for invading “a sovereign ation.” Putin, who crushed the life out of Chechnya, piously claimed his army was saving Ossetians from ethnic cleansing.

Paper tigers Bush and McCain demand Russia be punished and isolated. The humiliated Bush is sending some U.S. troops to deliver “humanitarian” aid.
Their response is dangerous, provocative and childish.

RUSSIAN INTERESTS
The West must accept that Russia has vital national interests in the Caucasus and former U.S.S.R. Russia is a great power and must be afforded respect. The days of treating Russia like a banana republic are over.

The most important foreign policy concern for the U.S. is keeping correct relations with Russia, which has thousands of nuclear warheads pointed at North America. Georgia is a sideshow.
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LINK: http://www.winnipegsun.com/Comment/2008/08/17/6479426-sun.html
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AUR#898 Aug 20 NATO Tells Russia: No ‘New Line’ In Europe; Investors Fear Kyiv Next On Kremlin List; Russia Warns Ukraine; Westinghouse; Bunge; AeroSvit Airlines;

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

Ukrainian History, Culture, Arts, Business, Religion,
Sports, Government, and Politics, in Ukraine and Around the World       
 
NATO TELLS RUSSIA: NO ‘NEW LINE’ IN EUROPE
                     
ACTION UKRAINE REPORT – AUR – Number 898
Mr. Morgan Williams, Publisher and Editor, SigmaBleyzer
WASHINGTON, D.C., WEDNESDAY, AUGUST 20, 2008
 
INDEX OF ARTICLES  ——
Clicking on the title of any article takes you directly to the article.               
Return to Index by clicking on Return to Index at the end of each article
By John Thornhill and Stanley Pignal in Brussels
Financial Times, London, UK, Wednesday, August 20, 2008 
 
2NATO STATEMENT: GRAVE CONCERN OVER SITUATION IN GEORGIA
Meeting of the North Atlantic Council at the level of Foreign
Ministers held at NATO Headquarters, PR/CP (2008)104
Brussels, Belgium, Tuesday, 19 August 2008
 
OPINION: By Ronald D. Asmus, The Wall Street Journal Europe
New York, New York, Monday, August 18, 2008
 
4.  NATO URGES RUSSIA TO WITHDRAW BUT WILL SAY LITTLE ELSE
The Russians themselves appeared to ridicule the NATO declaration.
By Karen DeYoung, Washington Post Staff Writer
Wednesday, August 20, 2008; Page A09
 
By Roman Olearchyk in Kiev and David Oakley in London
Financial Times, London, UK, Wednesday, August 20 2008
 
By Ruth Sullivan, Financial Times, London, UK, Monday, August 18 2008
RISKS OWING TO SITUATION IN TRANSCAUCASIA
Interfax, Kyiv, Ukraine, Tuesday, August 12, 2008
 
By Sebastian Tong, Reuters, London, UK, Monday August 18 2008
 
We shouldn’t let Russia pick each of our countries off separately
By Anne Applebaum, Columnist, The Washington Post
Washington, D.C. , Tuesday, August 19, 2008; Page A13
 
By Olga Bondaruk, Associated Press (AP), Tuesday, August 19, 2008
 
Letter-to-the-Editor: From Peter Lewycky
Action Ukraine Report (AUR), Wednesday, August 20, 2008

We call upon all of you to support the Georgian people
Appeal from the European Movement Ukraine, Kyiv
Letter-to-the-Editor, Action Ukraine Report (AUR)
Washington, D.C., Wednesday, August 20, 2008
 
13CANADA: GEORGIA’S FIGHT WITH RUSSIA IS OURS, TOO 
Letter-to-the-Editor: By Oksana Bashuk Hepburn, Gatineau
Re: The bully is back, Aug. 13., The Ottawa Citizen
Ottawa, Ontario, Canada, Monday, August 18, 2008
14. RUSSIA’S INVASION OF GEORGIA, THE EVIL EMPIRE NEVER REALLY WENT AWAY
Analysis & Commentary: By Peter Borisow, USA
Published in Den and other newspapers
Action Ukraine Report (AUR), Wash, D.C., Wed, August 20, 2008
 
By Jay Solomon, Neil King, Jr. and Siobhan Gorman 
The Wall Street Journal, New York, NY, Monday, August 18, 2008; Page A11
 
Russia has gone over to he dark side
OP-ED: By Fred Hiatt, Columnist, The Washington Post,
Washington, D.C., Monday, August 18, 2008; Page A11
Commentary: By Reno Domenico, Courier-Post
South Jersey, New Jersey, Friday, August 15, 2008
Russian reassurances don’t match reality in Georgia.
Lead Editorial: The Washington Post
Washington, D.C., Tuesday, August 19, 2008; Page A12
 
Commentary: By Patrick J. Buchanan, Information Clearing House
Imperial Beach, California, Friday, August 15, 2008 
OP-ED: By Michael Gerson, The Washington Post
Washington, D.C., Wednesday, August 20, 2008; Page A15
 
21. BEYOND CHORNOBYL
US company Westinghouse succeeds in bringing greater
international competition to nuclear fuel market
By Jim Davis, BusinessUkraine weekly magazine,
Kyiv, Ukraine, Monday, July 28, 2008
 
22SUNFLOWER OIL EMPIRE
America’s Bunge expects to remain among leaders in booming Ukrainian agribusiness
By Jim Davis, BusinessUkraine weekly magazine
Kyiv, Ukraine, Monday, July 28, 2008
(USUBC), MEMBER NUMBER 83
U.S.-Ukraine Business Council (USUBC)
Washington, D.C., Friday, June 13, 2007
 
BUSINESS COUNCIL (USUBC)
U.S.-Ukraine Business Council (USUBC)
Washington, D.C., Wednesday, June 25, 2008
By John Thornhill and Stanley Pignal in Brussels
Financial Times, London, UK, Wednesday, August 20, 2008 
Nato warned Russia on Tuesday that it could not draw a “new line” in Europe preventing Georgia and other countries from joining the western military alliance if they wished to do so.
Meeting in emergency session in Brussels, the western military alliance’s 26 foreign ministers also suspended regular top-level ties with Russia, saying that “business as usual” could not continue while Russian troops remained in Georgia.
 
Expressing their strong support for Georgia’s independence in one of the most serious disputes between the west and Russia since the end of the cold war, Nato members agreed to establish a permanent commission with the embattled Caucasian country, which is desperate to join the western alliance. Nato is also sending 15 civil emergency experts to Georgia to ease conditions for an estimated 150,000 refugees.
Condoleezza Rice, US secretary of state, insisted that Moscow could not divide those countries that had already entered Nato from those that still aspired to do so.
“There will absolutely be no new line. Nato does not accept that there is a new line, and we are acting as if there is no new line,” she said, evoking the Iron Curtain that divided Nato from the Soviet bloc during the cold war.
“Nato intends to support the territorial integrity, independence and sovereignty of Georgia and to support its democratically-elected government, and to deny Russia the strategic objective of undermining that democracy and making Georgia weaker,” she said.
Earlier, Jaap de Hoop Scheffer, Nato’s secretary-general, called on Moscow to withdraw all its military forces in Georgia to the positions they occupied on August 6, the day before the military confrontation erupted.
A Nato statement added that Russian military action had been “disproportionate and inconsistent with its peacekeeping role” in parts of Georgia.
Russia began withdrawing military units from parts of Georgia on Tuesday in accordance with a six-point ceasefire agreement brokered by the European Union. However, Russian officials reacted furiously to Nato’s criticisms and its declaration of support for Georgia’s eventual membership.
Dmitry Rogozin, Russia’s representative to Nato, said that the west was hypocritical in condemning Moscow for its aggression while supporting Mikheil Saakashvili, Georgia’s president. Mr Rogozin condemned Mr Saakashvili as a “war criminal” who had bombarded civilians and Russian soldiers in South Ossetia, provoking Moscow’s intervention.
Mr Rogozin added that if Nato had already accepted Georgia as a full member, then the western alliance and Russia would now be at war.
“Are you ready to risk your prosperity and risk your lives and the lives of your children for the sake of Saakashvili?” Mr Rogozin asked correspondents in Brussels.
Ms Rice said the US – and Nato – had no desire to isolate Russia. But she added that Russia’s incursion into Georgia and the bombing of civilian targets was isolating Russia from the world. “There can be no business as usual with Russia while this kind of activity goes on,” she said.
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2.  NATO: GRAVE CONCERN OVER SITUATION IN GEORGIA
 
Statement: Meeting of the North Atlantic Council at the level of
Foreign Ministers held at NATO Headquarters, PR/CP (2008)104
Brussels, Belgium, Tuesday, 19 August 2008

The North Atlantic Council met in special Ministerial session on 19 August 2008, expressed its grave concern over the situation in Georgia and discussed its wider implications for Euro‑Atlantic stability and security.  A peaceful and lasting solution to the conflict in Georgia must be based on full respect for the principles of Georgia’s independence, sovereignty and territorial integrity recognised by international law and UN Security Council resolutions. 

 
We deplore all loss of life, civilian casualties, and damage to civilian infrastructure that has resulted from the conflict.  We are assisting humanitarian relief efforts.  We met with the Chairman‑in‑Office of the OSCE, Finnish Minister of Foreign Affairs Mr. Alexander Stubb, to discuss the key issues which he believed needed to be addressed.

We welcome the agreement reached and signed by Georgia and Russia, through the diplomatic efforts of the European Union, the OSCE and the US, to end the hostilities and to bring about a political solution to the conflict.  We stand fully behind these efforts.  We stress the urgency of swift, complete, and good faith implementation of the agreement, including a new international mechanism to monitor respect for these engagements. 

 
Military action must cease definitively and military forces must return to their positions held prior to the outbreak of hostilities.  Fully international discussions must begin on the modalities for security and stability in Abkhazia and South Ossetia.  Economic activity in Georgia, including international aviation and shipping, must not be hindered.
 
We are gravely concerned by the humanitarian situation.  Allied governments are working together, and in concert with international organisations and others in the international community, to ensure that the civilian populations affected by the conflict have the assistance they need to meet immediate and ongoing humanitarian needs.  We call on all parties, in accordance with their obligations under international humanitarian law, to ensure access for international humanitarian relief efforts to all affected populations.

We have also agreed today to support Georgia, upon its request, in a number of areas.  In addition, we have agreed to task the North Atlantic Council in Permanent Session to develop with Georgia rapidly the modalities for a NATO‑Georgia Commission.  This Commission will supervise the process set in hand at Bucharest, including the measures of support agreed at today’s meeting. 

 
These measures are intended to assist Georgia, a valued and long‑standing Partner of NATO, to assess the damage caused by the military action and to help restore critical services necessary for normal public life and economic activity. Georgia’s recovery, security and stability are important to the Alliance. 
 
NATO will continue to cooperate with Georgia in the framework of the Partnership for Peace and Georgia’s Individual Partnership Action Plan with NATO, and will review any additional Georgian requests for assistance.  We also welcomed the fact that a number of our governments have indicated that they will actively support measures to help the economic reconstruction of Georgia.

The conflict between Georgia and Russia has compromised regional stability and security.  We deeply deplore the use of force in the conflict between Georgia and Russia.  We reiterate that there is no military solution to the unresolved conflicts.  We remind all parties  that peaceful conflict resolution is a key principle of the Partnership for Peace Framework Document.

We remain concerned by Russia’s actions during this crisis and remind Russia of its responsibility for maintaining security and order in the areas where it exercises control, especially in light of continuing reports of Russia’s deliberate destruction of civilian infrastructure.

 
Russian military action has been disproportionate and inconsistent with its peacekeeping role, as well as incompatible with the principles of peaceful conflict resolution set out in the Helsinki Final Act, the NATO‑Russia Founding Act and the Rome Declaration.  We call on Russia to take immediate action to withdraw its troops from the areas it is supposed to leave under the six‑principle agreement signed by President Saakashvili and President Medvedev[1] 
 
The Alliance is considering seriously the implications of Russia’s actions for the NATO‑Russia relationship.  In 2002, we established the NATO‑Russia Council, a framework for discussions with Russia, including on issues that divide the Alliance and Russia. 
 
We have determined that we cannot continue with business as usual.  We call on Moscow to demonstrate – both in word and deed – its continued commitment to the principles upon which we agreed to base our relationship.

We reaffirmed our commitment to the decisions taken by Heads of State and Government at the Bucharest Summit in April 2008, including those regarding Georgia’s Euro‑Atlantic aspirations, and we will continue our intensive engagement with Georgia to address in December the questions pertaining to its Membership Action Plan application, taking into account developments until that time.
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[1] As complemented by President Sarkozy’s letter dated 16 August 2008 and

subsequent correspondence on this issue.
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3.  NATO’S HOUR

OPINION: By Ronald D. Asmus, The Wall Street Journal Europe
New York, New York, Monday, August 18, 2008

BRUSSELS
Russia’s invasion of Georgia is a game changer. This war is part of a Russian strategy of roll-back and regime change on its borders. The more evidence that comes in, the clearer it is becoming that this is a conflict Moscow planned, prepared for and provoked — a trap Tbilisi unfortunately walked into. A core Western assumption since 1991 — that Moscow would never again invade its neighbors — has been shattered.

 
As Moscow basks in its moment of nationalistic triumphalism, the West needs to take steps to prevent further Russian moves from spreading instability to others parts of Europe.
If they want to contain this crisis, NATO foreign ministers meeting here tomorrow need to focus on two strategic imperatives. The Alliance must take steps to reassure those members fearing Russian pressure that NATO’s mutual-defense commitments are credible and real. And ministers must consider speeding up enlargement plans to lock in stability in the Balkans and bring in Ukraine and the southern Caucasus.
The Alliance can start with a very simple but clear statement declaring that Moscow’s operation was an act of aggression incompatible with international law and the United Nations Charter, fundamental principles of security and cooperation in Europe as reflected in the Charter of Paris, and even the founding principles of the NATO-Russia Founding Act in 1997.
But strong words are only a first step. So the Alliance should also reassure current members who feel threatened by Russia’s move and, above all, Moscow’s rationale for action. Since the Alliance began enlarging a decade ago, it has not conducted any defense planning against a possible Russian military threat to new members in Central and Eastern Europe or the Baltic states.
 
We have unilaterally refrained from such steps partly as a confidence-building step toward Russia. New members have complained bitterly about this. It is why the Alliance is seen by many in the region as hollow. It is time to take this step as a prudent part of Alliance defense planning.
Furthermore, we need to back up such planning by making our security guarantees to existing NATO members more credible. In the NATO-Russia Founding Act, the Alliance undertook a political pledge to carry out commitments under Article 5 — which stipulates that an attack on one NATO ally is an attack on them all — by relying on building military infrastructure in the new member states and sending reinforcements to defend that country in a crisis, as opposed to the permanent forward deployment of large numbers of combat troops.
 
We did this, again, to reassure Russia and because our military commanders believed we could afford this given Western military superiority. This commitment was political, not legal, and was contingent upon the maintenance of a benign security environment — diplo-speak for a peaceful Russia.
 
NATO, however, unilaterally decided not to seriously develop that infrastructure or reinforcement capability. It is time to put into place the infrastructure, reinforcement capabilities and symbolic deployments we are fully entitled to as a stabilizing and confidence-building measure for new allies.
NATO also needs to reassure those partners likely to be the next targets of Russian pressure and possible aggression, first and foremost Ukraine. This means rethinking NATO’s enlargement strategy. In the mid-1990s, NATO adopted an enlargement strategy based on integration and not as a strategic response to Russia.
 
We consciously raised the bar and requirements for new members. Our focus was less on protection than on democratic reforms to help anchor these countries to the West. But we also consciously left ourselves the option of lowering the bar in the future if the security environment took a turn for the worse. It now has done just that, and we need to shift our criteria again.
Strategic reassurance should now come first. This means more robust NATO outreach and a fast-track approach to enlargement in the Balkans, Ukraine as well as the southern Caucasus. Ukraine is likely to be Moscow’s next target along with Azerbaijan, which holds the key to the viability of Europe’s trans-Caspian energy corridor.
 
While many of these countries might not qualify under the criteria of the 1990s, they are strategically important for the West and at risk. We need to embrace them quickly in spite of their imperfections. That means granting them so-called Membership Action Plans and moving toward fast-track enlargement. We should not give up our goal of pushing for democratic reform in these countries. But let’s first help make them safe.
Leaders in these partner countries also have big decisions to make. In Ukraine, the NATO issue is part of the domestic battle for power. But it is time to put politics aside and be serious. European Union association agreements currently under debate are good for the country but will not shield Ukraine from Russian pressure and aggression.
 
Opposition leaders publicly oppose NATO to score points, but in private many say they want it. They must now decide if they want to be part of the West.
 
If parts of the opposition join a bipartisan consensus, the Alliance should move quickly to embrace Ukraine. In Azerbaijan, presidential elections are approaching. Azerbaijan is not a democracy and has its own “frozen conflict” with Armenia in Nagorno-Karabakh. If Baku conducts free and fair elections and moves toward a democratic opening, and makes credible moves to make peace with Armenia, we should also be prepared to embrace Azerbaijan.
That of course leaves Georgia. Following this war, it will be years before Georgia again reaches NATO’s current criteria for new members. Here, too, we need to change our approach and embrace a country whose survival is at stake, too. These new commitments, if undertaken, must be backed up by credible military planning and defense arrangements that deter Russia.
Last but not least, we should freeze the NATO-Russia dialogue in Brussels for the foreseeable future. If we are honest, this relationship has never become what we wanted: a channel for consultation and real cooperation. Moscow has walked away from many of its commitments in the Founding Act.
 
It treats the NATO-Russia Council as yet another platform for its anti-Western strategy. Russian NATO Ambassador Dimitry Rogozin behaves like an old-style propagandist seeking to sow dissension in the ranks of allies. We have lots of channels to talk to Moscow. Let’s shut this one down until Moscow gets serious about doing business and not spreading anti-NATO propaganda.
The stakes are high. It is time for the kind of leadership and trans-Atlantic unity that will preserve our values, interests and security in a more dangerous world.
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NOTE: Mr. Asmus is executive director of the Brussels-based Transatlantic Center and in charge of strategic planning at the German Marshall Fund of the United States. These views are his own.
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4.  NATO URGES RUSSIA TO WITHDRAW BUT WILL SAY LITTLE ELSE
The Russians themselves appeared to ridicule the NATO declaration.

By Karen DeYoung, Washington Post Staff Writer
The Washington Post, Wednesday, August 20, 2008; Page A09

BRUSSELS, Aug. 19 — NATO allies said Tuesday that there will be no “business as usual” with Russia until its troops withdraw from all parts of
Georgia, but Moscow’s refusal to bend to the West’s political will left the alliance with few options for punishment.

A declaration issued after an emergency meeting of NATO foreign ministers here called on Russia to “demonstrate — both in word and deed” — its
commitment to a cooperative relationship with the alliance. It outlined a series of measures the alliance would take to help Georgia rebuild and
ultimately bring it into the embrace of the West.

NATO Secretary General Jaap de Hoop Scheffer said NATO would coordinate assistance to what he said were more than 150,000 Georgians displaced by the fighting. The alliance, he said in a news conference, would dispatch experts to assess damage to Georgia’s infrastructure and armed forces.

But with no sign that the Russians have begun a full-scale withdrawal from Georgian territory — days after pledging to do so — diplomats privately
described the document as an indication of the limits of what NATO’s diverse membership would agree to beyond denunciation.

The Russians themselves appeared to ridicule the declaration. While Secretary of State Condoleezza Rice told reporters the document was a “clear
indication of NATO’s interest and NATO’s concern,” Dmitry Rogozin, Russia’s envoy to the alliance, assessed in his own news conference that “the
mountain gave birth to a mouse.”

Russian Foreign Minister Sergey Lavrov also dismissed NATO’s declaration, the Associated Press reported, saying the alliance was trying to make a
victim of Georgia’s “criminal regime.” Georgia’s desire for NATO membership is strongly opposed by Russia.

Though Rice said the United States got precisely what it wanted in the declaration, a German diplomat said that his government did not consider NATO the best place to discuss a global response to the Georgian crisis.

Some of NATO’s newest members — including those formerly part of the Soviet Union — called for a more robust statement, the diplomat said. But “Georgia is not a member of NATO,” the diplomat said. “What can NATO do?”

The cease-fire negotiated last week by French President Nicolas Sarkozy and signed over the weekend by Russian President Dmitry Medvedyev, called for
Russian troops to return to their positions of Aug. 6, before they flooded from Russia through the separatist zone of South Ossetia and into undisputed
Georgian cities and towns.

The demand in NATO’s Tuesday declaration for a Russian withdrawal covers troops who crossed from Russia as part of the war. It does not cover several
hundred Russian soldiers who were stationed on disputed Georgian land as peacekeepers prior to the escalation.

NATO hopes that U.N. action will result in an international peacekeeping force deploying to the two disputed areas of Georgia.

The declaration welcomed an agreement, reached between Georgia and Russia this Tuesday at the Vienna-based Organization for Security and Cooperation in Europe, to expand a small group of unarmed OSCE military monitors on the ground in Georgia from nine to 29. OSCE Chairman Alexander Stubb said that the monitors — eventually to number 100 — would initially be deployed only in areas in Georgia proper “adjacent” to South Ossetia and the other
disputed enclave, Abkhazia.

Calling Georgia a “valued and long-standing Partner of NATO,” the alliance’s declaration said a NATO-Georgian commission would be formed to help Georgia move toward eventual membership. But it made no mention of fast-tracking action on Georgia’s application.

Until the Georgia situation is resolved, Scheffer said he saw no indication that the NATO-Russian Council, established in 2002 to facilitate cooperation, would convene. In an indication of NATO’s inability to agree on specific steps, he said that “no specific decisions on projects or programs have been taken.”
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LINK: http://www.washingtonpost.com/wp-dyn/content/article/2008/08/19/AR2008081900216.html?nav=hcmoduletmv
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5.  INVESTORS FEAR KIEV IS NEXT ON KREMLIN LIST

 
By Roman Olearchyk in Kiev and David Oakley in London
Financial Times, London, UK, Wednesday, August 20 2008
The cost of insuring Ukraine’s debt against restructuring or default rose to its highest since the 2004 Orange Revolution yesterday, as investors fretted that the Kremlin’s spat with the west could spill over into a vast country of 46m people that straddles the divide between a resurgent Russia and the European Union.
Worries about the debt intensified after a dispute over Russian warships’ use of the Ukrainian Black Sea port of Sevastopol highlighted tensions between Russia and Ukraine, which became independent from Russia following the collapse of the Soviet Union.
Dmitry Medvedev, Russia’s president, sent a warning to Ukraine’s pro-western leadership on Monday not to restrict Moscow’s use of naval bases on the Crimean peninsula.
“Nobody should be telling us how we should behave . . . interference [by Ukraine] will not lead to anything good,” he told reporters in the Russian city of Vladikavkaz.
Five-year credit default swaps rose six basis points from Monday’s close to 467 basis points, Commerzbank said. Ukraine’s CDS have risen sharply since August 8, the day when fighting broke out between Russia and Georgia.
Paul Biszko, senior emerging market strategist at RBC Capital Markets, said: “The market has become increasingly nervous as the Russians have refused to budge from Georgia. As the crisis has dragged on, the intransigence of the Russians has suggested to many investors that Ukraine could be next on the hit-list as they have the key strategic asset of the Crimea, where the Russian fleet is based in the Black Sea.
“Could the Russians decide to take back the Crimea from Ukraine? It is possible. That’s why we have seen the cost to insure Ukraine debt rise sharply.”
Kiev has been a vocal supporter of Georgia and in a bid to tie its defence policy more closely with its western allies, Viktor Yushchenko, president, last week offered Nato use of Ukraine’s early warning radar system.
That move could inflame suspicions in Moscow that Ukraine plans to join a US- led anti-missile defence system along with Poland and the Czech Republic.
Another potential flashpoint is a sizeable Russian minority in the Crimea, where more than 100,000 of the region’s 2m population have Russian citizenship.
Leonid Kravchuk, the first elected president of Ukraine after it declared its independence from the Soviet Union, urged the present leadership to be cautious with Russia. “We should not give any grounds for a forceful or conflict scenario of settling both country’s differences, starting with the question of Russia’s Black Sea fleet,” he said.
Kiev worries that Moscow may refuse to remove its Black Sea fleet from Sevastopol when a lease agreement expires in 2017. More disturbing is the prospect of Russian support for separatists in the Crimea, with the aim of annexing it in much the same way Georgia claims Moscow plotted with Abkhazia and South Ossetia to wrest them from Tbilisi.
Proryv, a pro-Russian organisation that operates in Abkhazia and South Ossetia, is also active in Crimea. Nadyezhda Polyakova, leader of the group in Crimea, says “heightened tensions” in connection with events in Georgia and persecution of pro-Russian organisations by Ukraine’s authorities could “spark serious escalation and conflict as seen in Georgia”.
 
MOSCOW MAYOR QUESTIONS UKRAINE’S RIGHTS OVER CRIMEA

Influential Russians such as Yuri Luzhkov, the Moscow mayor, have repeatedly questioned Ukraine’s territorial rights over Crimea, which was administered as part of Russia until 1954. The Kremlin has not publicly questioned Kiev’s rights but Ukrainian officials fear it could have ambitions to reclaim the peninsula.
Kiev also accuses Russia of dragging its feet on agreements to demarcate borders on the Azov Sea. At stake, in addition to a strategic naval base, are potentially vast untapped oil and gas reserves.
Mr Yushchenko has urged Ukrainians to support his bid to join Nato as soon as possible, arguing that Kiev desperately needs foreign security guarantees.
However, two-thirds of Ukrainians fear it will upset Russia. Ukraine’s armed forces are much bigger than Georgia’s, but are dwarfed by the might of Russia.
Mr Yushchenko hopes fears that Ukraine might suffer the same fate as Georgia will bolster support for Nato. “What happened in Georgia is the best example [of] how easily military actions, and questions of territorial integrity, can in today’s conditions be forced upon a country that does not have collective security guarantees,” he says. If Ukraine’s borders are “questioned”, as happened to Georgia, “then that means we are on verge of deep and serious military actions”.
President Victor Yushchenko has vowed to give strong moral support to pro-western allies in Tbilisi. Ukraine and Georgia, independent since the collapse of the Soviet Union, have angered Russia by seeking membership of Nato.
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6.  EASTERN INVESTORS HOLD FIRM
 
By Ruth Sullivan, Financial Times, London, UK, Monday, August 18 2008
Investment houses exposed to the fledgling asset management industry in central and eastern Europe are managing to offset weakness in western Europe as investor appetite in the continent’s former communist states remains robust.
Stripping out low-margin money market funds, the CEE’s mutual fund markets showed net outflows of just euro6bn (lb5bn, $9bn) in the first six months of the year compared with nearly euro164bn in western Europe, according to data from fund information service Lipper Feri.
This comes after a period of breakneck growth that has seen the volume of fund assets in Europe’s excommunist states surge to euro67bn from just euro18bn five years ago, even as many western European nations have haemorrhaged assets.
“Investors in eastern Europe are much more likely to put money into their own equity markets than their western counterparts. CEE fund markets are underdeveloped and mostly domestically oriented, which makes them attractive to domestic investors and so the money is flowing in,” said Bella Caridade-Ferreira, publisher and editor at Lipper Feri.
Until the late 1990s, the former communist countries had no mutual fund sector. Since then, the industry has taken root, with more developed markets such as Poland seeing assets increase fivefold during the past five years in spite of modest recent outflows.
The latest quarterly data from Lipper Feri showed mature markets such as France, Italy and Spain suffering big redemptions in the three months to June while the Czech Republic, Slovenia, Latvia and Romania all recorded positive flows.
Almost without exception, eastern European economies are growing faster than their western peers, driving up income, savings and investment assets. Among the international banks and asset managers that have benefited from the rampant growth in eastern Europe is Austria’s Raiffeisen International. It now has euro4.5bn in assets; euro3.4bn in mutual funds and the rest in pension funds.
Barbara Valkova, head of asset management at Raiffeisen, said: “If markets do well, we could grow as much as 20 per cent in countries that are most developed in the region such as Croatia, Hungary and Slovakia.”
Last year, Raiffeisen opened its doors in Serbia, where it is focusing on equity funds, and it is planning to expand into Ukraine. It now has eight asset management operations in the region at different stages of development, with Romania and Bulgaria among the most embryonic. In Romania, Raiffeisen is targeting growth of 150 per cent in 2009 if market performance is strong.
Belgium’s KBC, another of the biggest players in the region, generates a 10th of its euro180bn of assets from eastern Europe, according to Johan De Ryck, general director of KBC Asset Management for central and eastern Europe and Russia.
Over the past four to five years, KBC’s asset management business has experienced growth rates of 30-40 per cent in the region and, although this year is not showing such strong flows as 2007, Mr De Ryck forecasts at least 20 per cent growth in 2009. He expects even stronger fund growth from less mature markets such as Bulgaria, Romania, the Balkans and Russia.
“Although inflation is rapidly increasing across the region, the strong salary growth of the past years does not yet seem to have slowed down, so savings and disposable income are still strong,” he said.
Pioneer Investments, part of Italian banking group UniCredit, is also active in the region, which accounted for almost 5 per cent of its euro230bn of assets under management at the end of last year.
Although the region has shown mixed performance this year, fund managers and central and eastern European aficionados agree with Ms Caridade-Ferreira’s conclusion that “it is a region where the fund industry will continue to grow”.
Page 11, Quarterly Industry Review
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7.  CITI ANALYSTS ADVISE INVESTORS TO REASSESS UKRAINIAN
ASSET RISKS OWING TO SITUATION IN TRANSCAUCASIA
 

Interfax, Kyiv, Ukraine, Tuesday, August 12, 2008

MOSCOW – Analysts at Citi believe that investors must reassess the risks in Ukrainian assets owing to the current situation in the Transcaucasian
region. The Citi note said: “A more aggressive Russian foreign policy within the former Soviet Union is likely to pose a threat to Ukrainian asset prices.”

“This looks particularly likely in view of the fact that we already believe that Ukraine’s fundamentals will deteriorate during the latter part of 2008
on the back of the prevailing inflationary growth mix. As such, widening external deficits should become an increasing source of pressure on the
hryvnia as seasonal support fades and key reforms are shelved, all of which threatens the outlook for capital inflows,” the note said.

“Tensions in the Caucasus are almost certainly related in our view to Russia’s dissatisfaction over the consequences of the “colour revolutions”
in Ukraine and Georgia in 2003 and 2004, when pro-western governments emerged in these two countries,” the note said.

Citi experts said that Russia is against Georgia and Ukraine’s accession to NATO, as well as Ukraine’s EU integration since such a move would reduce
Russia’s influence in the region.

“If conflict with Russia decelerates or reverses Georgia’s integration with the West, a similar fate could also affect Ukraine. Russia may find it
convenient to raise the level of tension with Ukraine in the run-up to the December NATO review, and there are plenty of issues which Russia might
choose to pursue, including the price of gas imports; the future of Russia’s Black Sea fleet and the control of Sevastopol; the independence of Ukraine’s
Orthodox church; the dependence of Ukraine’s arms and electronics industry on Russian contracts; and Russia’s objection to Ukraine’s oil exploration in
the Black Sea,” the note said.
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8.  STANDARD & POOR’S: RUSSIA TENSIONS COULD HIT UKRAINE BANKS

 
By Sebastian Tong, Reuters, London, UK, Monday August 18 2008

LONDON – The refinancing of the debt of Ukraine’s highly leveraged banks is at risk if foreign investors take fright from worsening relations between the country and Russia, Standard & Poor’s said on Monday.

The ratings agency also said an escalation in tensions between Ukraine and Russia would lead to a drop in foreign direct investment into Ukraine, shutting down a key source of funding to cover the country’s widening current account deficit.
“Ukraine’s banking sector is highly leveraged and dependent on foreign investors to refinance existing debt. Western investors already have less appetite for Ukrainian risk than they did two weeks ago,” Frank Gill, S&P director of European sovereign ratings, told Reuters.
S&P estimates that foreign debt of Ukrainian banks reached more than $35 billion as at mid-2008, representing 28 percent of the banking sector’s total liabilities.
As a row continues over the use of a Ukrainian Black Sea port by Russian warships, the cost of insuring Ukraine’s debt against restructuring or default rose on Monday to its highest levels since Ukraine’s “Orange Revolution” of 2004. For more see [ID:nLI728791].
Russia’s military intervention in Georgia’s breakaway region of South Ossetia has inflamed tensions among former Soviet countries, with Russia seen to be taking a harder stance against neighbours such as Ukraine and Georgia which aspire to NATO membership.
PARTY POLITICS
Gill said the Georgian crisis would probably lead to further political polarisation in Ukraine, cementing divisions between existing political parties, such as the pro-Russian Party of Regions and pro-Western parties associated with President Viktor Yushchenko and Prime Minister Yulia Tymoshenko.
 
“Those opposed to NATO entry will be more vehemently so, while the pro-Western side will redouble efforts to gain membership to NATO and other Western multilateral organisations,” Gill said.
Earlier in the day, Yushchenko’s office accused Tymoshenko of betraying national interests by not backing Georgia in its conflict with Russia.
Gill said Ukraine’s “B+” credit rating was not under pressure as the ratings agency had already taken into account Ukrainian political risk arising from Russia’s tendency to intervene in the politics of its neighbours.
“There is a recognition among Ukrainian leaders of Russia’s importance to its economy. In terms of trade flows, Ukraine’s economy is more integrated into Russia’s versus Georgia,” Gill said, adding that Tymoshenko has shifted to a “more nuanced and pragmatic approach” towards Russia.
“There is always a risk of some kind of conflict between the two countries, but this is not part of our core expectations at this moment,” he said.
Ratings agency Moody’s also said the tensions were not likely to have an immediate impact on Ukraine’s B1 rating with positive outlook.
“Geopolitical issues are among the things we look at,” said New York-based Ukraine analyst Jonathan Schiffer. “We would probably wait and see what Ukraine’s response is, what the EU, U.S. and NATO’s response is. Then we would try to draw up a new balance sheet which takes these things into consideration.” Schiffer said the risks of an overheating economy in Ukraine were hindering the country’s chances of a near-term ratings upgrade.
Ratings agency Fitch said last week that Ukraine faced greater risks to its BB- debt rating from the current account deficit, rising external debt levels and inflation than from tensions with Russia.
Ukrainian annual consumer price inflation stood at 26.8 percent in July. (Additional reporting by Carolyn Cohn; Editing by James Dalgleish)
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9.  RUSSIA’S FLASHBACK TO 1968

We shouldn’t let Russia pick each of our countries off separately
 
By Anne Applebaum, Columnist, The Washington Post
Washington, D.C. , Tuesday, August 19, 2008; Page A13
Forty years ago this week, on the night of Aug. 20-21, 1968, thousands of tanks and hundreds of thousands of Soviet and Warsaw Pact soldiers entered Czechoslovakia. The goal of the invasion was straightforward: to prevent a Soviet satellite from carrying out democratic reforms that, had they been allowed to succeed, could have threatened the legitimacy of the governments of other Soviet satellites and, indeed, of the Soviet Union itself.
 
Superficially, it has to be said, the events of August 1968 do bear some resemblance to the events of August 2008, as Secretary of State Condoleezza Rice has observed.
 
For yes, not only are tanks with Russian commanders again rolling over the territory of another sovereign country, the invaders’ intentions are in some ways similar: Once again, Russians are punishing a former satellite whose reforms, if successful, could challenge their own political system.

True, Russia is no longer Soviet. But its ruling clique, led by former president and current Prime Minister Vladimir Putin, remains steeped in the paranoid, highly controlled, conspiracy-obsessed culture of the old KGB. Putin and his entourage are not communists, but neither do they believe in free markets or free societies.

 
Instead, all important decisions must be made in Moscow, by a small, unelected group of people who know how to resist sabotage organized from abroad. Events cannot be allowed to just happen; they must be controlled and manipulated. Elections cannot just take place; their outcomes must be determined in
advance.
 
RUSSIAN STATE’S OPEN HOSTILITY TO GEORGIA, UKRAINE, BALTICS
The Russian state’s open hostility toward not only Georgia but also Ukraine and the Baltic states is, in this sense, partly ideological. Genuine elections have taken place in those countries; people who have not been preselected by a ruling oligarchy do sometimes gain wealth or power. Georgia’s Rose Revolution and Ukraine’s Orange Revolution even involved street demonstrations that helped unseat more oligarchic regimes.
 
Thus it is not pure nationalism, or mere traditional great-power arrogance, that makes the Russian leadership disdainful of Georgia and Ukraine: It is also, at some level, fear that similar voter revolutions could someday challenge Russia’s leaders, too.
Nevertheless, the word “superficial” is worth repeating: As I’ve written before, I don’t really like historical analogies, which can conceal as much as they reveal. For one, the ethnic conflict that sparked the Georgian president’s foolhardy response and the Russian invasion two weeks ago has been twisted and manipulated, but it nevertheless involves real people.
 
Any long-term solution to the current crisis has to find some accommodation for the South Ossetians whose homes and livelihoods have been destroyed in the exchange of fire.
More important, the international situation is utterly different. Despite some misty-eyed memories of alleged Cold War decisiveness, we did not, back in 1968, have the will or the ability to help the victims of Soviet expansionism.
 
Our only real response to the Soviet invasion was a bit of public spluttering. Most of Europe was still recovering from the “events of 1968,” the student uprisings celebrated across the continent this year in a haze of post-radical nostalgia.
Today’s Russian leaders, despite the paranoia they learned in KGB training, have far more profound relationships with Western institutions, not only the Group of Eight and the Council of Europe but also with the Western banks and companies that invest their money and manage their property. Today’s Europe is theoretically better prepared to engage Russia, too, though it has not been engaged until now.
 
After the invasion, I wrote that the West, which failed for many years to address the security vacuum in the Caucasus, would have no influence over Russia, and in the short term this has proved true. Despite a cease-fire brokered by France, Russian troops are withdrawing very slowly, if at all; we have no military means to force them and should not pretend otherwise.
But if this becomes a long-term conflict, if the Russian military remains in Georgia proper, if this turns out to be only the first of several incursions into other neighboring states, there are relationships we have and meaningful levers we can use, whether over Russian membership in international institutions or Russian leaders’ luxury apartments in Paris — if, of course, we are willing to use them.
 
The critical question now is whether the West is prepared to behave like the West, to speak with one voice and create a common transatlantic policy.
 
GAZPROM PICKING US ALL OFF SEPARATELY
 
In recent years, Russia has preferred to deal with Western countries and their leaders one by one. Just last week, an affiliate of Gazprom, the Russian state-dominated gas company, added a former Finnish prime minister to its payroll — which already includes former German chancellor Gerhard Schroeder. If we hang together instead of allowing Gazprom to pick us all off separately, there is at least a chance that this mini-chill won’t last another 40 years, too.
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applebaumletters@washpost.com; http://www.washingtonpost.com/wp-dyn/content/article/2008/08/18/AR2008081801852.html
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10.  RUSSIA WARNS UKRAINE NOT TO INTERFERE AT NAVY BASE

 
By Olga Bondaruk, Associated Press (AP), Kiev, Ukraine, Tuesday, August 19, 2008
 
KIEV, Ukraine – Russia’s foreign minister warned Ukrainian leaders Tuesday against trying to restrict the Kremlin’s use of a Crimean naval base it leases from Ukraine, adding to tensions that have heated up since Russian troops invaded Georgia.
Ukraine’s pro-Western president, Victor Yushchenko, has sided with Georgia and moved last week to restrict Russian warships at the leased military base at the Black Sea port of Sevastopol, saying the vessels’ movements were subject to Ukrainian approval.
Russian Foreign Minister Sergey Lavrov dismissed that argument in a sharply worded barb Tuesday, saying Russia’s ships don’t need any permission to use the port. The lease agreement says “nothing about us needing to explain to someone why, where to and for how long the Black Sea Fleet ships are leaving their walls,” Lavrov was quoted as saying by Russia’s state-controlled ITAR-Tass news agency.
Ukraine’s Defense Ministry said it was considering Russia’s request to allow four Russian warships to enter Sevastopol on Wednesday, but declined further comment.
 
However, Foreign Minister Volodymyr Ohryzko sought to cool tensions, saying his country wouldn’t physically prevent Russian ships from entering or leaving the naval base. “Without a doubt, there won’t be any mine fences or military collisions; one shouldn’t even talk about that,” Ohryzko said in Kiev, the Interfax news agency reported.
Many Ukrainians worry that after dealing with Georgia, the Russians might set their sights on Ukraine, which like Georgia is a former Soviet republic government that has angered by Moscow by seeking closer ties with the West and membership in the NATO military alliance.
 
Russia’s critics say the conflict in Georgia heralds a new, worrying era in which an increasingly assertive Kremlin has shown itself ready to resort to military force outside its borders in pursuing its goals.
Many Ukrainians fear the Kremlin’s fierce opposition to Ukraine’s drive to join NATO and Moscow’s desire to regain control of the palm-lined Crimea peninsula and the Sevastopol naval base might put Ukraine at a risk of a military conflict with its giant neighbor.
Moscow Mayor Yuri Luzhkov has warned Ukraine that it still isn’t too late to return “what doesn’t belong to it” — a reference to Crimea.
Ukraine is also important to Russia because its pipelines carry Russian oil and natural gas westward. The country also has a huge Russian-speaking population in its east and south that wants to remain linked with Russia.
While siding with Georgia, Ukrainian officials have acknowledged that Moscow’s quick military victory exposed their nation’s own vulnerability.
“I think that Russia is looking for a reason to have a serious conflict with Ukraine,” said Iryna Mezentseva, a 21-year-old secretary in Kiev.
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Associated Press writer Maria Danilova in Moscow contributed to this report.
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[return to index] [Action Ukraine Report (AUR) Monitoring Service]
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U.S.-Ukraine Business Council (USUBC) www.usubc.org.
Promoting Ukraine and U.S.-Ukraine business relations since 1995. 
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11.  PEOPLE OF CRIMEA VOTED TO JOIN UKRAINE IN 1954 & AGAIN IN 1992

 
LETTER-TO-THE-EDITOR: From Peter Lewycky
Action Ukraine Report (AUR), Wednesday, August 20, 2008

Thanks you for the recent postings re: Georgia-Russia. (I  thought that you were permanently dormant)  I’m heartened to read there are knowledgeable and influential people who rose to the occasion to condemn Russia’s attempt at annexation.

 
A number of writers made reference to Ukraine and Crimea. One or more allowed that there was a ‘Russian’ majority; hence laying open the possibility of further Russian adventures. While I’m not a historian I have a recollection that in 1954 Crimea joined Ukraine as a result of a plebescite.
 
I also have a recollection that when Ukraine with Crimea left the USSR, Russia demanded that a special plebescite be held in Crimea to ascertain whether or not Crimea wished to stay with Ukraine. Moscow packed Crimea’s electoral list with USSR military personnel and despite this, they still lost! 
 
I would appreciate that this fact be known: That the people of Crimea voted to join Ukraine in 1954 and voted again to stay with Ukraine in 1992; despite Moscow’s rigging of the vote. Unfortunately none of your writers pointed out this most salient fact.
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12.  APPEAL FROM THE EUROPEAN MOVEMENT UKRAINE

We call upon all of you to support the Georgian people
Appeal from the European Movement Ukraine, Kyiv
Letter-to-the-Editor, Action Ukraine Report (AUR)
Washington, D.C., Wednesday, August 20, 2008

We call upon all of you to support the Georgian people who are at this very moment spilling their blood in defense of their homeland’s territorial integrity.

By violating Georgia’s territorial integrity, Moscow has started to realize its global geopolitical project of renewing and consolidating its political and economic hegemony over the territories of the former USSR. The primary goal of the new geopolitical strategy is the horrific symbiosis of Russian imperialism and Stalinist totalitarianism.

In realizing this new geopolitical strategy, the Kremlin’s use of military aggression serves a twofold purpose. The first is to strengthen Moscow’s influence over the countries that were once part of the Soviet Union. The second is to frustrate the Euro-Atlantic aspirations of those nations who gained their liberty with the USSR’s demise.

The seriousness of the current situation dictates the need to adopt urgent measures in order to ensure that human history’s most horrific episodes are not repeated. The international community’s reaction should be proportionate to the cynical violation of international law.

 
Strict sanctions should be adopted against Moscow as an aggressor for “no territorial acquisition or special advantage resulting from aggression is or shall be recognized as lawful” (UN Resolution 3314).

The European Movement Ukraine calls upon our friends and colleagues in the European Union to display civil valor and honesty.

 
We believe that the time-honored European values of solidarity, justice and rule of law are more than just empty phrases and that together we will do everything required of us to stop the aggressor and help the courageous Georgian people in their battle for freedom and their homeland’s territorial integrity.
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NOTE: European Movement Ukraine: euromovement@ukr.net
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13.  CANADA: GEORGIA’S FIGHT WITH RUSSIA IS OURS, TOO 

 
LETTER-TO-THE EDITOR: By Oksana Bashuk Hepburn, Gatineau
Re: The bully is back, Aug. 13., The Ottawa Citizen
Ottawa, Ontario, Canada, Monday, August 18, 2008
 
Thank you to the Citizen for doing the right thing by lending support to Georgia in its David and Goliath fight.
I have been reminded that Russia, the repeat offender, is still out there. In the last 50 years alone, countless Ukrainians, Poles, Hungarians, Czechs and Slovaks, Afghans, Chechens, have lost their lives to Russia’s oppressive governments. Some say the count stands at around 40 million dead in the former Soviet Union alone.
 
Its current government is denying Russia a chance to become a modern, civilized nation. It needs to apologize for past wrongs and thus start a road to redemption and deserved respect rather than demand the world listen to its mutterings about wounded pride over its lost bloody empire and watch its attempts to recreate it with new human sacrifices.
 
I am proud of the positions taken by Canada and other western countries. Thank you to the United States, to Prime Minister Stephen Harper for articulating strong support for little Georgia; thank you for President Nicolas Sarkozy for his efforts.
 
And to the five other presidents, friends of Georgia, in the Baltic states, Poland and Ukraine — all of whom have experienced Russia’s tyranny. They know Russia holds life, freedom, sovereignty and peace in disregard. Fortunately, they do not. Georgia’s fight against oppression is our fight. I, too, am a Georgian.
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FOOTNOTE: I [Oksana Bashuk Hepburn], encourage all of us to keep actively engaged in this matter.  The Russians are counting on the fact that we will let their invasion of Georgia fade from our TV sets and then into oblivion.  Just like Chechnya.  Then, they will do what thy have done endless times before destroy and control.  Please do something: write or call your politicians; call the Russian Embassy and express your disdain; organize a demo; letters to editors; emails to blogs; etc..  Please feel free to distribute further.
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http://www.canada.com/ottawacitizen/views/story.html?id=1f10c7f1-3829-4d8e-ac18-9df752da95cf&k=76907
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14.  RUSSIA’S INVASION OF GEORGIA, THE EVIL EMPIRE
NEVER REALLY WENT AWAY
 
ANALYSIS & COMMENTARY: By Peter Borisow, USA
Published in Den and other newspapers
Action Ukraine Report (AUR), Wash, D.C., Wed, August 20, 2008
 
When Russian Dictator Vladimir Putin ordered his storm troopers to invade Georgia last week, he was doing far more than simply propping up a pro-Russian wannabe puppet government in a Georgian province long ago seeded for the purpose with Russian nationals and KGB operatives.  The game thus begun and how the West responds to it will write history as inevitably as did Hitler’s march into Czech Sudetenland.
 
For Hitler, Chamberlain’s infamous appeasement became a green light to take what he wanted in Europe, marking the start of WWII.  For Putin, anything short of strong and united international action to force Russia to cease and desist and immediately.
 
Withdraw All Russian forces from All of Georgia will be read by Putin as yet another green light – future license to proceed against his ultimate goal – to seize control of the last major oil pipelines to Europe not yet under Russian control and restore the Russian Empire by conquering Ukraine and Moldova.  The resulting domino effect on Europe and the West will be catastrophic. 
 
It is now urgent and critical for all people to call on their government officials and representatives to demand:
 
     1)  Immediate withdrawal of All Russian forces from All Georgian territory;
     2)  Immediate replacement of Russian so-called “Peacekeeping” Forces in South Ossetia, a province of Georgia, with a neutral multinational         
           peacekeeping force and if necessary, a NATO peacekeeping force;
     3)  Immediately sending a substantial U.S./NATO Naval presence for permanent station in the Black Sea;
     4)  Immediate granting of NATO MAP status to Georgia and Ukraine;
     5)  Reconfirmation of the inviolability of international borders;
     6)  Rejection of all “breakaway provinces” as acts of war;
     7)  Condemnation of Russia’s efforts to dismember Georgia to suit its own ends;
     8)  Specific and severe trade and diplomatic sanctions against Russia including expulsion from the G8, the WTO and the IOC;
     9)  Senior Russian Government and Military Officials be individually listed as Terrorists and their assets in U.S. Banks be seized and frozen;
     10) Prosecution of Senior Russian Government and Military Officials as War Criminals for the wanton slaughter of Georgian civilians.
 
Our brave new world has shown it will not tolerate toothless mini-tyrants like Saddam Hussein.  Now the question is whether the world has the courage to face down Maxi-Tyrants like Putin, savage heir to Stalin’s blood-drenched legacy, the same legacy from which Hitler learned there are few limits to the horrors civilized nations will tolerate just to be left alone, even if just for a while. 
 
Russia does not understand diplomacy and protests.  Putin responds only to brute force and raw power.  Short of a military reaction, the only alternative is to make it brutally clear to Russia that as a Rogue Sate the same harsh diplomatic and financial sanctions we apply to International Terrorists will now apply to Russia and individually to Russia’s leaders.  We need a Dirty Dozen List of Russian Leaders whose assets are seized and who are banned from business and travel in the civilized world. 
 
Russia and its leaders must be made to understand – “If you behave like a Terrorist, you will be treated like a Terrorist.”
 
Tragically, Russia’s invasion of Georgia was enabled by the self-centered shortsightedness of both European and U.S. governments and politicians.  Among the enabling acts were:

     1) Allowing Russia to be the official United Nations Peacekeeping Force in Ossetia – a move on par with letting Bin Laden guard U.S. nuclear 

         warheads;
     2) European leaders’ succumbing to Russian bullying and gas bribery to stop Georgia and Ukraine from starting NATO Membership Accession Plans
         this past spring; and, most recently –
     3) The U.S. and Europe’s failure to reject the Schumer Appeasement Doctrine. 
 
First declared by New York Senator Charles Schumer this summer, the Schumer Appeasement Doctrine (SAD) proposes the U.S. yield to Russian Hegemony in Eastern Europe in exchange for Russian support against Iran and help to lower crude oil prices.
 
Where President Reagan said, “Mr. Gorbachev, Tear Down This Wall!” Senator Schumer seems to be saying, “Mr. Putin, Put Back Your Iron Curtain – It’s O.K.”
 
The crucial question is whether Schumer is just a Times Square Aberration or if his proposed Appeasement Doctrine foreshadows a quantum shift in U.S. foreign policy.
 
Since Schumer is a prominent Democrat, failure by the Democratic Party and by Presidential Candidate Obama to reject the Schumer Appeasement Doctrine has led the Russians to expect they will not be vigorously challenged by the U.S. in the event Obama wins the November election. 
 
A parallel failure by the President Bush to reject the Schumer Appeasement Doctrine has led to Russian suspicions about his resolve as well.  Although Republican Presidential Candidate McCain has taken a strong position on Russia’s invasion of Georgia, it remains to be seen to what extent this will influence President Bush.
 
For reasons perhaps best attributed to simple lack of courage to acknowledge reality, the West has consistently failed to respond in a timely fashion to Russian tactics – tactics that should be familiar to us by now as they not changed much in the last century. 
 
Russia’s basic steps are:
 
     1) Seed the desired territory with Russian nationals and agents;
     2) These agents, supported by Russian nationals and whatever local fellow travelers they can recruit, start complaining they are being mistreated by the
          local people and government;
     3) Russian agents provoke armed conflicts with the local population;
     4) Russian agents call for Russia to protect them against – persecution, aggression, mistreatment, etc. (pick whatever works at the moment);
     5) Or, Russian agents declare themselves to be the “true representatives” of the people of the desired territory and call on their brethren to help them
         drive out the “usurpers” (i.e., the locals);
     6) Russia sends in armed forces to – protect its local nationals, secure strategic assets, fight terrorists, etc. (again, pick whatever works at the moment);
     7) Russia slaughters the opposition and grabs what it wants.
 
These same tactics were used successfully starting with Ukraine in 1918, then on to Latvia, Lithuania and Estonia in ’46, Hungary in ’56, Czechoslovakia in ’68, and Afghanistan in 1980.  In the ’90s, Russia took a time out to change costumes.  They flushed the worn out Marxist “USSR” façade and put on the current, more marketable “Russian Federation” façade.  And then – Here we go again – Georgia in 2008. 
 
If not stopped by the West, Ukraine and Moldova will follow in short order.  Russia’s tactics in Ossetia are virtually identical to those currently being staged in the Crimea and Transdnistra, Putin’s next “breakaway provinces.”  Russia’s Dictator is not just seriously intent on restoring Stalin’s Russian Empire – He’s Doing It!
 
And, sometimes, the other guys are just so inept, they give Russia gifts they wouldn’t have dreamed of asking – like letting Russians be appointed United Nations Peacekeepers in Ossetia!!!  What next?  How about getting Al Qaeda to handle Security for Washington D.C. and Hamas for the Wailing Wall?  Russian “Peacekeepers” in Ossetia!  When the definitive guide to stupidity (or treachery) in diplomacy is finally written, this one will need its own chapter. 
 
Equally disturbing is the West’s failure to acknowledge that Russia’s policy towards Ukraine has not changed in the 350 years since Peter I decided to make himself an empire by slaughtering and devouring his neighbors.  The most fundamental requirement for Russia to have a credible empire was then and is today … Ukraine. 
 
Without Ukraine, Russia is little more than Asian tundra, armed to the teeth and with lots of money – a kind of frozen Saudi Arabia with nukes.  To be credible as an empire, or even simply European, Russia needs Ukraine – her land, her soil, her faith, Church, culture, traditions and industry – her natural cornucopia of God’s Bounty.
 
The only thing Russia does not need is the Ukrainian people, whom Russia has worked for centuries to kill off and destroy, most recently with 26 years of ongoing genocide in the first half of the 20th Century, which culminated in the Holodomor, when 10 million innocent Ukrainians, the majority elderly and women and children, were killed in the Genocide of 1932-33.  No one doubts there is any shortage of Russian leaders who are ready, willing and able to complete the job.
 
Russia’s invasion of Georgia immediately endangers Georgia’s survival as a free and democratic nation.  It is the first step to brazenly reconstitute the Russian Empire.
 
Russian’s invasion of Georgia foreshadows a similar military invasion of Ukraine and Moldova in the near future, perhaps as early as 2009. 
 
Russia’s invasion of Georgia sets the stage for a future where Russia effectively controls virtually all energy supplies to Europe.  Such European dependence on Russia for energy will effectively destroy the North Atlantic alliance, thus paving the way for subordination of the United States as well as Europe to Russian Hegemony.  
 
Russia, master of the world’s energy routes, fearing no nation’s military – suddenly unchallenged as the New Supreme World Power, and all in the hands of a ruthless Stalinist Dictator – Now That is an Evil Empire.
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15.  TIES WITH RUSSIA ARE REASSESSED

 
By Jay Solomon, Neil King, Jr. and Siobhan Gorman 
The Wall Street Journal, New York, NY, Monday, August 18, 2008; Page A11

WASHINGTON — As the West presses Russia to withdraw its troops from Georgia, the Bush administration and its European allies are also exploring actions that could alter their post-Cold War relationship with Moscow.

U.S. officials over the weekend said Russia’s actions inside Georgia in recent weeks were forcing Washington and Europe to examine measures that could result in isolating Russia from the West. Among these, they said, are potentially blocking Russian participation in global bodies such as the World Trade Organization and the Group of Eight forum for industrialized nations.
 
Meanwhile, U.S. Secretary of State Condoleezza Rice will attend an emergency session of the North Atlantic Treaty Organization in Brussels on Tuesday to fashion a more detailed response to Russia’s actions in Georgia and the disputed territories of South Ossetia and Abkhazia.
“The damage to Russia’s reputation and the damage to people’s views of Russia’s suitability for some of these institutions, that damage can’t be undone,” Ms. Rice said Sunday on CBS television’s “Face the Nation.” “Georgia can be rebuilt. Russia’s reputation is going to take a while, if ever.”
Among the most immediate issues to be addressed at the NATO meeting, said U.S. and European officials, will be the need to deploy peacekeepers to the Caucasus to oversee a cease-fire between Russia and Georgia. NATO members are also expected to address longer-term strategic issues that could further heighten tensions with Moscow, such as the expansion of NATO membership to additional former Soviet states, as well as moves to deploy a missile-defense shield across Europe.
The conflict in Georgia is already forcing a broader reassessment of Europe’s relationship with Russia, said European diplomats. One said he hopes the conclusion from the NATO meeting will be that “we cannot go on with business as usual” with Moscow. In recent days, NATO has canceled a number of scheduled joint-military exercises with Russian forces because of the Georgia conflict.
And the Bush administration and Poland accelerated the signing of an agreement last week that will allow the U.S. to deploy American missile-interceptors on Polish soil. Washington committed to stationing Patriot-missile batteries in Poland as part of a greater U.S. commitment to defending the country from attack.
Saturday, Ukrainian President Viktor Yushchenko announced that Kiev would be willing to assist a regional missile-defense system by providing early-warning information from its satellites.
“You wouldn’t expect Ukraine to try to attach itself to the missile-defense project,” said the European official. “It’s probably reflecting their general concern about Russia.”
Moscow immediately criticized the missile-defense agreement between the U.S. and Poland as designed to target Russia, something neither American nor Polish officials have attempted to refute in recent days.
Still, many American and U.S. diplomats said it remains unclear just how fundamentally the Georgian conflict is going to reshape Europe’s strategic map.
NATO’s willingness to expand its membership, and include countries such as Georgia and Ukraine, is unlikely to be discussed in depth Tuesday and may not get a more thorough airing until the organization’s December summit. But even then, it could take a considerable amount of time before either Tbilisi or Kiev became NATO members, said U.S. and European officials.
A White House spokesman, Gordon Johndroe, said NATO countries are likely to put Georgia and Ukraine on the track to becoming members at a meeting of foreign ministers in December, although the U.S. failed to persuade other NATO members to do that at an alliance summit earlier this year. He held out the possibility that the time frame could even be accelerated. “We’ll see if there is a move to do it earlier,” he said.
The decision involves creating a membership action plan for each country. It has typically taken a few years for aspiring member countries to join after they’ve received such plans.
Countries such as Germany and France have held that Georgia shouldn’t join NATO until it resolves all of its territorial disputes, while Ukraine must build greater domestic political support for its membership. The fighting in Georgia isn’t expected to change this calculus.
The timing of the deployment of a U.S. missile-defense system for Europe is also still in question. In addition to the U.S. agreement with Poland, the Czech Republic agreed last month to host a radar station. Approval of the move by the Czech Parliament later this year seems likelier now, in part because many Czech officials are comparing the war in Georgia to Moscow’s invasion of Prague 40 years ago.
Still, many European states are concerned that deployment of the missile-defense program will further militarize Europe and possibly antagonize Moscow. A number of European diplomats said it remains unclear how the conflict in Georgia might shift opinion in countries such as Germany and France.
“Russia may have set the conditions for [the missile-defense] program to be accelerated,” said a European official. “We’ll have to see.”
–John D. McKinnon contributed to this article.
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Write to Jay Solomon at jay.solomon@wsj.com, Neil King Jr. at neil.king@wsj.com and Siobhan Gorman at siobhan.gorman@wsj.com
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16.  WHO MADE RUSSIA ATTACK?

Russia has gone over to he dark side
 
OP-ED: By Fred Hiatt, Columinist, The Washington Post
Washington, D.C., Monday, August 18, 2008; Page A11
As Russian forces loot and occupy a neighboring state, conscripting Georgian civilians at gunpoint to sweep their city streets, it’s not uncommon, in Moscow or in Washington, to find America at fault.
 
Russia has gone over to the dark side — or, in the Moscow version, has finally stood up for itself — in understandable reaction to U.S. disrespect, according to this view. And the next president should learn a lesson from this: that there are limits to how far Russia can or should be pushed.
This narrative of American provocation cites a long list of grievances, but the principal and original sin is NATO expansion. After the dissolution of the Soviet Union in 1991, the United States encouraged the newly free nations of Central and Eastern Europe to join a military alliance whose founding purpose had been containment of the U.S.S.R. Russia hated the idea from the start, and the United States should have known that Moscow, once it recovered its strength, would exact retribution.

But was this really something that was done to, or even against, Russia? The vision behind NATO expansion under both President Bill Clinton and President Bush was a Europe whole and free. The carrot of NATO membership was dangled, first of all, to ease the dangers of transition. Applicant countries had to promise civilian control of their militaries, fair treatment of ethnic minorities and respect for international borders.

 
Given the terrible things that might have accompanied the dissolution of the Soviet Union, the Warsaw Pact and Czechoslovakia — Yugoslavia on a far greater scale — the policy was amazingly successful.
Of course, applicant nations had an additional motive: They wanted an insurance policy against the possibility that Russia might eventually revert to its old form and seek hegemony over them. America sympathized but also hoped that Russia would cooperate with and someday even join NATO — that it would recognize the potential benefits of living as part of a neighborhood of prosperous, freely trading, democratic nations.
 
It did not seem crazy to hope that Russians themselves would notice how much better off Germans are today, for example, living in respectful peace with smaller neighbors such as Denmark and Belgium than they were when Germany sought domination.
But Vladimir Putin, who came to power in 2000, had a different vision of Russia’s place in the world. Russia “has tended to feel absolutely secure only when everybody else, particularly those around its borders, feels absolutely insecure,” Russia hand Strobe Talbott noted last week, and Putin fell squarely in that tradition.
 
At home, he quashed political opposition and independent media. He brought Russia’s mineral riches back under state control and then began using them — oil and natural gas in particular — to enforce obeisance abroad.
And he viewed NATO expansion as an affront, as something done to Russia, not because he imagined that Estonia or Georgia or even NATO itself ever would attack Russia, but because it complicated Russia’s drive for hegemony. Seeing the world as a contest among spheres of influence, he could not imagine that the leaders behind NATO might see things differently.
So NATO expansion is an affront only to the kind of Russia that the West would find unacceptable in any case. But, even if America has not sought to encircle or strangle Russia, should it not have been more sensitive to Russia’s wounded pride? Might Russia have evolved more democratically if Washington had been more deferential?
Maybe so, but there’s not much evidence to support such a theory. The West spent a good part of the past 17 years worrying about Russia’s dignity — expanding the Group of Seven industrial nations to the G-8, for example — and it’s not clear such therapy had any effect.
 
Putin had his own reasons for stifling democracy, and, to quote Talbott again, the “more authoritarian or totalitarian” Russia has been, “the more aggressively it asserts its interests overseas.”
 
The unhealthy cycle is on display now: Hearing only about Georgian “genocide” and aggression on state-controlled television, Russians cannot understand Western criticism of Russia’s actions as anything but further evidence of unfairness, which could be used to justify more aggressive behavior.
What does all this mean for the next president? By all means he should cooperate with Russia when possible, and he should remain open to the idea that Russia might one day join NATO and other international arrangements on terms of mutual respect.
But if the hope is that greater understanding of and deference to Russia’s imperial ambitions would tame those ambitions, the historical analogies are not encouraging. (fredhiatt@washpost.com)
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http://www.washingtonpost.com/wp-dyn/content/article/2008/08/17/AR2008081702076.html
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17.  U.S. HAS HELPED EMBOLDEN GEORGIA TO STAND UP TO RUSSIA 

COMMENTARY: By Reno Domenico, Courier-Post
South Jersey, New Jersey, Friday, August 15, 2008
The current crisis between Georgia and Russia has serious consequences for the Caucasus region, the European states of the former Soviet Union, and the entire Euro-Atlantic alliance.
 
The genesis of this hot war in a formerly frozen conflict can be found in the incoherent foreign policy of the United States as pursued by both the current Bush administration as well as the former Clinton administration.
Whereas the policy toward the former Soviet Union pursued by President Clinton resulted in the dismal privatization programs that impoverished millions while creating the oligarch class that now dominates those nations, the Bush administration’s cowboy approach fanned the flames of nationalism that has sparked the current crisis resulting in the death of thousands.
NATO push
While ignoring the serious economic dislocation caused by the breakup of the Soviet Union, and not recognizing the nationalistic reemergence of the Russian Federation as a result of its petroleum-fueled economy, the Bush administration embarked on a policy of integrating former Eastern Bloc republics into NATO.
Part of this policy was the abrogation of the Anti-Ballistic Missile (ABM) Treaty, and the push to place ABM batteries and radars on the border with Russia. This was viewed as directly provocative by the Russian government.
The push for Georgian and Ukrainian membership in NATO failed at the last summit. In Ukraine, the question of NATO membership is very controversial, with less than 50 percent of the population supporting the idea. In Georgia, having ongoing conflicts with Russia, support for NATO membership was higher.
Additionally, Georgia and the United States have cooperated on a series of military projects, including a significant number of Georgian troops in Iraq, and a robust US training program for the Georgian military.
Emboldened
This military cooperation and the prospect of NATO membership in the future clearly emboldened the Georgian government to challenge Russia by attempting to reoccupy South Ossetia. The result has been catastrophic for the people who live in South Ossetia, as well as for the Georgian military. However, the danger is really a regional one.
There are some in the Ukrainian government who would like to deny the Russian navy the right of return to its Black Sea fleet headquarters in Sevastopol, Crimea. Sevastopol, and the Autonomous Republic of Crimea, is a very Russian leaning region of Ukraine, with significant Russian linguistic, historical and cultural ties. Having divided the Black Sea fleet when the Soviet Union dissolved, Russia still has treaty rights to its base in Sevastopol until 2017.
Eyewitness accounts on Wednesday night in Kiev, the capital of Ukraine, reported the movement of several brigades of fully armed Ukranian tanks and troop carriers toward the railway station in the city center. It can be speculated that those brigades are southbound for deployment in Crimea. The question is, for what purpose? Unfortunately, the answer to that question is not a good one.
There are also rumors circulating that Ukranian forces may be inserted into Georgia as peacekeepers.
If the mission is to deny the Russian fleet’s return to Sevastopol, this could clearly expand the conflict across the Black Sea. If that happens, what will be the reaction of the essentially Russian population of Crimea?
All this has transpired against the backdrop of the Olympics, where nationalism plays itself out in the spirit of sporting competition and mutual respect. When the conflict in Georgia started I watched what appeared to be a “Katrina” moment, when President Bush, obviously enjoying himself, was sitting in support of American athletes at the games.
Simultaneously, Russian Prime Minister Vladimir Putin put on his coat and rushed out of the stadium to take control of the Russian forces on the Georgian frontier.
 
Not until Wednesday did President Bush and Secretary Rice finally take some kind of decisive action in support of the European Union mediation efforts. Once again, as it has been U.S. policy since the fall of Soviet Union, it’s too little, too late.
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LINK: The writer is the president of Sterling Business School in Ukraine (www.sbs-ua.com) and former chairman of the Camden City Democratic Committee. He has made more than 50 trips to Ukraine and Russia since 1989. Contact him at renodomenico@sbs-ua.com.
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LINK: http://www.courierpostonline.com/apps/pbcs.dll/article?AID=2008808150320
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18.  WITHDRAWAL SYNDROME

Russian reassurances don’t match reality in Georgia.
 
Lead Editorial: The Washington Post
Washington, D.C., Tuesday, August 19, 2008; Page A12
 
“EUROPE CAN be proud of this success,” French President Nicolas Sarkozy wrote in our newspaper yesterday, referring to his negotiation of a cease-fire between Russia and Georgia. The congratulations may have been premature. Yesterday, in a by-now depressingly familiar pattern, Russian officials, up to and including the president, announced the withdrawal of forces from Georgia, while in Georgia itself there was no sign of withdrawal.
On the contrary, Russian forces continued to dig in and loot as they occupied a large swath of Georgian territory. They remained in control of the central city of Gori and the western city of Senaki. They moved tanks into Igoeti, 22 miles from the capital of Tbilisi. They have wrecked the rails on a bridge of the main east-west railroad and taken control of the main east-west highway, essentially cutting off most trade and transport in Georgia.
 
They have seized the Inguri power plant, which provides 78 percent of Georgia’s electricity. Meanwhile, as disturbing reports of rapes and murders of civilians continue to seep out of Russian-controlled South Ossetia, the Russians blocked a visit to the region by the head of the International Committee of the Red Cross.

What does Russia hope to gain by this partial occupation of a tiny neighboring country? Russian President Dmitry Medvedev must understand that his international reputation is not enhanced by the enormous gap between his statements and reality. The offsetting benefits that he, or Prime Minister Vladimir Putin, perceives must be large. It may be that by asserting squatters’ rights in Georgia, Russia hopes to enhance its negotiating position that Georgia’s territorial integrity should no longer be respected.

 
It may hope that by wrecking Georgia’s economy, it can spark an uprising against Georgian President Mikheil Saakashvili, the elected leader whom Mr. Putin despises. Russia may just want to drive home the lesson to small neighboring states that they should follow Russia’s lead, or else.
In the long run, this will not help Russia’s standing anywhere. A telling sign came with the release of a prominent political opponent from prison by Belarus’s dictator; if even he is looking to open a channel to the West, Russia’s neighbors are indeed nervous. But Georgia cannot wait for the long run to arrive.
 
The West — the International Monetary Fund, the United States, the European Union — must help Georgia’s economy withstand the pressure, and it must make clear, including at a meeting of NATO foreign ministers today, that there can be no business as usual with Russia while this military campaign goes on. “This withdrawal has to be carried out without delay,” Mr. Sarkozy wrote in The Post yesterday. “For me, this point is not negotiable.” Russia seems set on putting Mr. Sarkozy’s determination to the test.
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19.  BLOWBACK FROM BEAR-BITING

COMMENTARY: By Patrick J. Buchanan, Information Clearing House
Imperial Beach, California, Friday, August 15, 2008 

Mikheil Saakashvili’s decision to use the opening of the Olympic Games to cover Georgia’s invasion of its breakaway province of South Ossetia must rank in stupidity with Gamal Abdel-Nasser’s decision to close the Straits of Tiran to Israeli ships.

Nasser’s blunder cost him the Sinai in the Six-Day War. Saakashvili’s blunder probably means permanent loss of South Ossetia and Abkhazia.

After shelling and attacking what he claims is his own country, killing scores of his own Ossetian citizens and sending tens of thousands fleeing into Russia, Saakashvili’s army was whipped back into Georgia in 48 hours.

Vladimir Putin took the opportunity to kick the Georgian army out of Abkhazia, as well, to bomb Tbilisi and to seize Gori, birthplace of Stalin.

Reveling in his status as an intimate of George Bush, Dick Cheney and John McCain, and America’s lone democratic ally in the Caucasus, Saakashvili thought he could get away with a lightning coup and present the world with a fait accompli.

Mikheil did not reckon on the rage or resolve of the Bear.

American charges of Russian aggression ring hollow. Georgia started this fight — Russia finished it. People who start wars don’t get to decide how and when they end.

Russia’s response was “disproportionate” and “brutal,” wailed Bush.

True. But did we not authorize Israel to bomb Lebanon for 35 days in response to a border skirmish where several Israel soldiers were killed and two captured? Was that not many times more “disproportionate”?

Russia has invaded a sovereign country, railed Bush. But did not the United States bomb Serbia for 78 days and invade to force it to surrender a province, Kosovo, to which Serbia had a far greater historic claim than Georgia had to Abkhazia or South Ossetia, both of which prefer Moscow to Tbilisi?

Is not Western hypocrisy astonishing?

When the Soviet Union broke into 15 nations, we celebrated. When Slovenia, Croatia, Macedonia, Bosnia, Montenegro and Kosovo broke from Serbia, we rejoiced. Why, then, the indignation when two provinces, whose peoples are ethnically separate from Georgians and who fought for their independence, should succeed in breaking away?

Are secessions and the dissolution of nations laudable only when they advance the agenda of the neocons, many of who viscerally detest Russia?

That Putin took the occasion of Saakashvili’s provocative and stupid stunt to administer an extra dose of punishment is undeniable. But is not Russian anger understandable? For years the West has rubbed Russia’s nose in her Cold War defeat and treated her like Weimar Germany.

When Moscow pulled the Red Army out of Europe, closed its bases in Cuba, dissolved the evil empire, let the Soviet Union break up into 15 states, and sought friendship and alliance with the United States, what did we do?

American carpetbaggers colluded with Muscovite Scalawags to loot the Russian nation. Breaking a pledge to Mikhail Gorbachev, we moved our military alliance into Eastern Europe, then onto Russia’s doorstep. Six Warsaw Pact nations and three former republics of the Soviet Union are now NATO members.

Bush, Cheney and McCain have pushed to bring Ukraine and Georgia into NATO. This would require the United States to go to war with Russia over Stalin’s birthplace and who has sovereignty over the Crimean Peninsula and Sebastopol, traditional home of Russia’s Black Sea fleet.

When did these become U.S. vital interests, justifying war with Russia?

The United States unilaterally abrogated the Anti-Ballistic Missile treaty because our technology was superior, then planned to site anti-missile defenses in Poland and the Czech Republic to defend against Iranian missiles, though Iran has no ICBMs and no atomic bombs. A Russian counter-offer to have us together put an anti-missile system in Azerbaijan was rejected out of hand.

We built a Baku-Tbilisi-Ceyhan pipeline from Azerbaijan through Georgia to Turkey to cut Russia out. Then we helped dump over regimes friendly to Moscow with democratic “revolutions” in Ukraine and Georgia, and tried to repeat it in Belarus.

Americans have many fine qualities. A capacity to see ourselves as others see us is not high among them.

Imagine a world that never knew Ronald Reagan, where Europe had opted out of the Cold War after Moscow installed those SS-20 missiles east of the Elbe. And Europe had abandoned NATO, told us to go home and become subservient to Moscow.

How would we have reacted if Moscow had brought Western Europe into the Warsaw Pact, established bases in Mexico and Panama, put missile defense radars and rockets in Cuba, and joined with China to build pipelines to transfer Mexican and Venezuelan oil to Pacific ports for shipment to Asia? And cut us out?

 
If there were Russian and Chinese advisers training Latin American armies, the way we are in the former Soviet republics, how would we react? Would we look with bemusement on such Russian behavior?

For a decade, some of us have warned about the folly of getting into Russia’s space and getting into Russia’s face. The chickens of democratic imperialism have now come home to roost — in Tbilisi.
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Mr. Buchanan is a nationally syndicated columnist and author of Churchill, Hitler, and “The Unnecessary War”: How Britain Lost Its Empire and the West Lost the World, “The Death of the West,”, “The Great Betrayal,” “A Republic, Not an Empire” and “Where the Right Went Wrong.”

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20.  INSPIRATION AND DANGER IN GEORGIA

 
OP-ED: By Michael Gerson, The Washington Post
Washington, D.C., Wednesday, August 20, 2008; Page A15
The nation of Georgia is a place of inspiration and danger. I saw both in a single hour.
I was in Tbilisi’s Freedom Square during President Bush’s visit in May 2005, along with Secretary of State Condoleezza Rice and Assistant Secretary of State Daniel Fried. During the Georgian national anthem, the speaker system broke down and tens of thousands of Georgians movingly sang that song without music — a song that had been illegal to sing under Soviet occupation.
It is shocking to imagine those joyful people now bombed, fearful and occupied.
At the same event, an assassination attempt was made against President Bush. A man threw a grenade wrapped in a handkerchief. Bush was behind a bulletproof shield but within the blast radius of the weapon. The grenade was live but did not explode — or maybe the explosion in Georgia was just delayed.
A few days ago I spoke with Ambassador Fried — one of America’s finest diplomats — on his way back from Georgia, after tense negotiations. Sounding exhausted from a “tough few days,” he described the French-sponsored cease-fire as flawed but important.
 
He predicted that in 10 years the invasion would be seen as a strategic mistake because it will have branded Russia “as a rogue.” Of the Russian government, he vented: “Picking on weak Georgia — is this the thing that makes them proud?”

Georgia badly miscalculated in this crisis. President Mikheil Saakashvili believed he could quickly gobble up his breakaway provinces through military force, just as he did in Georgia’s southwest four years ago. He is a hothead who acted against American advice.

But it was Russia that provoked this provocation, for which it was thoroughly prepared. In December 2007, Russia suspended its adherence to a treaty that required it to report the massing of its troops along borders. Two months before the invasion, hundreds of Russian engineers were engaged in repairing railroad bridges eventually used by Russian troops.
 
PUTIN ADOPTED TACTICS OF THE SCHOOLYARD BULLY
Vladimir Putin is a leader defined and consumed by his grievances, from European missile defense to Kosovo. And now he has adopted the ideology and tactics of the schoolyard bully — trying to restore Russian self-respect by beating up the weak. It is pathetic and dangerous in equal parts. It has also been a military success. Bush administration officials are now debating how to turn Russia’s tactical victory into a strategic defeat.
In the short term, this involves denying Russia some things it wants, such as a coup that deposes Saakashvili. It also involves achieving some things Russia doesn’t want, particularly the deployment of international monitors and eventually peacekeepers in the breakaway regions. Russian troops, after all, are not peacekeepers but combatants.
But there also needs to be a broader strategic consequence for Russia. Russia is attempting to combine 19th-century adventurism with membership in 21st-century international institutions. America needs to prove that is not possible — to demonstrate that there is no place for czarism in the Group of Eight or the World Trade Organization.
Few question this goal, but there are many questions about the method. Does a direct assault on Russia’s prickly pride make things worse or better? Should America pick a bruising public fight over G-8 membership or simply begin acting through the G-7, as Secretary Rice has already begun to do? Should America announce its opposition to Russian WTO membership, or merely stop pushing for it?
The worst option would be to excuse Russia by blaming ourselves. NATO expansion did not cause Russian belligerence. The desire to be part of NATO in liberated Europe was fueled, in part, by a justified fear of Russian belligerence. Citizens of the Baltic states, for example, are now glad that NATO expanded with relative speed, or they might be next on Putin’s list.
 
Again and again in European history, there has been a temptation to sacrifice the freedom of small countries to the interests of great powers. And it generally hasn’t worked out very well, for them or for us.
UKRAINE HAS BEEN DEFIANT
Georgia has been foolish. But Russia’s crude overreach has had one good effect — revealing the courage of others. Poland has quickly upgraded its relations with America, even under nuclear threat from Russia.
 
Ukraine has been defiant, even though Russia still makes claims on Crimea. These nations have recent memories of Russian national “pride.” And their courage should provoke our own. [michaelgerson@cfr.org]
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http://www.washingtonpost.com/wp-dyn/content/article/2008/08/19/AR2008081902259.html
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21.  BEYOND CHORNOBYL
US company Westinghouse succeeds in bringing greater
international competition to nuclear fuel market

By Jim Davis, BusinessUkraine weekly magazine
Kyiv, Ukraine, Monday, July 28, 2008

The whole world has come to know the story of the explosion at the Chornobyl
Nuclear Power Plant and its aftermath as the greatest atomic energy disaster
in history. Unfortunately, the story of Ukraine’s long-time and highly
successful use of nuclear power to generate nearly 50% of its electrical
power is less well-known.

On March 30, 2008, Westinghouse Electric won a contract that promises to
make nuclear fuel supply to Ukraine more competitive and help the country
assure a more reliable and secure supply of electrical power.

Westinghouse says the five-year contract, signed with the country’s umbrella
nuclear operating company, Energoatom, will provide nuclear fuel supplies to
three Ukrainian reactors beginning in 2011.

A long-term commitment

The genesis of Westinghouse’s introduction into the Ukrainian nuclear fuel
marketplace was an award in 2000 by the US government for the development
of an alternative nuclear fuel supply which successive Ukrainian governments
have supported.

This contract represents a major commitment from both Westinghouse and
Ukraine to ensure that alternative and competitive nuclear fuel supplies are
available for the benefit of Ukraine’s nuclear energy provider and,
ultimately, its citizens.

Aris Candris, Westinghouse Senior Vice President, Nuclear Fuel, said this
contract is significant because it represents one of the largest energy
supply diversification commitments in the history of Ukraine, greatly
increasing the country’s overall energy security.

Westinghouse Electric has roots in the power generation field which go back
to 1886 when the company was founded by George Westinghouse, acknowledged
during his lifetime as one of the world’s greatest engineers. During the
20th century, Westinghouse scientists and engineers were granted more than
28,000 US government patents, the third highest number for any company.

Westinghouse’s signing of the nuclear fuel agreement with Energoatom is the
first such contract ever signed by Ukraine with a western country. Although
Westinghouse in recent years has been fully committed to the commercial
nuclear power industry, the name Westinghouse has been associated with a
large number of significant achievements, mostly related to electricity and
electronics.

Among the company’s milestones are the first commercial AC power generating
station (1886); the first commercial radio broadcast (1920); the first
diesel-electric rail car (1929); the electronic amplifier to enhance X-ray
images (1948) and the first commercial pressurised water reactor (1957).
Additionally, Westinghouse provided the cameras that enabled the world to
watch man’s first walk on the moon in 1969.

Absorbing the painful lessons of Chornobyl

The Chernobyl nuclear event is rightfully remembered as one of the great
disasters in Ukrainian history. However, the lessons learned from Chernobyl
led to a level of safety consciousness that makes Ukraine’s nuclear power
industry one of the country’s greatest success stories.

Today, Ukraine remains heavily dependent on nuclear energy with 15
operational reactors. Ukraine still receives most of its nuclear services
and nuclear fuel from Russia, but implementation of the contract with
Westinghouse will enhance Ukraine’s energy independence.

In 2004 Ukraine commissioned two large new reactors and long-term plans
call for the government to maintain nuclear’s essential share in electricity
production at least to 2030 and probably far beyond. This reflects the
worldwide trend back toward nuclear fuel as a safe alternative to the
escalating costs and pollution problems with fossil fuels.

In 1991, due to breakdown of the Soviet Union, the country’s economy
collapsed and its electricity consumption declined dramatically from 296
billion kWh in 1990 to 170 kWh in 2000, all the decrease being from coal and
gas plants.

Total electricity production in 2007 amounted to 195 billion kWh. 47.4% of
this power came from coal and gas (approx 20% gas), 47.5% from nuclear and
5% from hydro.

A major increase in electricity demand to 307 billion kWh per year by 2020
and 420 billion kWh by 2030 is envisaged, and government policy is to
continue supplying half of this from nuclear power.

Westinghouse looks forward to providing options that will help Ukraine reach
its nuclear power generation goals with the ultimate goal of making Ukraine
as energy independent as possible.
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LINK: http://www.businessukraine.com.ua/beyond-chornobyl 
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NOTE: Westinghouse is a member of the U.S.-Ukraine Business Council.
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22.  SUNFLOWER OIL EMPIRE
America’s Bunge expects to remain among leaders in booming Ukrainian agribusiness

By Jim Davis, BusinessUkraine weekly magazine
Kyiv, Ukraine, Monday, July 28, 2008

A fairly recent addition to Ukraine’s major agriculture and food companies,
nevertheless Bunge has since 2002 gained a reputation for its community
involvement and outstanding human resource practices. Founded in 1818 in
Amsterdam as an export/import trading firm, Bunge has gone on to become a
recognised world leader in global agribusiness.

Bunge’s integrated operations, now headquartered in the United States,
circle the globe, stretching from the farm field to the retail shelf. The
Bunge family in Ukraine is a part of 22,000 employees worldwide at over
450 facilities in 32 countries, all dedicated to improving the global
agribusiness and food production chain.

HELPING UKRAINE TO GLOBAL SUNFLOWER DOMINATION

Bunge Ukraine’s operations are an extension of the company’s Agribusiness
and Edible Oil Products divisions. The Agribusiness division is one of the
world’s largest oilseed processors and a major global grain trader, while
the Food products division is a major supplier of edible oils and
shortenings to food processors and foodservice customers, and is a leading
supplier of consumer edible oils and related products in select markets.

Bunge is the world’s largest seller of bottled vegetable oils to consumers
and has played a major role in making Ukraine a world centre for sunflower
seed oil (sunoil) production and marketing.

A CHALLENGING ENVIRONMENT TO DO BUSINESS

Dmitry Gorshunov, Managing Director of Bunge Ukraine made it clear in an
interview with Business Ukraine that the company considers its Ukraine
operations a part of the company’s long-term strategic plans. “Bunge fully
intends to continue its growth in Ukraine. The Ukrainian environment is
challenging but with those challenges come opportunities,” Mr. Gorshunov
says.

Bunge first invested in Ukraine through its 2002 purchase of Cereol, which
at the time owned a Dnipropetrovsk facility that processes sunflower seed to
make bottled cooking oil. Since that initial purchase Bunge has increased
the size of the Dnipro facility by 50%. In addition to its extensive sunoil
operations, Bunge has purchased several grain elevators and has also
invested in construction of another oilseed processing facility in
Illyichevsk.

Already a leading sunseed processor through its facility in Dnipropetrovsk,
the company has recently finished commissioning a jointly-owned sunseed
processing facility in Illyichevsk. Bunge plans to operate the new plant
during the coming season, and consider opportunities to crush alternative
crops there as well, such as rapeseed.

In addition, Bunge have substantially grown its capabilities in grain
origination over the past several years. In 2005/2006 (the last season in
which grain exports were not restricted by government quotas), Bunge was the
leading exporter of grains from Ukraine. Since then the company has invested
in its grain elevators.

INVESTING IN A FUTURE WORLD LEADER

However, Bunge believes it is more important that the company has built a
strong team to handle trading, risk management and logistical support. Bunge
has already negotiated a substantial throughput agreement with one export
grain terminal, and is  working to negotiate another.

“High commodity prices have sent a call to farmers worldwide that more
grain and oilseeds are needed.  Ukrainian farmers are uniquely positioned to
respond to that call, as there is a lot of room to improve farming practices
and inputs, especially as funding becomes increasingly available.

“We at Bunge believe that Ukraine will become one of the world’s major
suppliers of grain and oilseed products, and we intend to participate in
that growth by investing further in the human and physical infrastructure
needed to bring Ukrainian products to the world,” Gorshunov says.

On the food side of its operations Bunge is currently the second largest
supplier of bottled oil to Ukrainian consumers. Its flagship brand, Oleina,
was the first refined, bottled oil in Ukraine, and it remains one of the
strongest brands in the market. Bunge says it will continue to invest in its
food business and is actively exploring new avenues for growth including
other categories beyond bottled oils.

DEFYING THE RAIDERS: A LONG-TERM COMMITMENT

Bunge has been the target of so-called raider attacks that have made life
difficult for some other foreign investors in Ukraine. However, Gorshunov
made it clear that such attacks will continue to be very vigorously repelled
and will not discourage company management and employees who support
the company’s strong position as a good corporate citizen.

“Bunge has for the past several years suffered repeated attacks from
corporate raiders. These attacks have taken a wide variety of forms, ranging
from lawsuits regarding our shareholdings and brands, to media attacks and
even pamphlets making ridiculous allegations against the Oleina brand. These
attacks have caused us to divert a lot of time and effort from our business
into legal defences and public relations work, but they have not changed our
overall strategic direction in Ukraine.

“Throughout this process we have continued to build our business, invest in
our people and invest in our infrastructure. Moreover, we believe that as
Ukraine is increasingly integrated into the community of nations through
trade and through vehicles such as the WTO, such issues will subside and
Bunge will be able to focus its efforts on building its business, which in
turn will help to bring economic growth and individual prosperity to
Ukraine,” Gorshunov concludes.
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LINK: http://www.businessukraine.com.ua/sunflower-oil-empire
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NOTE: Bunge is a member of the U.S.-Ukraine Business Council (USUBC).
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U.S.-Ukraine Business Council (USUBC): http://www.usubc.org
Promoting Ukraine and U.S.-Ukraine business relations since 1995.
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23.  SOLID TEAM LLC JOINS U.S.-UKRAINE BUSINESS COUNCIL
(USUBC), MEMBER NUMBER 83

U.S.-Ukraine Business Council (USUBC)
Washington, D.C., Friday, June 13, 2007

WASHINGTON, D.C. – The executive committee of the U.S.-Ukraine
Business Council (USUBC), on behalf of the entire membership, is most
pleased to announce that Solid Team LLC, a management company based
in Claremont, California, has been approved for USUBC membership. Solid
Team LLC is USUBC member number 83.

Solid Team is owned by five senior U.S. executives who have been quite
successful in their primary careers and are now working together to develop
other businesses.  They have been working in Ukraine for over nine years.

BILA TSERKVA INTERNATIONAL CARGOPORT

Solid Team LLC has signed a ten-year, $200 million Memorandum of
Cooperation with the Ukrainian Ministry of Industrial Policy for aviation
infrastructure improvements. 

The first major project is the development of the Bila Tserkva International
Cargoport, a major air cargo hub and industrial park south of Kyiv on the
Odessa-Kyiv highway.  This is a joint venture between the city of Bila
Tserkva and Solid Team.

The Bila Tserkva International Cargoport will involve an investment
approaching $150 million.  It will provide manufacturing space and logistic
centers in a modern industrial park setting.  It will become the premier air
cargo hub in Eastern Europe and will provide employment for thousands of
Ukrainians.  It is expected that the cargoport will opening late 2009.

During development, the runway will be lengthened; the air traffic control
equipment, landing system, and control tower will be installed; and new
emergency response vehicles obtained.  Attractive new road entrances will
be installed and the rail system upgraded.

In addition to efforts at the Bila Tserkva International Cargoport, Solid Team
represents the interests of Ukrainian Helicopter Company and the Kharkiv
Antenna Company.

OWNERS OF SOLID TEAM LLC

The owners of Solid Team LLC include:

(1) Major General Nicholas Krawciw (USA, Ret.), the highest ranking U.S.
Army officer of Ukrainian birth. Nick moved with his family to Germany at
the start of World War II. In 1949, the family emigrated to the United States.

At the behest of the Chief of Staff of the U.S. Army and the Undersecretary
of Defense, Nick and his wife Christina moved to Ukraine in 1992 where, for
a year, he worked to reorganize, educate, and restructure the Ukrainian military
along Western lines. Beginning in 1993, he served as a consultant to the
Secretary of Defense on Ukrainian matters, and later as Secretary of Defense
Senior Military Representative to Ukraine.

(2) William McLaughlin, a physicist with a military background, who has
invented many significant items of importance and started a number of U.S.,
Canadian, and Irish companies. McLaughlin serves as the General Manager
of Solid Team LLC and spends considerable time in Ukraine.

(3) Thomas Noel, retired U.S. Army officer and former Assistant Secretary
of Energy, who ran the largest environmental company in the world;

(4) Marcus Mota e Silva, former president of California Steel Corporation;
and

(5) Bradley Jacobs, a physicist and economist, who was Assessor of the
County of Orange in California for 23 years.

SOLID TEAM’S ACCOMPLISHMENTS

Some of Solid Team’s accomplishments since 1999 include:

Provided bidding opportunities for a major U.S. aerospace firm for air
traffic control systems.

Received a $200 million umbrella contract to support the Ukrainian aviation
industry over 10 years.

Participated in a USTDA feasibility study related to establishing an air
cargo hub at the Antonov Airport worth $408,000 which will lead to over
$15 million worth of additional U.S. exports and having Solid Team receive
an equity interest in the facility.

Initiated the marketing of an advanced line of telecommunications equipment
from a California company for which test quantities have been proposed.
This effort could lead to substantial additional exports.

Leased some $300,000 worth of cargo flights using Antonov aircraft in
direct support of operations in Iraq.

Signed an agreement to assist in the export of vaccines from the United
States to Ukraine. These vaccines will create profits for U.S.
pharmaceutical companies and Solid Team as well improve public health in
Ukraine.

Initiated support activities in the United States to help Ukrtransnafta with
the Odessa-Brody pipeline. This effort is not only of direct benefit to
Solid Team, American oil companies and Ukrtransnafta but also relates to
sovereignty efforts of Ukraine.

Participated in the presentation of an advanced antenna technology that
would improve reception of first responder radios in high-rise buildings and
urban environments.

Reached agreements related to promotion and sale of Ukrainian ingredients
for health foods and cosmetics.

Initiated funding for the first Ukrainian environmental remediation company
in the country. It will use U.S. technologies and techniques.

Additional information can be found at www.SolidTeam.com.

“The U.S.-Ukraine Business Council (USUBC) is most pleased to have
Solid Team LLC join the rapidly expanding USUBC membership.” said
Morgan Williams, SigmaBleyzer, who serves as President of USUBC.

BUSINESS DRIVES UKRAINE’S INTEGRATION

“The international and domestic business community is now the main
driving force regarding Ukraine’s Euro-Atlantic integration. It is important
for the business community to work together to influence the government
to adopt reforms that will bring Ukraine’s laws and standards more into
line with internationally accepted practices,” Williams said, “business
and economic development is rapidly moving Ukraine forward.”
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24.  AEROSVIT UKRAINIAN AIRLINES JOINS THE U.S.-UKRAINE

BUSINESS COUNCIL (USUBC)

U.S.-Ukraine Business Council (USUBC)
Washington, D.C., Wednesday, June 25, 2008

WASHINGTON, D.C. – The executive committee of the U.S.-Ukraine
Business Council (USUBC), on behalf of the entire membership, is most
pleased to announce that AeroSvit Ukrainian Airlines has been approved
for USUBC membership.  The airline is USUBC member number 86.

AeroSvit is the leader of the national air transport industry in Ukraine and
is the only Ukrainian carrier directly connecting Ukraine with the United
States.  This is through their non-stop flight from Kyiv to New York City.

AeroSvit is interested in the further development of Ukraine-U.S. relations
and in expanding their flight operations related to connecting Ukraine with
the U.S.

AeroSvit was founded in 1994 as a closed joint-stock company (CJSC).
In October 1994, AeroSvit leased its first Boeing-737, which was used
to perform flights from Kyiv to the capitals of Russia, Israel, and Greece
as well as to Larnaca (Cyprus) and Odesa.

In 2002-2004, the company opened five direct transcontinental flights
between the capital of Ukraine and Bangkok, New York, Toronto, Delhi,
and Beijing.

AeroSvit Ukrainian Airlines in 2007 signed an agreement with the Boeing
Company concerning purchase of up to 14 NG (next generation) Boeing
737’s.

USUBC has been working with AeroSvit executives Aron Mayberg,
Director General, Kostadin Botev, Executive Director and with Yevgen
Treskunov, Deputy Director General for Strategic Development.  Mr. Botev
attended a recent meeting in Kyiv with U.S. Ambassador William Taylor
sponsored by USUBC.

PASSENGER TRAFFIC EXCEEDED 2 MILLION IN 2007

In 2007, the total volume of passenger traffic on AeroSvit Ukrainian
Airlines exceeded the two million mark for the first time. The airline
carried 2,054,000 passengers by the end of the year, which is an increase
of 31.5% over 2006. AeroSvit’s passenger turnover increased by 27.4%
to 4.5 billion passenger-kilometers.

Taking into account the dynamic growth of indicators following the results
of 2007, AeroSvit expects a further increase of its position in the most
prestigious aviation rating- the Top-200 list of the world’s largest
airlines.

This list is updated each year based upon annual volumes of traffic
performed by the aviation market’s leading players and is published
in several top industry journals. Based on the results of 2006, AeroSvit
rose by 20 positions in the Top-200 and was ranked 155.

Ukraine was included in the Top-200 for the first time three years ago when
AeroSvit was named on the list of air carriers for the first time. During
the past three years, the company has managed to advance by 45 positions.

AEROSVIT AND BOEING

AeroSvit Ukrainian Airlines signed an agreement with the Boeing Company
in 2007 concerning purchase of up to 14 NG (next generation) Boeing 737’s.

The document stipulated the purchase of seven Boeing 737-800’s in
2011-2012 the value of which according to the manufacturer’s catalogue
reaches US$523 million as well as reservation of purchase rights for another
seven aircraft between 2008-2015. The contract price of the aircraft
delivery was not disclosed.

Boeing would also provide AeroSvit with technical training, marketing, and
financial assistance during aircraft commissioning. This support package
applies not only to the purchased aircraft but also to the NG Boeing
737’s AeroSvit plans to lease.

This is the first direct contract for the delivery of such a large
consignment of next generation aircraft in the history of Ukraine.

“Fleet renovation and extension by means of Boeing 737 NG aircraft will
allow AeroSvit to implement its development strategy as well as raise its
competitiveness while preparing for future Ukrainian air space
liberalization,” noted AeroSvit’s Director General Aron Mayberg.

“I am sure that this contract will start the process of Ukraine’s gradual
development into one of the world’s leading aviation countries. I am glad
that we have the honor to make this first important step showing the high
potential of Ukraine as a competitive country with established market
relations to the entire world”.

AeroSvit Ukrainian Airlines operates sixteen Boeing aircraft , including
thirteen middle-range Boeing 737’s and three long-range Boeing 767’s
(seventeenth B 737-300 is to be delivered within a couple of weeks).
The carrier serves more than 60 international routes to 33 countries as
well as 11 destinations within Ukraine.

AeroSvit is a member of many international organizations, namely:

. International Air Transport Association (IATA), including IATA
  Clearing House and IATA Billing and Settlement Plans (BSP),
. US Airlines Reporting Corporation (ARC)
. Association of European Airlines (AEA)
. European Business Association (EBA)
. American Chamber of Commerce in Ukraine (AmCham Ukraine)
. International Chamber of Commerce (Ukrainian national committee)
. UK Flight Safety Foundation
. The Ukrainian Chamber of Commerce & Industry (UCCI)
. U.S.-Ukraine Business Council (USUBC)

Additional information can be found on the AeroSvit Airlines website:
http://www.aerosvit.ca/e_us.html.

“The U.S.-Ukraine Business Council (USUBC) is most pleased to have
AeroSvit Ukrainian Airlines join the rapidly expanding USUBC membership.”
said Morgan Williams, SigmaBleyzer, who serves as President of USUBC.

USUBC MEMBERSHIP NOW TOTALS EIGHTY-SIX

AeroSvit Ukrainian Airlines is the 86th member for USUBC, the 34th new
member for 2008, and the 64th new member since January of 2007. USUBC
membership has nearly quadrupled in the past 18 months, going from 22
members in January of 2007 to 86 members in June of 2008. Membership
is expected to top 100 very soon.

The other new members in 2008 are MaxWell USA, Baker and McKenzie
law firm, Och-Ziff Capital Management Group, Dipol Chemical International,
MJA Asset Management, General Dynamics, Lockheed Martin, Halliburton,
DLA Piper law firm, EPAM Systems, DHL International Ukraine, Air Tractor,
Inc., Magisters law firm, Ernst & Young, Umbra LLC., US PolyTech LLC,
Vision TV LLC, Crumpton Group, American Express Bank, a Standard
Chartered group company, TNK-BP Commerce LLC, Rakotis, American
Councils for International Education, Squire, Sanders & Dempsey LLP,
International Commerce Corporation, IMTC-MEI, Nationwide Equipment
Company, First International Resources, the Doheny Global Group, Foyil
Securities, KPMG, Asters law firm, Solid Team LLC, R & J Trading
International and Vasil Kisil & Partners law firm.

The complete USUBC membership list and other information about
USUBC can be found at: http://www.usubc.org.

BUSINESS INVESTMENT DRIVES UKRAINE’S INTEGRATION

Ukraine’s Euro-Atlantic integration is first and foremost today being driven
by the private business community in Ukraine, Europe, and the United States.

“Ukraine’s aspirations for Euro-Atlantic integration, to be a major member
of the world’s community of strong, democratic, independent, prosperous,
private business sector driven nations, will be realized largely through the
present leadership and investments from the business community and then
hopefully with some real support later from the politicians and government
leaders,” wrote Morgan Williams, SigmaBleyzer, who serves as President
of USUBC, in a recent article published by the “Welcome to Ukraine”
magazine.

“While the politicians of many countries, including Ukraine, argue and debate
about whether Ukraine should ever be given a MAP for eventual NATO
membership and when, if ever, Ukraine will have the opportunity to join
the European Union the Ukrainian and international business communities
are moving rapidly ahead with large-scale economic and business
integration.”

“This integration is being accomplished in spite of a general lack of new
reforms being implemented by the government and the high level of political
instability that has existed for the last several years which has hurt the
number of new jobs created, the level of wages, the development of a
modern business infrastructure and the creation of wealth, ” according
to Williams.

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AUR#897 Aug 19 Ukraine Next Russian Flash Point?; Russia Truely Represents A Threat; Most Vulnerable Country is Ukraine; Bush Stumbles;

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

Ukrainian History, Culture, Arts, Business, Religion,
Sports, Government, and Politics, in Ukraine and Around the World       
 
“UKRAINE COULD WELL BE THE NEXT FLASH POINT.”
Zbigniew Brzezinski (Article One)
                     
ACTION UKRAINE REPORT – AUR – Number 897
Mr. Morgan Williams, Publisher and Editor, SigmaBleyzer
WASHINGTON, D.C., TUESDAY, AUGUST 19, 2008
 
INDEX OF ARTICLES  ——
Clicking on the title of any article takes you directly to the article.               
Return to Index by clicking on Return to Index at the end of each article
Ukraine could well be the next flash point
COMMENTARY: By Zbigniew Brzezinski, Time Magazine
National Security Adviser to President Carter
 
Georgia, Russia, Diplomacy, International Organizations, United Nations
By Carlos Pascual, Vice President and Director, Foreign Policy and
Steven Pifer, Visiting Fellow, Foreign Policy, Center on the United States and Europe
The Brookings Institution, Washington, D.C., Monday, August 18, 2008
By Micholas Kulish, Kiev, and Sara Rhodin, Moscow
New York Times, NY, NY, Saturday, August 16, 2008
 
Comments: William Harrison, Guardian, London, UK, Sunday August 17 2008 
 
Ukraine will be a test as to whether the Kremlin still feels a need to flex its muscles.
By Lilia Shevtsova, Senior Associate,Carnegie Moscow Center.
The Moscow Times, Moscow, Russia, Monday, August 18, 2008 
 
6THE BEAR IS BACK FROM HIBERNATION 
It reflects Moscow’s view that the US and NATO are not to be taken seriously
The message being sent to Ukraine and the Baltic countries is brutally clear.
Analysis & Commentary: By Paul Dibb
Emeritus Professor of strategic studies at Australian National University
The Australian, Sydney, Australia, Monday, August 18, 2008
 
7RUSSIA’S NEIGHTBORS TRY TO PROTECT THEMSELVES 
The most vulnerable country is probably Ukraine, wedged between Russia and NATO states.
The Moscow Times, Moscow, Russia, Monday, August 18, 2008 
 
By Henry Meyer, Bloomberg, Wednesday, August 13, 2008
 
By Tony Karon, Time Magazine
New York, New York, Friday, August 15, 2008
 
Ukraine is in his sights. The West needs to draw a line at Georgia.
President Bush and Secretary Rice badly misjudged Mr. Putin.
Editorial: The Wall Street Journal Europe
The Wall Street Journal, New York, NY, Tuesday, August 12, 2008
 
11 BUSH AND GEORGIA
Bush Administration stumbles to respond to the Russian invasion of Georgia
Editorial: The Wall Street  Journal Asia 
The Wall Street Journal, New York, NY, Thursday, August 14, 2008
Reuters, Kiev, Ukraine, Saturday, August 16, 2008
 
By Adrian Blomfield, Telegraph, London, UK, Sunday, 17 Aug 2008
InTheNews, London, UK, Sunday, 17 Aug 2008 
 
15 UKRAINE TORMENTS RUSSIA WITH SHOW OF SOLIDARITY
By Askold Krushelnycky, The Sunday Times
London, UK, Sunday, August 17, 2008
 
16.  HOW TO STOP PUTIN
OP-ED: By Charles Krauthammer, Columnist, The Washington Post
Washington, D.C., Thursday, August 14, 2008; Page A17

17.  MAKING PUTIN PAY 

Editorial: The Wall Street Journal
New York, NY, Saturday, August 16, 2008; Page A10
Associated Press, Moscow, Russia, Friday, Aug 15 2008
 
Analysis & Commentary: By Peter Charles Choharis, 
The Wall Street Journal, NY, NY, August 16, 2008; Page A11
Opinion: By Garry Kasparov, The Wall Street Journal
New York, NY, Friday, August 15, 2008; Page A13
 
Analysis & Commentary: By David B. Rivkin Jr. & Lee A. Casey
The Wall Street Journal, New York, NY, Friday, August 15, 2008; Page A15
 
22GEORGIA/RUSSIA: SMOLDERING FEUD, THEN WAR 
Tensions at Obscure Border Led to Georgia-Russia Clash
By Marc Champion and Andrew Osborn, The Wall Street Journal,
New York, NY, Saturday, August 16, 2008; Page A1
 
By Jay Solomon in Washington and March Champion, in Tbilisi, Georgia
The Wall Street Journal, NY, NY, Saturday, August 16, 2008; Page A5
 
Russia truly represents a threat to an independent Ukraine.
Editorial: Kyiv Post, Kyiv, Ukraine, Thursday, Aug 14, 2008
Ukraine could well be the next flash point.
 
COMMENTARY: By Zbigniew Brzezinski, Time Magazine
National Security Adviser to President Carter
New York, NY, Thursday, Aug. 14, 2008 
 
The end of the Cold War was supposed to usher in a new age in which the major powers would no longer dictate to their neighbors how to run their affairs. That is why Russia’s invasion of Georgia is so tragic and so potentially ominous.
 
Russia is now on watch: Will it continue to rely on coercion to achieve its imperial aims or is it willing to work within the emerging international system that values cooperation and consensus?
Moscow’s ruthless attempt to suborn, subdue and subordinate this tiny, independent democracy is reminiscent of Stalin’s times. The assault on Georgia is similar to what Stalin’s Soviet Union did to Finland in 1939: in both cases, Moscow engaged in an arbitrary, brutal and irresponsible use of force to impose domination over a weaker, democratic neighbor.
 
The question now is whether the global community can demonstrate to the Kremlin that there are costs for the blatant use of force on behalf of anachronistic imperialist goals.
This conflict has been brewing for years. Russia has deliberately instigated the breakup of Georgian territory. Moscow has promoted secessionist activities in several Georgian provinces: Abkhazia, Ajaria and, of course, South Ossetia. It has sponsored rebellious governments in these territories, armed their forces and even bestowed Russian citizenship on the secessionists.
 
These efforts have intensified since the emergence in Georgia of a democratic, pro-Western government. Russian Prime Minister Vladimir Putin’s resentment toward Georgia and its President, the U.S.-educated Mikheil Saakashvili, has seemingly become a personal obsession.
The international community has not done enough to push back. In recent weeks, a series of incidents along the fragile cease-fire lines that cut across Georgian territory helped prompt the escalation of violence, including Georgia’s abortive effort to remove the “government” of South Ossetia, a small region with a population of about 70,000 people.
 
That rash action was perhaps unwise, but it is evident from Russia’s military response that Moscow was waiting for such an act to provide a pretext for the use of force. Large Russian contingents quickly swept into South Ossetia and then into Georgia, sending tanks to Gori and bombing Gori and the capital, Tbilisi.
Russia’s aggression toward Georgia should not be viewed as an isolated incident. The fact is, Putin and his associates in the Kremlin don’t accept the post-Soviet realities.
 
Putin was sincere when he declared some time ago that in his view, the dissolution of the Soviet Union was “the greatest geopolitical disaster of the [20th] century.” Independent democracies like Georgia and Ukraine, for the Putin regime, are not only historical anomalies, but also represent a direct political threat.
 
UKRAINE COULD WELL BE THE NEXT FLASH POINT
Ukraine could well be the next flash point. The Russian leadership has already openly questioned whether it needs to respect Ukraine’s territorial integrity. Russian leaders have also remarked that Crimea, a part of Ukraine, should once again be joined to Russia. Similarly, Russian pressure on Moldova led to the effective partition of that small former Soviet republic.
 
Moscow is also continuing to try to economically isolate central Asian neighbors like Kazakhstan and Uzbekistan. And the Baltic nations of Lithuania, Latvia and Estonia have been the object of various threats from Russia, including economic sanctions and disruptive cyberwarfare.
 
THE STAKES ARE HIGH
The stakes are high. Ultimately, the independence of the post-Soviet states is at risk. Russia seems committed to the notion that there should be some sort of supranational entity, governed from the Kremlin, that would oversee much of the former Soviet territories. This attitude reflects in part the intense nationalistic mood that now permeates Russia’s political élite.
 
Vladimir Putin, former President and now Prime Minister, is riding this nationalist wave, exploiting it politically and propagating it with the Russian public. Some now even talk of a renewed Russian military presence in Cuba as a form of retaliation against the U.S. for its support of the independence of the post-Soviet states.
For the West, especially the U.S., the conflict between Russia and Georgia poses both moral and geostrategic challenges. The moral dimension is self-evident: a small country that gained its independence only recently, after almost two centuries of Russian domination, deserves international support that goes beyond simple declarations of sympathy. Then there are questions of geostrategy.
 
An independent Georgia is critical to the international flow of oil. A pipeline for crude oil now runs from Baku in Azerbaijan, on the Caspian Sea, through Georgia to the Turkish Mediterranean coast. The link provides the West access to the energy resources of central Asia. If that access is cut, the Western world will lose an important opportunity to diversify its sources of energy.
 
WEST NEEDS TO RESPOND TO RUSSIA’S AGGRESSION
The West needs to respond to Russia’s aggression in a clear and determined manner. That doesn’t mean with force. Nor should it fall into a new cold war with Russia. But the West, particularly the U.S., should continue to mobilize the international community to condemn Russia’s behavior.
 
Presidential candidates Barack Obama (whom I support) and John McCain should endorse President George W. Bush’s efforts to oppose Russia’s actions and form a bipartisan stand on this issue. It is unfortunate that some of the candidates’ supporters are engaging in pointless criticism of each other’s public statements on the Georgia crisis. This is too important for that.
It is premature to specify what precise measures the West should adopt. But Russia must be made to understand that it is in danger of becoming ostracized internationally. This should be a matter of considerable concern to Russia’s new business élite, who are increasingly vulnerable to global financial pressure.
 
Russia’s powerful oligarchs have hundreds of billions of dollars in Western bank accounts. They would stand to lose a great deal in the event of a Cold War–style standoff that could conceivably result, at some stage, in the West’s freezing of such holdings.
At some point, the West should consider the Olympic option. If the issue of Georgia’s territorial integrity is not adequately resolved (by, for example, the deployment in South Ossetia and Abkhazia of a truly independent international security force replacing Russian troops), the U.S. should contemplate withdrawing from the 2014 Winter Games, to be held in the Russian city of Sochi, next to the violated Georgia’s frontier.
 
There is a precedent for this. I was part of the Carter Administration when we brandished the Olympic torch as a symbolic weapon in 1980, pulling out of the Summer Games in Moscow after the Russian invasion of Afghanistan.
 
The Soviet Union had planned a propaganda show reminiscent of Hitler’s 1936 Olympics in Berlin. America’s boycott delivered a body blow to President Leonid Brezhnev and his communist system and prevented Moscow from enjoying a world-class triumph.
The Georgian crisis is a critical test for Russia. If Putin sticks to his guns and subordinates Georgia and removes its freely elected President — something Putin’s Foreign Minister has explicitly called for — it is only a question of time before Moscow turns up the heat on Ukraine and the other independent but vulnerable post-Soviet states.
 
The West has to respond carefully but with a moral and strategic focus. Its objective has to be a democratic Russia that is a constructive participant in a global system based on respect for sovereignty, law and democracy.
 
But that objective can be achieved only if the world makes clear to Moscow that a stridently nationalistic Russia will not succeed in any effort to create a new empire in our postimperial age.
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NOTE: Brzezinski, who was National Security Adviser to President Carter, is co-author, with Brent Scowcroft, of America and the World, to be published in September
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[return to index] [Action Ukraine Report (AUR) Monitoring Service]
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2.  SECURING GEORGIA: TEN POINTS FOR A WAY FORWARD

Georgia, Russia, Diplomacy, International Organizations, United Nations
 
Carlos Pascual, Vice President and Director, Foreign Policy
Steven Pifer, Visiting Fellow, Foreign Policy, Center on the United States and Europe
The Brookings Institution, Washington, D.C., Monday, August 18, 2008
Russian military operations against Georgia created the most serious crisis in that region since the Soviet Union disintegrated in 1991. Moscow has defined Georgia’s European aspirations as a threat to Russian interests.
 
At stake is more than crisis in the Caucasus – but also whether Russia and the West can share a core base of values to combat terrorism, stop proliferation, and promote energy security. The United States cannot meet this test alone; it must mobilize the international community.
The devastation in Georgia and South Ossetia make clear one point: this tragedy will not easily be put behind. Whatever Georgia’s grievances, Tbilisi plainly miscalculated. It should have anticipated that sending its forces into South Ossetia would trigger a massive Russian response. Now Georgia faces the intense ire among the people it hoped to court.
Russia’s response – striking by air and land into undisputed Georgian territory and deploying troops into another breakaway region, Abkhazia – violated international law and made clear this is not just about South Ossetia.
 
Georgia’s independent foreign policy has angered Moscow, which has sought for years to re-build influence in the post-Soviet space. And it has become personal. Russian Prime Minister Putin, in particular, despises Georgian President Saakashvili and wants to bring him down.
This crisis comes when Washington is preoccupied, Russia is energy-rich and U.S.-Russian relations are strained. Washington, NATO allies and the European Union must stay on the same page when dealing with Moscow – whether in bilateral contacts with Russia or multilateral fora such as the Organization for Security and Cooperation in Europe (OSCE) or UN Security Council. The Kremlin will happily exploit any Western splits.
 
Here are ten points for a way forward.
[1] First, Washington and the EU must sustain personal and high-level engagement with Putin, Russian President Medvedev and Saakashvili. This conflict is tragically personal. Without personal engagement each actor will be swayed by anger. Sarkozy, French Foreign Minister Kouchner, Finnish Foreign Minister (and OSCE Chairman) Stubb, Secretary Rice and EU High Representative Solana must stay involved.
[2] Second, Washington will need to continue to reinforce European efforts to sustain the ceasefire completed on August 17. The United States cannot serve as an honest broker; Moscow sees Washington as too close to Georgia and unacceptable as a mediator. Paris has the hotline now with Moscow. Washington’s pressures have to be carefully in sync.
[3] Third, the UN and OSCE should expand their observers on the ground to help make the parties accountable. Moscow and Tbilisi offer wildly diverging narratives as to what is going on. The international community needs eyes in South Ossetia, Abkhazia and elsewhere in Georgia to establish ground truth. The OSCE or UN Security Council should organize the observers, and the UNSC should approve the mission. Russia obsessively calls for respect for the UN – it should now respect its rhetoric.
[4] Fourth, UN Secretary General Ban Ki-Moon should use the authorities under longstanding General Assembly Resolution 46/182 to deploy a humanitarian planning mission to South Ossetia and undisputed Georgia. By most accounts, over 100,000 have been displaced. If Russia and Georgia want to stem the human suffering and begin to rebuild, they should accept and guarantee safety to humanitarian workers. Such a UN Mission does not need Security Council approval.
[5] Fifth, the G-7 should make clear that it wants Russia as a partner, but that means a partner that does not assault small neighboring states. Secretary Rice’s August 11 conference call to consult with G-7 foreign ministers was a smart move, clearly signaling that Russian actions could put its seat at the G-8 table at risk.
[6] Sixth, the West should build a coalition of nations around common respect for international borders. Washington should engage China, which shares a long border with Russia and cannot be happy about Russian military actions. Beijing, moreover, holds a veto on the UN Security Council. The U.S. government should talk to the Central Asian states as well; Russia’s pummeling of Georgia must have set off alarm bells in their capitals.
[7] Seventh, NATO should send a clear message about the desires of Georgia (and Ukraine) to ultimately enter the Alliance. NATO should ask itself what it means if Russia concludes that its tactics have won itself a veto over decisions on NATO membership. NATO should act on the merits of the case, and Russia should know that NATO is not deterred. Georgia (and Ukraine) should know that acceptance is not automatic.
[8] Eighth, Saakashvili, and every Georgian, should register that Georgia needs more than the assurances of good will from its friends. It needs an alliance. Now is the time to galvanize Georgian democracy, free the Georgian press, and meet the criteria for a NATO membership action plan.
[9] Ninth, the United States, EU and NATO should reassure Ukraine, whose European desires also draw Moscow’s ire. Ukraine should reduce its vulnerabilities to Russian pressure by paying debts on time, enhancing its energy security, and ending the infighting between the president and prime minister. Now is not the time for a divided government in Kyiv.
[10] Tenth, France (acting as EU president) should seek the UN Security Council’s support to host within three months negotiations with Georgians and South Ossetians and, in parallel, with Georgians and Abkhazians to settle these conflicts. The status quo is not sustainable. Yes, it is a long shot, but the alternative is two flashpoints that could very quickly trigger a new conflict.
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NOTE:  Carlos Pasqual and Steven Pifer have both served as U.S. Ambassador to Ukraine.
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[return to index] [Action Ukraine Report (AUR) Monitoring Service]
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3.  RESURGENT RUSSIA STIRS ANXIETY IN UKRAINE, TORN BY FEAR AND FRATERNAL BONDS

 
By Micholas Kulish, Kiev, and Sara Rhodin, Moscow
New York Times, NY, NY, Saturday, August 16, 2008
 
KIEV, Ukraine — For 18 years now the countries along the border with the former Soviet Union have cherished their democracies, all made possible from the simple premise that the days of Russian dominance were over.
 
The events in Georgia over the past week have made them rethink that idea. Poland announced Thursday that it had reached a deal to base American missile interceptors on its territory, after months of talks. But then a Russian general went so far as to say that Poland might draw Russian retaliation, sending new shudders through the region.
The sense of alarm may be greatest in Ukraine. Since the Orange Revolution in 2004, when the pro-Western Viktor A. Yushchenko came to power after widespread protests, Ukraine has been a thorn in Moscow’s side, though perhaps not as sharp as the outspoken Georgian president, Mikheil Saakashvili.
“We’re the next,” said Tanya Mydruk, 22, an office assistant who lives in Kiev, the capital. “Sooner or later our president is going to say or do something that goes too far and then it will start.”
Ukraine has done little to win Russia’s favor since the crisis in the Caucasus began. First the Kiev government announced that it would restrict the movements of Russia’s Black Sea fleet into Sevastopol, on the Crimean peninsula. On Friday, the Foreign Ministry issued a statement saying it was prepared to give Western countries access to its missile-warning systems.
“What happened here in the last week certainly came as a shock, not only to Georgia but to a lot of others as well,” said Peter Semneby, the European Union’s special representative for the South Caucasus. “A lot of people will, as a result of this, want to build a closer relationship with their Western partners as quickly as possible.”
Vadym Karasyov, a political scientist here, said the Georgia conflict would start “a new circle of militarization in this region.”
Feelings toward Russia are complex here. Ukraine has a sizable Russian ethnic minority, roughly 17 percent of a total population of 46 million. Many Ukrainians speak first of their fraternal bonds to Russia, not of enmity. And Russian speakers watched the conflict in Georgia through the prism of state-controlled Russian television channels broadcast here.
Asked whether she thought Ukraine’s future lay with Russia or the European Union, Lena Stepnevska, 24, who works at a construction company and was out for a walk with a friend Friday, opted for the former. “I would like to believe it will be Russia, because we are fraternal nations and have to support each other,” she said.
Though he supports membership in both NATO and the European Union, Anatoliy Grytsenko, the head of the national security and defense committee in Parliament and a former defense minister, said that Russia could not be ignored. “Russia will not disappear tomorrow, as well as in a century or two. We will always wake up and it will be there, not Canada,” he said.
The Baltic states, meanwhile, are also gravely concerned about what a newly resurgent Russia could mean for them. “In the public, there’s a certain anxiety,” said the Estonian president, Toomas Hendrik Ilves. “Given our history, we understand why people feel anxious.”
While Mr. Ilves claimed that fears that Russia would invade Estonia were unfounded, he stressed the serious consequences of Russia’s actions in Georgia on the international scene.
“The assumption of the post-1991 settlement has been that the old Russia is in the past — that it is not a country that invades its neighbors,” he said. “Basically the entire European security architecture is based on this premise.”
Estonia has been at the forefront of states giving aid to Georgia. The country not only provided humanitarian assistance, but also sent Internet security specialists to Georgia and agreed to host Georgian Web sites. Like Georgia, Estonia was also subject to cyberattacks against its government Web sites in April 2007.
As much as there is fear in the region, there is also anger that more could have been done by Western allies to rein in Russia. In an interview with a Polish newspaper on Saturday, Lech Kaczynski, Poland’s president, criticized the European Union for being too soft on Moscow.
Elka Krol, a Warsaw resident who organizes photo exhibitions, said in a telephone interview that she was angry about what had happened and particularly the impotence of the Western powers to fix it. “From point of view, everyone just shouts and says empty words, but nobody is doing anything.”
But she said she felt no imminent danger from Russia, which stemmed partly from a sense that Poland is much more developed and much better integrated into the West. “The difference between Poland and, for instance, Ukraine is really quite big, I think,” she said.
At Shevchenko Park in the heart of the Ukrainian capital, card games have gotten pretty heated since the war between Georgia and Russia began.
“Smart Russians keep silent and they still think about their fate in Ukraine,” said Vasyl Marsiuk, 70. He was there to play cards with friends on a hot Saturday morning, sitting at one of the granite tables where the older men also play dominos or checkers in the shade of chestnut trees.
In Mr. Marsiuk’s eyes, the Russians are the clear aggressors in the Caucasus conflict, and they are by no means finished with their ambitions for the region. “Ukraine is under the same threat, the same kind of Damocles sword,” Mr. Marsiuk said.
Mr. Marsiuk spoke Ukrainian, but a man overhearing him quickly launched into a defense of Russia, in Russian. “It was Georgia that started the conflict,” said Pyotr Lyuty, 53, who said he had served in military intelligence in Soviet times.
Asked if he thought the Soviet Union should have broken up, he replied with a simple and direct, “No,” before adding, “My grandfather explained it to me. You can break a bunch of twigs one by one, but if we take a bunch of twigs you can never break it.”
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4. LOOKING BOTH WAYS, AS THEY WATCH GEORGIA FLOUNDERING,

BELARUS AND UKRAINE ARE PLAYING THEIR CARDS VERY CAREFULLY
 
COMMENTS: William Harrison, Guardian, London, UK, Sunday August 17 2008 
 
Western politicians and commentators have been quick to seize on the conflict in South Ossetia as a defining moment in world history, or their careers. Some have been clambering to play peacemaker (Sarkozy, Kouchner), others want to boost their reputations for taking a strong line with Moscow (McCain, Miliband). But closer to Russia, in the neighbouring countries of Ukraine and Belarus, some politicians have been conspicuous by their silence.
 
In Belarus, President Alexander Lukashenka has stunned the Russians with his lack of overt support. In an outburst on Tuesday, Russia’s ambassador to Belarus said he was “perplexed by the modest silence on the Belarusian side. You need to express yourself more clearly on such issues.”
Belarus is a member of a union state with Russia, has close economic, political and social ties with the country, and has enjoyed much support from Moscow in the past – from cheap gas to the congratulations Putin sent to Lukashenka on his re-election in 2006, while others were declaring him “the last dictator in Europe”.
But in the isolation from the west that followed his re-election in 2006, including travel bans and economic sanctions, Lukashenka also started to find that money from Russia was beginning to dry up as Moscow hiked the price of gas.
 
Since then, the Belarusian leader has taken a series of steps to persuade the west that he is opening things up, notably by releasing a number of political prisoners. His reaction to the July bombing of a concert he was attending can be viewed as a further attempt to give his regime a better image in the west.
The EU and the US have responded, but made it clear that any concessions are dependent on a greater degree of openness in the parliamentary elections in September.
Coming out in support of Russia’s war in Georgia could have caused irreparable damage to his plan, given the predominantly anti-Russian mood in western political circles. Lukashenka’s silence, therefore, should be understood as consistent with a gradual shift in his policy towards appeasement with the EU and the US.
 
He is, of course, playing each side off against the other. He has no desire to open politics in Belarus up any more than is necessary to get what he wants. Furthermore, the opposition in Belarus is divided and weak.
But any opening up in Belarus must be welcomed: it shows that the west’s soft power is in a position to have a positive effect in the region and may give the opposition a chance to put forward their views in a less hostile environment. Before making any concessions, however, the EU and the US need to ensure that Lukashenka is not just window-dressing.
In Ukraine, prime minister Yulia Tymoshenko has had nothing to say about the war. With her ability to attract support in all parts of the country, Tymoshenko is a unique figure in Ukrainian politics. As the leading contender for the 2010 presidential elections, she has no intention of alienating any part of the electorate, as demonstrated by her non-committal position on joining Nato.
More interestingly, Tymoshenko’s predecessor, Party of Regions leader Viktor Yanukovich, whom the Russians tried to propel to victory in the 2004 presidential elections, has been restrained in his comments. His party as a whole has been calling for peace and criticising President Viktor Yushchenko’s one-sided support for Georgia, without decisively coming out on the Russian side.
This reflects a mood in the Party of Regions – whose main support base is in the Russian-speaking east of the country – that is split between pro-Russian elements and groups with a more pro-western orientation. A Party of Regions deputy in the Verkhovna Rada I spoke to last month told me that they were in favour of Nato.
 
The party’s major backer and Europe’s richest man, Rinat Akhmetov, is part of a more liberal wing of the party which is purportedly in favour of a move towards Nato for business reasons. The party did not take part in anti-Nato protests during exercises in Odessa last month, nor when the secretary general visited Kiev in June.
The Party of Regions is not likely to start campaigning in favour of Nato membership any time soon and has a tendency to exploit and inflame this divisive issue – such as during the Nato exercises in Feodosia in 2006 – in order to garner votes. But these are further signs that the west’s soft power is having an influence on Ukrainian politicians.
 
The reactions of Lukashenka and Yanukovich to the conflict in South Ossetia show that Russia’s military victory does not herald the whitewash in the region that many have been proclaiming. If Russia’s intervention in Georgia has made some fear that the country’s territorial ambitions are unstoppable, calm analysis points to a more complex picture.
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http://www.guardian.co.uk:80/commentisfree/2008/aug/17/ukraine.belarus?gusrc=rss&feed=worldnews
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5.  THE KREMLIN’S NEW CONTAINMENT POLICY

Ukraine will be a test as to whether the Kremlin still feels a need to flex its muscles.
 
By Lilia Shevtsova, Senior Associate, Carnegie Moscow Center.
The Moscow Times, Moscow, Russia, Monday, August 18, 2008 

The war between Russia and Georgia is not about disputed territory or the personal animosity between Prime Minister Vladimir Putin and Georgian President Mikheil Saakashvili. Nor is it about Moscow’s moral claims to defend the Ossetians — whether they are South Ossetians or North Ossetians.

 
After all, Russia bears responsibility for not only failing to avert the tragedy in Beslan, located in North Ossetia, but also for the botched rescue attempt that resulted in unnecessary casualties. The current armed conflict between Moscow and Tbilisi is about power and survival.

True, there are other factors that contributed to the conflict, such as Russia’s failure to play a stabilizing role in the region after the collapse of the Soviet Union, as well as Saakashvili’s reckless provocations. But even if you combine all of these elements, they probably wouldn’t have been enough to trigger last week’s war.

The deciding factor was Georgia’s intention to join NATO and NATO’s plans to eventually offer membership to the two countries, which Secretary-General Jaap de Hoop Scheffer reiterated at the April NATO conference in Bucharest. The worst nightmare for the Russian elite would be Georgia (and Ukraine) becoming full NATO members.

 
NATO encirclement would be a serious threat for a state that defines itself through highly personalized power and a constant search for internal and external enemies. Putin and President Dmitry Medvedev cannot control the country without maintaining this image of Russia as a “besieged fortress.”

The elite, who have relied on hyped-up anti-Western and especially anti-U.S. rhetoric as a key component of their foreign policy and as a means to mobilize public support, had to strike before they lost their strategic backyard to the West. Ossetians and Georgians were, unfortunately, in the wrong place at the wrong time.

By teaching the Georgians a lesson, Moscow sent Ukraine and other countries it considers within its sphere of influence a warning: It may be dangerous to have such warm relations with the West.

Russia’s military response had another purpose as well — to show that the Medvedev-Putin tandem can be tough. This show of strength was particularly important because the elite had started to fragment and the public was starting to wonder who was really in control of the country.

The war has demonstrated the emergence of the Kremlin’s new “containment policy” targeted at the West. The country’s elite have turned fiery anti-Western and anti-Georgian rhetoric into military action by attacking beyond Russia’s borders.

 
Yet it is the West that has given the Kremlin the justification it needs. Russian propaganda has taken full advantage of the West’s double standard and hypocrisy regarding its selective interpretation of “regime change, ethnic cleansing, genocide and humanitarian intervention” in Iraq and Serbia.

Georgia needs to forget about its territorial integrity and accept the loss of Abkhazia and South Ossetia. Further, if Georgia wants to put an end to the conflict, it might need Saakashvili to step down and allow a more pragmatic leader to come to power. Ironically, Moscow, by attempting to oust Saakashvili, may actually facilitate Georgia’s NATO membership.

The war has intensified a conservative backlash in Russia. The country is now highly unified against the West — not unlike the consensus before the second Chechen war, which helped Putin’s rise to power.

Even those that have traditionally belonged to the liberal camp quickly switched gears to support the official line and blast the Georgians. The Kremlin has convinced most Russians that the West, under the banner of liberalism and democracy, has been able to carry out color revolutions in Ukraine and Georgia.

 
This helps explain why there is no strong democratic opposition in Russia; no one wants to be considered a U.S. stooge or a fifth column. When the country is so united against its “enemies,” there is no need for the Kremlin or the White House to restart reforms. Why rock the boat?
 
If Medvedev had any serious modernization plans before the war started, he has no other choice now but to drop these plans now. His top priority is to show that he is a strong commander-in-chief during a military conflict.

There is evidence, however, that the Russian ruling tandem may also be seeking reconciliation with the West, following Putin’s model of “for and against the West at the same time.” Some members of the elite feel that its time to mend fences in order to prevent Western ostracism of Russia, which may put their accounts in Western banks at risk.

 
Ukraine will be a test as to whether the Kremlin still feels a need to flex its muscles. If Kiev insists on joining NATO, Crimea could easily become a point of heightened conflict between Russia and Ukraine, particularly if Crimea seeks some kind of union with Russia.

What about the West? It is split between the hawks, such as U.S. presidential candidate John McCain, who has repeatedly called for kicking Russia out of the Group of Eight, and the doves, such as Italian Prime Minister Silvio Berlusconi.

 
Up to this point, the West has not been able to pursue a dual policy of engaging Russia and getting Moscow to abide by the membership rules it has pledged to follow as a member of certain international organizations.

In any case, the drama in the Caucasus continues. It could destroy not only Medvedev’s political future, but it could also dampen investor confidence in the country for years and cripple Russia’s ability to modernize.

 
Moreover, this conflict could have a long-term negative impact on U.S.-Russian relations and become an important factor in whom the American voters choose in the presidential election in November.

And so much of this mess was caused by the Kremlin’s inferiority complex.
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LINK: http://www.moscowtimes.ru/article/600/42/369860.htm

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6.  THE BEAR IS BACK FROM HIBERNATION 
It reflects Moscow’s view that the US and NATO are not to be taken seriously

The message being sent to Ukraine and the Baltic countries is brutally clear.
 
ANALYSIS & COMMENTARY: By Paul Dibb
Emeritus Professor of strategic studies at Australian National University
The Australian, Sydney, Australia, Monday, August 18, 2008
RUSSIA’S attack on Georgia shows that it is back as a force to be reckoned with.
It reflects Moscow’s view that the US and NATO are not to be taken seriously when it comes to what it calls its “near abroad” blizhnoe zarubezhe’e. The message being sent to Ukraine and the Baltic countries is brutally clear: Russia is returning to great power status and that is being demonstrated to them by its military operations in Georgia.
This is the first time Russia has used military force against another state since the USSR pulled out of Afghanistan. In the intervening two decades, the Soviet Union ceased to exist and Russia experienced a massive collapse of its economic and military power and a dramatic reduction in its importance in world affairs.
Worse still, despite promises to the contrary by the US, NATO has expanded its presence to the very borders of Russia and occupied parts of the former Soviet strategic space in the Baltic countries and Eastern Europe.
Now, the US wants Ukraine and Georgia to become members of the alliance. This has angered Moscow enormously.
Russia rejects American criticism of its invasion of Georgia and responds that “the invaders and occupiers of Iraq” lack the moral authority to offer such criticism. It points to the evidence that Georgian aggression against South Ossetia was responsible for Russia’s military response.
The great puzzle here is how President Mikheil Saakashvili could make such a gross miscalculation given the closeness of his relations with the US and the presence of American military advisers in Georgia.
 
Even Mikhail Gorbachev believes that such a reckless decision could only be made by the Georgian leadership “with the perceived support and encouragement of a much more powerful force”.
Even if that is not true, America’s reputation has been seriously damaged. It was understandable for the leaders of Poland, Ukraine, Estonia, Latvia and Lithuania to meet in Tbilisi last week, stating that the time of Russian dominance is over and calling on the EU and NATO “to oppose Russia’s imperialist policy to Georgia”.
 
But do they actually believe NATO is going to go to war with Russia, given Europe’s heavy dependence on Russia for energy supplies and the fact that America is over-extended militarily in Iraq and Afghanistan?
None of this is to defend Russia’s disproportionate and brutal attack on Georgia. Nor is it to condone Moscow’s bullying of its former East European captive nations. But it is to recognise that America’s dismissal of Russia as a third-rate power after the collapse of the USSR was a great mistake. The unseemly haste in deploying NATO military forces within striking range of Russia has played to Moscow’s worst historical paranoias.
And while Condoleezza Rice dismisses as “ludicrous” Moscow’s fears about US plans to place ballistic missile defence forces in Poland and the Czech Republic, Vladimir Putin suggests that Moscow will retaliate by targeting its nuclear missiles on Europe, or base them in the Kaliningrad enclave (which adjoins Poland), should the US system be deployed. From Moscow’s perspective, another EU error was to encourage Kosovo’s independence from Serbia, a fellow Slav country.
Putin warned about the repercussions of this and he cites South Ossetia and Abkhazia as having the same rights. Last week, Russian Foreign Minister Sergei Lavrov very clearly stated: “One can forget about any talk about Georgia’s territorial integrity because, I believe, it is impossible to persuade South Ossetia and Abkhazia to agree with the logic that they can be forced back into the Georgian state.”
 
Russia’s President, Dmitri Medvedev, now claims: “Historically Russia has been, and will continue to be, a guarantor of security for peoples of the Caucasus.” This is plainly a declaration that the Caucasus is part of Russia’s strategic space.
So, what does all this mean for Russia’s future geopolitical stance?
As the US internet report Stratfor observes, what Russia has done in Georgia is on a new order of confidence and indifference to world opinion. Putin did not want to confront NATO directly, but he did want to confront and defeat a power closely aligned with the US. Given that the US is absorbed in its wars in Iraq and Afghanistan, he judged correctly that the US was in no position to intervene anywhere on the Russian periphery.
Russia will now be more confident and self-assured with its status as a great power velikaya derzhava. This promises greater tension – perhaps serious tension – between Russia and the West.
 
America’s relations with Russia are now at the most serious level of disagreement in the past 25 years. Even so, US Secretary of Defence Robert Gates makes it clear that he does not see any prospect for the use of American military force.
Moscow will seek to reassert Russia’s natural sphere of influence in the “near abroad”, where some 25 million ethnic Russians live. Russia will seek to establish Russian dominance in its neighbourhood, especially in Ukraine and the Baltic countries. If this means clashing with NATO, it will be prepared to use its energy supplies as a lever or even threaten the use of force.
Russia’s weakness for the past 17 years is an aberration that is about to be rectified. The new Russia will be assertive in its foreign policy and aggressive in its neighbourhood. Moscow is no longer prepared to allow the shift in the military balance on its borders to go unchallenged.
 
Those theorists who have been proclaiming that future wars will not be between states over territory and will not involve conventional conflict have been proven wrong by Russia, as have those who assert that the major threats to world order no longer come from rivalry between great powers.
The implications of all this for Australia is that an authoritarian Russia, as well as an authoritarian China, is on the move.
And they both perceive America to be a weakened and distracted power. That should have important implications for our forthcoming defence white paper.
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Paul Dibb is emeritus professor of strategic studies at the Australian National University. His article The Bear is Back was published in The American Interest in December 2006.
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7.  RUSSIA’S NEIGHTBORS TRY TO PROTECT THEMSELVES 
The most vulnerable country is probably Ukraine, wedged between Russia and NATO states.

 
The Moscow Times, Moscow, Russia, Monday, August 18, 2008 
 
WARSAW — Poland strikes a deal on a U.S. missile-defense base. Ukraine tries to limit the Russian navy’s movement in its waters. The Czech Republic’s leader warns his nation is in danger of being sucked back into Moscow’s orbit.

Russia’s attack on Georgia has sparked fears across the young democracies of Eastern and Central Europe that Moscow is once again hungry for conquest — and they are scrambling to protect themselves by tightening security alliances with Western powers.

Around the region, memories are being revived of the darkest days of Soviet oppression.

In Prague, where Czechs on Wednesday will mark the 40th anniversary of the Soviet invasion that crushed a reform movement, Prime Minister Mirek Topolanek expressed fears of history repeating itself.

“The Russian tanks on the streets of Georgian towns remind us … of the invasion in 1968,” Topolanek wrote in Mlada Fronta Dnes daily, the country’s biggest newspaper.

“But it is not just history. It is still, even now, a relevant question whether we will or will not belong to the sphere of Russian influence.”

Since fighting broke out 10 days ago between Russia and Georgia, the crisis has dominated headlines and sparked pro-Georgia rallies across the region.

Poland’s President Lech Kaczynski and the leaders of four ex-Soviet republics journeyed together to Tbilisi last week to show solidarity with Georgia. At a demonstration there, Kaczynski declared that the Russians had again “shown the face that we have known for centuries.”

“I am scared of those things that are happening in Georgia now,” said Juste Viaciulyte, a 23-year-old student at a rally Thursday in Lithuania’s capital, Vilnius, to protest Russia’s actions in Georgia.

He noted that the Russian enclave of Kaliningrad borders his country “and is beefed up with Russian soldiers, missiles and tanks. It would take just several hours for them to ignite a similar nightmare here in Lithuania if something turned really wrong.”

The most vulnerable country is probably Ukraine, wedged between Russia and NATO states.

Eugeniusz Smolar, director of the Center for International Relations in Warsaw, said countries like Poland and the Czech Republic are safer because they already belong to NATO and the EU.

“But not so with Ukraine; with Ukraine there is fear,” Smolar said. “It’s very unstable politically, there is a strong pro-Russian political element, plus there’s strong activity of Russian intelligence.” And there are signs Central and East European countries feel that their NATO membership isn’t sufficient protection.

As part of the preliminary missile-defense deal that Poland struck with the United States on Thursday, it secured from Washington a commitment of swifter help than that offered by NATO.

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8.  RUSSIA MAY FOCUS ON PRO-U.S. UKRAINE AFTER GEORGIA

 
By Henry Meyer, Bloomberg, Wednesday, August 13, 2008

MOSCOW- Now that Russia has humiliated Georgia with a punishing military offensive, it may shift its attention to reining in pro-Western Ukraine, another American ally in the former Soviet Union.
Moving to counter any threat, Ukraine President Viktor Yushchenko today restricted the movement of Russia’s Black Sea fleet, based in the Ukrainian port of Sevastopol, citing national security. The Foreign Ministry in Moscow denounced the decision as a “serious, new anti-Russian step.”
Russian President Dmitry Medvedev and Prime Minister Vladimir Putin’s first order of business in confronting Ukraine likely will be to try to thwart its bid to join the North Atlantic Treaty Organization.
“We still don’t know who’s next,” said former Georgian President Eduard Shevardnadze, who was foreign minister under the last Soviet leader, Mikhail Gorbachev, who helped end the Cold War. “Ukraine most likely,” because of its Russian- speaking population and naval base in the Crimea, Shevardnadze said in an interview today.
The U.S. has long seen Georgia and Ukraine as counterweights to Russia’s influence in the region. Opposition leaders in the two countries came to power after U.S.-backed popular protests in 2003 and 2004.
 
Their ascension advanced an American strategy that seeks to expand NATO to include both countries and secure energy routes from the Caspian Sea that bypass Russia. The BP Plc-led Baku-Tbilisi-Ceyhan oil pipeline to Turkey runs through Georgia.
Policy in Doubt
The future effectiveness of that policy is now in doubt, with Georgia’s U.S.-educated president, Mikheil Saakashvili, 40, weakened by a five-day blitz that his American patrons were powerless to halt.
Medvedev, 42, and Putin, 56, say Russia began the offensive in response to a drive by Georgia to restore control over the breakaway region of South Ossetia. Now Russia has ousted Georgian forces from there and from Abkhazia, another separatist region, and destroyed much of the central government’s military.
“Georgia will be enormously more careful in its actions in the future, and much less confident of its relationship with the United States,” U.S.-based geopolitical advisory group Stratfor said in a research note.
NATO is scheduled to review the two countries’ bids to join the Western military alliance in December. NATO leaders in April promised Ukraine and Georgia eventual membership while declining them fast-track status. Russia, which has also denounced U.S. plans to station missile defense sites in former Soviet satellites Poland and the Czech Republic, says the expansion of the Cold War-era alliance to its borders is a security threat.
`Similar Fate’
NATO should affirm the potential of Georgia and Ukraine to become alliance members in the face of Russia’s incursion into Georgia, senior U.S. officials said yesterday in Washington.
“Russia may find it convenient to raise the level of tension with Ukraine in the run-up to the December NATO review,” Citigroup Inc.’s London-based David Lubin and Ali Al- Eyd wrote in a note to clients. “If the conflict with Russia decelerates or reverses Georgia’s integration with the West, a similar fate could also affect Ukraine.”
Ukraine, a country of 46 million people that’s almost as big as France, has a large Russian-speaking population in the south and east that opposes NATO entry and looks to Moscow. Russian officials warn that if Yushchenko pushes Ukraine into NATO, the nation may split in two. Russia has made its displeasure with Ukraine clear, temporarily cutting off gas supplies to the country 2 1/2 years ago and reducing deliveries last March.
Show of Solidarity
Yushchenko, 54, yesterday flew to the Georgian capital Tbilisi to show solidarity with Saakashvili along with the leaders of four ex-Communist eastern European nations that joined NATO as a bulwark against Russia.
Today, he cited national security needs when he insisted Russia’s Black Sea fleet coordinate its movements with Ukranian authorities. Russia has leased the port since 1991, and ships from there took part in hostilities against Georgia.
“The previous liberalized regime for Russian fleet movements gave the opportunity for Russia to cross Ukrainian state borders and to move across the Ukrainian part of the Black Sea without any control,” Yushchenko said in a decree, published on his Web site.
`A Warning’
The military operation in Georgia will serve “as a warning” to Ukraine that it should desist from petitioning for NATO entry, said Janusz Bugajski, director of the New European Democracies Project at the Center for Strategic and International Studies in Washington. “Otherwise, Moscow may intervene to protect the allegedly threatened interests of the Russian population.”
Russian Emergency Minister Sergei Shoigu today rounded on Ukraine for its public support of Georgia in the conflict.
“One week before these events, we send a column of humanitarian aid to Ukraine to help flood victims and the next we find they’re offering military aid, arms for the destruction of civilians,” Shoigu told reporters in Moscow.
Germany and France opposed NATO entry for Georgia, a country of 4.6 million people that is almost as big as the U.S. state of South Carolina, and Ukraine because of the Georgian separatist disputes and opposition to membership among some Ukrainians. They now will feel their concerns have been justified, said Cliff Kupchan of New-York based Eurasia Group, a political risk consulting firm.
NATO Membership
“Considering both European reticence and possible fears about Ukraine, I think it is very much on the slow track,” he said, referring to NATO membership for both states.
The assault by Russian artillery, tanks and bombers inflicted significant damage on Georgia’s armed forces, which last month increased their size to 37,000 soldiers. Russia’s military has 1.13 million personnel. The U.S. trained and equipped Georgia’s military and in 2006 approved almost $300 million in aid over five years.
Ukraine has about 214,000 soldiers, which include 84,000 paramilitary troops, according to the London-based International Institute for Strategic Studies.
“A substantial part of our military power has been destroyed,” said Georgian National Security Council chief Kakha Lomaia. “However, we did preserve the core of our army, and have managed to regroup it close to the capital.”
An airbase in Senaki was destroyed and three Georgian ships were blown up in the Black Sea port of Poti, he said.
Base Bombed
A month ago, about 1,000 U.S. soldiers joined 600 Georgians and 100 from Ukraine, Azerbaijan and Armenia in joint exercises at the Vaziani military base near Tbilisi. Russia repeatedly bombed the base during this month’s war.
“The American role in the region has been weakened,” Jan Techau, a European and security affairs analyst at the German Council on Foreign Relations in Berlin, said in an interview. “It’s a reassertion of Russia’s dominant role in the region.”
Ian Hague, a Bank of Georgia board member and fund manager with $1.8 billion in the former Soviet Union, said the attack on Georgia discouraged Western investments in energy infrastructure by raising the risk premium.
“It’s somewhat reminiscent, in 1939, when Stalin attacked Finland,” former U.S. national security adviser Zbigniew Brzezinski told Bloomberg Television. “I think this kind of confrontation is the best kind of answer as to why they are seeking to be members of NATO.”
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Henry Meyer in Moscow at Hmeyer4@bloomberg.net.
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9.  THE GEORGIA CRISIS: A BLOW TO NATO

 
By TONY KARON, Time Magazine
New York, New York, Friday, August 15, 2008
Washington hawks insist that the remedy to Russia’s military humiliation of Georgia is to expedite the smaller country’s incorporation into NATO. After all, Moscow might think twice about attacking any nation able to trigger the Atlantic Alliance’s Article 5, which obliges all member states to respond militarily to an attack on any one of them.
 
President Bush, in fact, toured Europe last spring to stump aggressively for Georgia and Ukraine to be granted Membership Action Plans, the first step toward joining the Alliance.
 
But despite Bush’s high-profile campaigning, the proposal was rebuffed at NATO’s April summit by 10 member states, led by key U.S. allies Germany and France. That rejection, said Republican presidential nominee Senator John McCain, “might have been viewed as a green light by Russia for its attacks on Georgia,” and he urged European NATO members to “revisit the decision.”

But many of the Europeans draw the opposite conclusion. They see last week’s events in Georgia as vindicating their caution over granting Georgia NATO membership. Indeed, many in Europe see the Bush Administration’s military support for Georgia and its trumpeting of Tbilisi’s cause in NATO as having emboldened President Mikheil Saakashvili to launch his reckless attack on South Ossetia.

If Russia’s brutal response to Georgia’s provocation had, in fact, obliged NATO to intervene, the Atlantic Alliance itself might have faced a terminal crisis. Most of its member states have no enthusiasm for confronting a resurgent Russia in the Caucasus, traditionally a Russian sphere of influence.
 
The Alliance, for one thing, is having enough trouble maintaining 71,000 troops in Afghanistan, where they are managing only to tread water against mounting odds.
 
Other arguments against confrontation: much of Western Europe is wholly dependent on Russian energy supplies, and European negotiators believe there is little chance of a diplomatic solution to the Iran nuclear standoff without committed support from Moscow.
So, regardless of the appeals of Senator McCain — and his Democratic opponent, Senator Barack Obama — the events of the past week have more likely placed Georgia’s NATO membership in the deep freeze for the foreseeable future, even if the Alliance remains rhetorically committed to the idea in principle. If so, Moscow can count what has transpired as a major victory: it has prevented the advance of a rival military alliance into Russia’s backyard.
Russia’s very purpose in its “punishment” of Georgia has been to warn neighbors inclined to challenge Moscow from under a Western security umbrella that if a storm is provoked, that umbrella offers precious little protection. The conflict was never simply about Georgia and its restive minority regions; it was always about NATO, as well as the regional balance of power between Russia and the U.S.
Putin has used the opportunity presented by Saakashvili to show Russia’s neighbors that Washington’s tough talk could not be matched by any meaningful response to the Kremlin’s military campaign.
 
Bush may now be trying to play catch-up with his tough talk, but reversing the impact of the Russian offensive will require a lot more than stitching up a bloodied Georgia and casting Russia out of the G-8 or boycotting the 2014 Winter Olympics.
 
(Thursday’s announcement of a deal between the U.S. and Poland to station missile interceptors on Russia’s doorstep over increasingly bellicose objections from Moscow may have been timed to signal resolve in the face of Russian aggression, but that plan was in the works long before the Georgia showdown and is unlikely to have any effect on the Georgia situation.)
When NATO holds its last summit of the Bush presidency in December, the symbolic language may remain soothingly supportive of membership for Georgia, but don’t expect to see it granted a Membership Action Plan. Indeed, the events of the past week have called into question the very purpose of NATO and its relationship with Russia.
While many Western critics declared the Russian actions of the past week a reversion to Cold War tactics, Moscow sees NATO itself as a Cold War relic.
 
The Russians complain that following the demise of the Soviet Union and its Warsaw Treaty Organization, the U.S. reneged on promises to create a new global security order and instead moved to expand its own Cold War military alliance — NATO — into Moscow’s own sphere of influence.
NATO’s very purpose had been to contain the Soviet Union in the wake of World War II. The Red Army had just broken the back of Hitler’s Wehrmacht and put Moscow in control of the Baltic states (annexed at the outset of the war), Poland, East Germany, Czechoslovakia, Hungary, Bulgaria and Romania.
 
Having watched Central Europe transformed by Soviet military power into a patchwork of authoritarian vassal states, Western Europe was only too willing to join an all-for-one military alliance with the U.S. and Canada to even up the odds in the event of further Soviet expansionism.
 
Nor was it surprising that decades later, those Europeans who had actually lived under the Soviet heel would race to join the same alliance at the first opportunity. The anti-Moscow military alliance not only remained intact in the decade after the Cold War but also advanced toward Russia’s shrinking borders. Russians saw all of that as strategic encirclement with hostile intent.
Last month, General Norton Schwartz, nominated as chief of the U.S. Air Force, said at his confirmation hearing that the U.S. needed to send a warning to Moscow in the wake of Russian media reports claiming that Moscow was weighing the deployment of nuclear-capable bombers in Cuba in response to U.S. missile-defense installations in Poland and the Czech Republic.
 
The Russians should be told that moving bombers to Cuba “crosses a red line for the United States of America,” he said. Let’s just say that the Russian military brass have long felt the same way about Ukraine and Georgia being militarily integrated into a rival alliance.
Russia could do little to stem NATO’s advance during the economic and social collapse presided over by Boris Yeltsin. But Putin’s Russia, flush with petrodollars, has re-emerged as a geopolitical player at the same time that U.S. influence has been waning.
 
With the bloodletting in Georgia, the Russians are telling Europe that the current security architecture is dysfunctional — a message Moscow sent earlier in the year through a vague proposal to replace NATO with a pan-European security structure in which Russia would be an equal partner.
In Washington and in many former Soviet satellite states, the response to the Georgia debacle will be to continue NATO’s eastward expansion and stiffen its resolve to contain a resurgent Russia. But in Western Europe, there will be growing doubts over the value of a security system built upon a structure designed to isolate and contain Russia.
 
The problem, of course, is that NATO operates strictly by consensus, and in the absence of such consensus, paralysis may set in. Indeed, it may yet emerge that Putin’s campaign in the Caucasus has succeeded not only in keeping Georgia out of NATO but in dealing a body blow to the Alliance itself.
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10.  VLADIMIR BONAPARTE

Ukraine is in his sights. The West needs to draw a line at Georgia.
President Bush and Secretary Rice badly misjudged Mr. Putin.

EDITORIAL: The Wall Street Journal Europe
The Wall Street Journal, New York, NY, Tuesday, August 12, 2008

The farther Russia’s tanks roll into Georgia, the more the world is beginning to see the reality of Vladimir Putin’s Napoleonic ambitions. Having consolidated his authoritarian transition as Prime Minister with a figurehead President, Mr. Putin is now pushing to reassert Russian dominance in Eurasia.

 
Ukraine is in his sights, and even the Baltic states could be threatened if he’s allowed to get away with it. The West needs to draw a line at Georgia.
No matter who fired the first shot last last week in the breakaway Georgian region of South Ossetia, Moscow is using the separatist issue as an excuse to demolish Georgia’s military and, if possible, depose its democratically elected government. Russian forces moved ever deeper into Georgia proper yesterday.
 
They launched a second front in the west from another breakaway province, Abkhazia, and took the central city of Gori, which lies 40 miles from the Georgian capital of Tbilisi. These moves slice the country in half and isolate its ports, most of which Russia has bombed or blockaded. Moscow dismissed a cease-fire drawn up by European nations and signed by Georgia.
Russian bombers have also hit residential and industrial areas, making a mockery of Moscow’s charge that Georgia is the party indiscriminately killing civilians. Russian claims of Georgian ethnic cleansing now look like well-rehearsed propaganda lines to justify a well-prepared invasion. Thousands of soldiers and hundreds of tanks, ships and warplanes were waiting for Mr. Putin’s command.
While the rape of Chechnya was brutal, this is the most brazen act of Mr. Putin’s reign, the first military offensive outside Russia’s borders since Soviet rule ended.
 
Yet it also fits a pattern of other threats and affronts to Russia’s neighbors: turning off the oil or natural-gas taps to Ukraine, Belarus, Georgia, and even to NATO-member Lithuania; launching a cyberassault on Estonia; opposing two antimissile sites in NATO members in Eastern Europe that couldn’t begin to neutralize Russia’s offensive capabilities.
Our emphasis on NATO here is no coincidence. The Georgia invasion is a direct slap at the Western alliance. Tbilisi, like Kiev, has been pushing for NATO membership. Mr. Putin decided to act while some alliance members, led by Germany, dallied over their applications. Georgia was first. Ukraine, which has been pushing Russia to move its Black Sea fleet’s headquarters out of the Crimea, could be next.
The alliance needs to respond forcefully, and it can start today. NATO officials have granted Russia a special meeting before deciding what to do about Georgia — though we don’t recall Russia briefing NATO about its plans in the Caucasus.
 
The meeting is an opportunity to relay to Moscow that Georgian and Ukrainian membership is back on the table and that the alliance is considering all options for Georgia, from a humanitarian airlift to military aid, if Russia doesn’t withdraw immediately.
Mr. Putin is betting that the West needs him for oil and deterring Iran’s nuclear ambitions more than he needs the West. He’s wrong — not least since his “cooperation” on Iran consists of helping Tehran stall for time and selling the mullahs advanced antiaircraft missiles. Russia also needs the West’s capital and especially its expertise in developing its oil and gas fields at least as much as the West needs Russian energy supplies.
The U.S. and Europe need to make all of that clear. Forcing Russia to veto a strong condemnation of its own actions at the U.N. Security Council would be one way to turn the pressure up. And speaking of pressure, where are all the peace protesters during this war? They can’t all be in China.
As for the U.S., this is perhaps the last chance for President Bush to salvage any kind of positive legacy toward Russia, amid what is a useful record elsewhere in Eurasia.
 
While Mr. Bush has championed the region’s fledgling democracies, he and Secretary of State Condoleezza Rice badly misjudged Mr. Putin. Now would be a good moment for Mr. Bush to publicly acknowledge his misjudgment and rally the West’s response.
John McCain had the Russian leader pegged better, which speaks well of his foreign-policy instincts. The Republican Presidential candidate has long said that Russia should be booted from the G-8 and yesterday he outlined a forceful Western strategy on Russia that stops short of military action.
 
Barack Obama has in the past indicated support for the Georgia and Ukraine NATO bids, but the Democratic candidate has yet to explain in any detail how he would respond to the current conflict.
There’s one other way the U.S. could hit Russia where it hurts: by strengthening the dollar. The greenback’s weakness has contributed greatly to the record oil prices that have in turn made Russia flush with petrodollars and fueled Mr. Putin’s expansionist ambitions. Crude prices continued to fall yesterday, below $115 a barrel, and further deflating that bubble would do more to sober up an oil-drunk Kremlin than would any kind of economic sanctions.
Vladimir Putin’s Russia isn’t the former Soviet Union, bent on ideological confrontation around the world. But it is a Bonapartist power intent on dominating its neighbors and restoring its clout on the world stage. Unless Russians see that there are costs for their Napoleon’s expansionism, Georgia isn’t likely to be his last stop.
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11.  BUSH AND GEORGIA
Bush Administration stumbles to respond to the Russian invasion of Georgia

 
EDITORIAL: The Wall Street  Journal Asia 
The Wall Street Journal, New York, NY, Thursday, August 14, 2008

On June 13, 1948, the day after the Soviet Union took the first step in its blockade of Berlin, U.S. General Lucius Clay sent a cable to Washington making the case for standing up to the Soviets. “We are convinced that our remaining in Berlin is essential to our prestige in Germany and in Europe. Whether for good or bad, it has become a symbol of the American intent.” The Berlin Airlift began 13 days later.

Sixty years on, U.S. credibility is again on the line as the Bush Administration stumbles to respond to the Russian invasion of Georgia. Until yesterday, the Administration was missing in action, to put it mildly. The strategic objective is twofold: to prevent Moscow from going further to topple Georgia’s democratic government in the coming days, and to deter future Russian aggression.
President Bush finally announced a plan of action Wednesday — an airlift of humanitarian supplies to Georgia and the dispatch of Secretary of State Condoleezza Rice to Paris and then Tbilisi. That followed his condemnation on Monday of Russia’s actions after a weekend of Olympics tourism in Beijing while Georgia burned.
 
The State Department had sent a mid-level official to Tbilisi over the weekend, and unnamed Administration officials are carping to the press that Washington had warned Georgia not to provoke Moscow. That was hardly a show of solidarity with a Eurasian democracy that has supported the U.S. in Iraq with 2,000 troops.
Compared to the U.S. lethargy, the French look like Winston Churchill. In Moscow Tuesday, French President Nicolas Sarkozy, acting as president of the European Union, got Russia to agree to a provisional cease-fire that could return both parties’ troops to their positions before the conflict started. His next stop was Tbilisi, on the heels of a visit from Foreign Minister Bernard Kouchner.
If both sides agree to a cease-fire, Mr. Sarkozy promises that Europe will consider sending peacekeepers to enforce it. We trust he will find volunteers from the former Soviet republics, which see the writing on the wall if Russian aggression in Georgia is left unchallenged. The leaders of Poland, Ukraine, Latvia, Lithuania and Estonia flew to Tbilisi this week in a show of solidarity.
NATO met Tuesday and denounced the invasion, while stopping short of promising military aid to Georgia. Secretary General Jaap de Hoop Scheffer said the allies “condemned and deplored [Russia’s] excessive, disproportionate use of force,” and demanded a return to the status quo ante.
The NATO leader also said Georgia’s potential membership remains “very much alive” and that it would be a member of NATO one day. Georgia and Ukraine’s applications come up again in December, and perhaps even Germany, which blocked their membership bids earlier this year, will now rethink its objections given that its refusal may have encouraged Russia to assume it could reassert control over its “near abroad.”
Much as it respects and owes Georgia, the U.S. is not going to war with Russia over a non-NATO ally. But there are forceful diplomatic and economic responses at its disposal. Expelling Russia from the G-8 group of democracies, as John McCain has suggested, is one.
 
Barring Russia’s long desired entry into the World Trade Organization is another. Russian leaders should also be told that their financial assets held abroad aren’t off limits to sanction. And Moscow should know that the 2014 Winter Olympics in Sochi on the Black Sea are in jeopardy.
The Georgian people also deserve U.S. support. The airlift announced by Mr. Bush yesterday is a good start. The U.S. military will ferry humanitarian supplies to the Georgian capital, which is currently cut off by Russian troops from its Black Sea port. After the fighting ends, the U.S. can lead the recovery effort.
 
And since the Russians are demanding his ouster, Georgian President Mikheil Saakashvili deserves U.S. support too. Moscow wants a puppet leader in Tbilisi, and U.S. officials are playing into Vladimir Putin’s hands with their media whispers that this is all Mr. Saakashvili’s fault.
Reshaping U.S. policy toward Russia will take longer than the months between now and January 20, when a new President takes office. But Mr. Bush can at least atone for his earlier misjudgments about Mr. Putin and steer policy in a new direction that his successor would have to deal with. If that successor is Barack Obama, this is an opportunity to shape a crucial foreign policy issue for a novice who could very well go in the wrong direction
.
The alternative is ending Mr. Bush’s tenure on a Carter-esque note of weakness. To paraphrase General Clay: Whether for good or bad, how the U.S. responds to Russia’s aggression in Georgia has become a symbol of American credibility.
 
By trying to Finlandize if not destroy Georgia, Moscow is sending a message that, in its part of the world, being close to Washington can be fatal. If Mr. Bush doesn’t revisit his Russian failures, the rout of Georgia will stand as the embarrassing coda to his Presidency.
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12.  UKRAINE DISMISSES FEAR OF CRIMEA SEPARATIST CRISIS

 
Reuters, Kiev, Ukraine, Saturday, August 16, 2008
KIEV – A top Ukrainian security official on Saturday discounted any notion of a separatist rebellion in the sensitive Crimea as President Viktor Yushchenko proposed Kremlin talks on the issue of the Russian fleet based there.
Ukraine’s pro-Western leaders, brought to power by the 2004 “Orange Revolution” and committed to seeking NATO membership, have been increasingly at odds with Russia over foreign policy. Yushchenko, like the United States, backs Georgia in its conflict with Russia over separatist South Ossetia.

He further enraged Moscow this week by ordering restrictions on the movement of ships in the Black Sea fleet, based in the Crimean port of Sevastopol. Russia’s military vowed to disregard the rules, saying the fleet answered only to Russia’s president.

Russia’s conflict with Georgia over the separatist region of South Ossetia has prompted suggestions that pro-Russian nationalism in the Crimea, strong in the 1990s, could be rekindled and undermine the authority of the Ukrainian state.
Crimea, part of Russia from the late 18th century, was handed to Soviet Ukraine by Kremlin leader Nikita Khrushchev in 1954. It became part of independent Ukraine in 1991 when the Soviet Union fell.
Valentin Nalivaichenko, acting chairman of Ukraine’s SBU security service, said latent nationalism in Crimea could not be compared with South Ossetia’s longstanding rebellion that ultimately led to the conflict between Georgia and Russia. “I am certain that such a scenario is not possible in Ukraine,” he told the weekly Zerkalo Nedeli.
 
“Prosperity, peace and calm in Crimea is the very foundation on which the interests of Ukraine and neighboring Russia coincide. Everything else is of secondary importance.”
Nalivaichenko said Ukraine had taken legal action to hobble nationalist groups in Crimea. “If we complete this stage and go on to the next one, we can be confident that there will be no Russian, or any other, destabilization scenario in Crimea.”
LEASE TO RUN OUT
Russia’s Black Sea Fleet is based in the port of Sevastopol under a leasing agreement due to expire in 2017. Yushchenko has made plain that the lease will not be renewed and talks should focus on overseeing the fleet’s orderly departure.
Outbursts of pro-Russian nationalism in the 1990s prompted authorities in Kiev to reduce local autonomy. Kiev’s jurisdiction over Crimea, populated mainly by ethnic Russians, remains a highly sensitive issue among nationalists in Moscow who periodically call for Sevastopol — or the entire peninsula — to revert to Russian jurisdiction.
In a statement on his website late on Friday, Yushchenko said his backing for Georgia was based on preserving the country’s territorial integrity and similar concerns in Ukraine.  Disagreements with Russia over the fleet, he said, could only be settled through a formal agreement.
“I have therefore sent an urgent proposal to the president of Russia to start talks on signing an agreement that would regulate our relations in the event of military action like that which we saw at the beginning of August,” he wrote.
“In other words, we need to come up with clearer rules that would ensure Ukraine’s national security in such situations.” (Writing by Ron Popeski; editing by Robert Hart)
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13.  RUSSIA ‘DISTRIBUTING PASSPORTS IN CRIMEA’

 
By Adrian Blomfield, Telegraph, London, UK, Sunday, 17 Aug 2008

Ukraine is investigating claims that Russia has been distributing passports in the port of Sevastopol, raising fears that the Kremlin could be stoking separatist sentiment in the Crimea as a prelude to possible military intervention.

The allegation has prompted accusations that Russia is using the same tactics employed in the Georgian breakaway regions of Abhkazia and South Ossetia in order to create a pretext for a war.

Russia handed out passports to the residents of the two provinces, which have long looked to Moscow for support, five years ago. The Kremlin has justified its invasion of Georgia in terms of defending its citizens in Abkhazia and South Ossetia from Georgian “aggression”.
Mykola Stretovych, an MP with Ukraine’s ruling orange coalition, claimed that Russia was engaged in a massive operation to hand out passports in Sevastopol, home to 400,000 people, many of whom have historic ties with Russia.
Anatoly Gritsenko, chairman of the Ukrainian parliament’s national security committee, launched a probe into the claims which, if true, would represent “a threat to national security”, he said.
Tensions between Moscow and Kiev have grown in recent days after Viktor Yushchenko, Ukraine’s pro-western president, imposed restrictions on Russian ships entering the Black Sea Fleet’s base in Sevastopol.
The decision to place limitations on movement to and from the base, which Russia rents from Ukraine, was taken after ships from the Black Sea Fleet were used in military operations in Georgia.
Ukraine further infuriated the Kremlin last week by offering Europe and the United States access to its missile warning systems.
Mr Yushchenko’s alliance with Georgia has caused further resentment among the Crimea’s overwhelmingly Russian-speaking population. The territory was historically part of Russia but was awarded to Soviet Ukraine by Nikita Khrushchev in 1954.
The head of Ukraine’s security service, however, said that despite nationalist tensions in the territory, a rebellion in the Crimea with or without Russian support was inconceivable.
“Prosperity, peace and calm in the Crimea is the very foundation on which the interests of Ukraine and neighbouring Russia coincide,” Valentin Nalivaichenko said.
Condoleezza Rice, the US secretary of state, warned Russia that its actions in Georgia would further increase the alienation of Ukraine towards Moscow. Mr Yushchenko has applied for Ukraine’s membership of Nato, a move bitterly opposed by the Kremlin.
“If the Russians intended this as intimidation, they have done nothing but harden the attitudes of the small states around them,” she said. “I think the Russians have made a significant mistake here.”
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http://www.telegraph.co.uk:80/news/worldnews/europe/ukraine/2575421/Russia-distributing-passports-in-the-Crimea.html
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14.  UKRAINE OFFERS WEST INFORMATION ON EARLY MISSILE WARNING

 
InTheNews, London, UK, Sunday, 17 Aug 2008 
 
Russia is opposed to the missile shield over fears that it is might be aimed against it Printer friendly version Ukraine has offered to give the west information through its missile early warning radar systems.

The move follows Russia’s ending of a 1992 agreement with its neighbour on the use of the systems that can be used to prepare against an attack.

Announcing the decision, Ukraine’s foreign ministry said: “The fact that Ukraine is no longer a party to the 1992 agreement allows it to launch active cooperation with western countries to integrate its stations with governments with an interest in receiving data of the situation in space.”

It comes after the country’s president Viktor Yushchenko expressed concerns over last week’s war between Russia and Georgia. The Ukrainian head of state said that only a collective security system could prevent conflicts, such as the recent war over South Ossetia, from breaking out.

He has also called for urgent talks with Russia over the use of one of Ukraine’s Black Sea ports to facilitate operations against Georgian territories.

Ukraine’s decision comes days after Poland announced that it and the US would begin setting up a long-delayed missile defence system on the former Soviet republic’s territory.

The US insists that the defence shield is designed to protect against attacks by “rogue states” such as Iran and has previously stated that it doesn’t seek to defend against Russian attacks. Russia is opposed to the defence shield over fears that it might be aimed against it.

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15.  UKRAINE TORMENTS RUSSIA WITH SHOW OF SOLIDARITY
 

By Askold Krushelnycky, The Sunday Times, London, UK, Sunday, August 17, 2008

Ukraine yesterday offered to create a joint missile defence network with the West amid fears that its port city of Sebastopol, home of the Russian Black
Sea fleet, could become the next flashpoint between Russia and its former satellites.

The Ukrainian offer, which means its early warning radar stations could become part of the West’s civil defence system, will further damage poor
relations between Kiev and Moscow.

Ukraine, which to the fury of Russia is looking towards Europe and membership of Nato, announced last week that it would require the Russian fleet to seek permission whenever ships entered its territorial waters.

Viktor Yushchenko, Ukraine’s reformist president who visited the Georgian capital Tbilisi last week to support President Mikhail Saakashvili, said the
use of Russian ships for a war violated Ukraine’s neutrality and risked drawing it into conflict.

He instructed his security council to draw up new rules forcing Russia to apply up to 10 days in advance for permission for its fleet to move in and
out of Ukraine’s territorial waters.

This weekend Yushchenko said a threat to Georgia’s territorial integrity should be viewed as a potential threat to Ukraine’s: “We have lived through
the most terrible 10 days of our recent history.”

The Russian response was immediate. Colonel-General Anatoly Nogovitsyn, deputy chief of the Russian general staff, who last week warned Poland that
it could face a nuclear strike after signing a deal with the United States to place a missile shield on its soil, made a belligerent statement to Ukraine.

He said Russian ships would ignore the order to seek permission, which he claimed was “illegitimate”.

Vladimir Putin, the Russian prime minister, warned Yushchenko last February that Russia could point nuclear missiles at Ukraine if it cooperated with US
missile defence plans.

Ukraine is insisting the Russian military must leave Sebastopol when the lease on the base expires in 2017. The Russian navy has made it clear it may
refuse to do so.
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16.  HOW TO STOP PUTIN

OP-ED: By Charles Krauthammer, Columnist, The Washington Post
Washington, D.C., Thursday, August 14, 2008; Page A17

The Russia-Georgia cease-fire brokered by France’s president is less than meets the eye. Its terms keep moving as the Russian army keeps moving. Russia has since occupied Gori (appropriately, Stalin’s birthplace), effectively cutting Georgia in two.

 
The road to the capital, Tbilisi, is open, but apparently Prime Minister Vladimir Putin has temporarily chosen to seek his objectives through military pressure and Western acquiescence rather than by naked occupation.

His objectives are clear. They go beyond detaching South Ossetia and Abkhazia from Georgia and absorbing them into Russia. They go beyond destroying the Georgian army, leaving the country at Russia’s mercy.

The real objective is the Finlandization of Georgia through the removal of President Mikheil Saakashvili and his replacement by a Russian puppet.
Which explains Putin stopping the Russian army (for now) short of Tbilisi.

 
What everyone overlooks in the cease-fire terms is that all future steps — troop withdrawals, territorial arrangements, peacekeeping forces — will have to be negotiated between Russia and Georgia.

But Russia says it will not talk to Saakashvili. Thus regime change becomes the first requirement for any movement on any front. This will be Putin’s refrain in the coming days. He is counting on Europe to pressure Saakashvili to resign and/or flee to “give peace a chance.”

The Finlandization of Georgia would give Russia control of the Baku-Tbilisi-Ceyhan pipeline, which is the only significant westbound route for Caspian Sea oil and gas that does not go through Russia. Pipelines are the economic lifelines of such former Soviet republics as Kazakhstan and Azerbaijan that live off energy exports. Moscow would become master of the Caspian basin.

Subduing Georgia has an additional effect. It warns Russia’s former Baltic and East European satellites what happens if you get too close to the West. It is the first step to reestablishing Russian hegemony in the region.

What is to be done? Let’s be real. There’s nothing to be done militarily. What we can do is alter Putin’s cost-benefit calculations.

We are not without resources. There are a range of measures to be deployed if Russia does not live up to its cease-fire commitments:

1. Suspend the NATO-Russia Council established in 2002 to help bring Russia closer to the West. Make clear that dissolution will follow suspension. The council gives Russia a seat at the NATO table. Message: Invading neighboring democracies forfeits the seat.

2. Bar Russian entry to the World Trade Organization.

3. Dissolve the G-8. Putin’s dictatorship long made Russia’s presence in this group of industrial democracies a farce, but no one wanted to upset the bear by expelling it. No need to. The seven democracies simply withdraw. (And if Italy’s Silvio Berlusconi, who has been sympathetic to Putin’s Georgia adventure, wants to stay, he can have an annual G-2 dinner with Putin.) Then immediately announce the reconstitution of the original G-7.

4. Announce a U.S.-European boycott of the 2014 Winter Olympics at Sochi. To do otherwise would be obscene. Sochi is 15 miles from Abkhazia, the other Georgian province just invaded by Russia. The Games will become a riveting contest between the Russian, Belarusan and Jamaican bobsled teams.

All of these steps (except dissolution of the G-8, which should be irreversible) would be subject to reconsideration depending upon Russian action — most importantly and minimally, its withdrawal of troops from Georgia proper to South Ossetia and Abkhazia.

The most crucial and unconditional measure, however, is this: Reaffirm support for the Saakashvili government and declare that its removal by the Russians would lead to recognition of a government-in-exile. This would instantly be understood as providing us the legal basis for supplying and supporting a Georgian resistance to any Russian-installed regime.
President Bush could cash in on his close personal relationship with Putin by sending him a copy of the highly entertaining (and highly fictionalized) film “Charlie Wilson’s War” to remind Vlad of our capacity to make Russia bleed. Putin would need no reminders of the Georgians’ capacity and long history of doing likewise to invaders.

Bush needs to make up for his mini-Katrina moment when he lingered in Beijing yukking it up with our beach volleyball team while Putin flew to North Ossetia to direct the invasion of a neighboring country. Bush is dispatching Secretary of State Condoleezza Rice to France and Georgia.

 
Not a moment too soon. Her task must be to present these sanctions, get European agreement on as many as possible and begin imposing them, calibrated to Russian behavior. And most important of all, to prevent any Euro-wobbliness on the survival of Georgia’s democratically elected government.
We have cards. We should play them. Much is at stake. (letters@charleskrauthammer.com)
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17.  MAKING PUTIN PAY 

 
EDITORIAL: The Wall Street Journal
New York, NY, Saturday, August 16, 2008; Page A10
Vladimir Putin proved last weekend that Russia’s army can push over Georgia’s army. In the past 48 hours, the West has begun to push back. If its leaders stay the course, they may yet turn Mr. Putin’s meager military success into a significant political defeat.
In Washington yesterday, President Bush issued a statement of precisely the sort the world expects from American leadership in such circumstances. It made clear what he understands to be Mr. Putin’s goals and made equally clear the intention to resist those goals, and why doing so is in the world’s interests.
 
“The United States and our allies stand with the people of Georgia and their democratically elected government,” Mr. Bush said. In other words, the Russians have made no pretense that their purpose in Georgia is to remove President Mikheil Saakashvili from the office to which he was elected in 2004. This would make the West complicit in the overthrow of a democratic government.
Mr. Bush also noted pointedly that “The days of satellite states and spheres of influence are behind us.” It has become clear through this week that Mr. Putin’s rationale for the invasion extends beyond Georgia’s violated borders.
 
His intent is to convince independent nations on Russia’s periphery — Ukraine, the Baltic states — that persisting as Poland has to deepen formal ties to the West, particularly NATO, will cost them dearly. In crudest terms, it will be fatal.
This would be a reversion to the vassal-state relationship of the Cold War that the West cannot allow. It is evident and welcome that in the days between Mr. Putin’s decision to belly-slam into the Olympics’ opening weekend and now, Mr. Bush and his team have notably hardened what was a tepid early response.
Both Secretary of State Condoleezza Rice and Defense Secretary Robert Gates are specialists in the Soviet era and are acutely aware of the price paid in human terms to bring the Soviet Union to dissolution in 1991. It must discomfit them to see that achievement threaten to unravel, especially after having invested so much in good relations with Mr. Putin.
 
So it is reassuring to hear Mr. Gates say the Russians run the risk of damaging relations with the West “for years to come.” This isn’t just some point of disagreement. The Americans and their allies must continue to make Mr. Putin pay a political penalty for Georgia.
Yesterday the Russians said their General Prosecutor’s Office would undertake a “genocide probe” in South Ossetia, and they called for putting President Saakashvili on trial at the Hague for “war crimes.” As it happens, Chapter 1, Article II of the U.N. Charter, signed amid the smashed borders of World War II, forbids Members from the “use of force against the territorial integrity or political independence of any state.”
 
The U.S. and France should force Mr. Putin’s U.N. ambassador to veto a Security Council resolution describing his week-long mockery of those words.
Additionally, a genuinely independent prosecutor investigating war crimes might examine the Russian bombing runs over Georgia and the looting of Georgian villages by Ossetian militias. An intriguing article by Pavel Felgengauer in Novaya Gazeta, the Russian newspaper, argues that an examination of the movement of the ground equipment and ships used in the strike against Georgia required planning that predated August.
Western authorities should also explore the vulnerability of Russian assets abroad. At the least, they can make life difficult for the holders of those assets. Post-Soviet Russia allowed the emergence of businessmen and entrepreneurs who indeed wish to function as normal participants in world commerce.
 
Their number, however, assuredly includes the lucky billionaires under Mr. Putin’s protection. All of them want to benefit from the West’s rules. That privilege should be restricted so long as Mr. Putin breaks the rules.
In the world of global commerce, reputation matters. China has calculated that its own ambivalent reputation can only gain from staging the Olympic extravaganza. The glow of the Games is money in the bank. By contrast, the Putin government has embarked on a strategy that seems to believe its power grows in sync with its reputation as an international pariah, an outsider state.
Mr. Bush said Friday that “Russia has damaged its credibility and its relations with the nations of the free world.” True, and if the West remains firm, it can make clear to Mr. Putin that the political price of behavior beyond the pale of normal relations is high. Overrunning Georgia was easy. Life after that should not be.
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18.  AFTER A BRIEF VICTORIOUS WAR, THE KREMLIN
MUST DECIDE WHAT TO DO WITH ITS TRIUMPH
Associated Press, Moscow, Russia, Friday, Aug 15 2008
 
MOSCOW – After a brief victorious war, the Kremlin must decide what to do with its triumph. The Kremlin has already reasserted its historic military dominance in the region, punished Georgia for its surprise attack on South Ossetia’s capital and humiliated a bitter foe, Georgian President Mikhail Saakashvili.
Now, Russia is expected to set up permanent military bases in Abkhazia and South Ossetia and establish a security zone around their borders. It appears poised to charge Saakashvili with genocide in a Russian court, and strengthen ties with the two separatist regions.
After that, there is no certainty about what might happen.
One option is for the Kremlin to recognize the independence claims of both South Ossetia and Abkhazia, or even Russian annexation of both areas. Moscow also might demand that Georgia slash the size of its armed forces.
Whatever the Kremlin demands are, the world will be forced to listen.
After the Soviet collapse, a weakened and impoverished Russia struggled to exert influence. In recent years it has relied on energy wealth to assert its will. Now its willingness to flex military muscle compels the West to pay greater heed.
“The situation in the post-Soviet area has changed significantly,” said Fyodor Lukyanov, editor of Russia in Global Affairs Magazine. “Russia is ready and able to use force outside its borders. That’s a different situation.”
But in exploiting its victory, Russia risks further antagonizing the international community – which could hurt the country’s economy and cost it international prestige. Already, there is serious talk in the West of stripping Russia of its membership in the elite Group of Eight club of nations.
Russia must also worry about ties to its neighbors, particular in the former Soviet sphere. Some of Russia’s allies may turn to China, increasingly a major player in the competition for Central Asian energy reserves.
Foreign policy experts here, as well as intelligence officials in the U.S., agreed that Russia is unlikely to permanently occupy Georgian territory, or to back any efforts by separatist forces to seize additional territory.
Neither, several experts said, is Moscow likely to try to disrupt shipments through Georgia’s Batumi-Tbilisi-Ceyhan, or BTC, pipeline, the only conduit for crude from Central Asia to Europe that bypasses Russia.
“This is not about oil,” said Kimberly Marten, an expert on Russian defense and foreign policy at Barnard College. “The only oil at stake is what’s flowing through the BTC pipeline to Turkey, something that involves many big Western oil companies; and if Russia were to do anything to disrupt that, it would become a pariah in Europe.”
But Russia could take other steps that would trigger international condemnation and further its diplomatic isolation.
Sergey Lavrov, Russia’s Foreign Minister, said Thursday that Moscow no longer recognized Georgia’s territorial sovereignty, suggesting the Kremlin was prepared to absorb Abkhazia and South Ossetia, where many residents hold Russian passports.
Even if Moscow limits itself to recognizing the independence of the two contested regions, there would be trouble.
Alexander Konovalov, president of Moscow’s Institute of Strategic Assessment, said such a move would weaken Russia’s arguments against recognition of the independence of Kosovo, which broke from Moscow-backed Serbia this year. “It will shrink Russia’s ability to operate in foreign policy,” he said.
The Kremlin has fought two wars against rebels in the Russian region of Chechnya, and still clashes with insurgents in several of its Caucasus mountain republics. Formal recognition of Abkhazia and South Ossetia would only encourage Russia’s own separatist movements, Konovalov said.
Still, Russia might use the genocide charge against Saakashvili to argue that Georgia forfeited its right to rule Abkhazia and South Ossetia.
“Georgia has lost the moral legality of its claim” to Abkhazia and South Ossetia, Sergei Karaganov, chairman of the presidium of the Russian Council on Foreign and Defense Policy.
The war may have weakened Ukraine’s bid to enter NATO, some experts predicted, because of European concerns about antagonizing Russia. The defeat of Georgia, an ally of Washington, also could reduce the influence of the United States in the former Soviet Union – particularly among the rulers of Central Asia.
“They always closely follow who is the boss, who is stronger,” said Lukyanov, of Russia in Global Affairs magazine. “If they come to the conclusion that the U.S. is less strong now than before, I can’t exclude that they will turn their attention more to Russia – or to China.”
Karaganov, of the Russian Council on Foreign and Defense Policy, said Moscow should demand that Georgia shrink its military forces “to a bare minimum,” to prevent a repeat of what he called its aggression.
But one U.S. intelligence official, speaking on condition of anonymity, that Georgia is an ally and needs to be able to defend itself. “Once the dust settles, we can then look at assisting Georgia in rebuilding their military,” he said.
Russia seems determined to bring charges of genocide and mass murder against Saakashvili in a Russian court, and has investigators scouring South Ossetia for evidence. Prime Minister Vladimir Putin assailed the West for failing to condemn Saakashvili’s military campaign in South Ossetia, which included tank warfare waged on city streets. 
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19.  KREMLIN ‘CAPITALISM’ IS A THREAT TO THE WEST 
 
ANALYSIS & COMMENTARY: By Peter Charles Choharis 
The Wall Street Journal, NY, NY, August 16, 2008; Page A11

Moscow has much more than a military threat to intimidate countries in its neighborhood. Long before its foray into Georgia, Russia was using its market strength in oil and gas resources to strong-arm its neighbors and outmaneuver the United States and the European Union. As NATO considers how to respond to Russian troops in Georgia, the West should also consider how to counter Kremlin capitalism.

Ever since Vladimir Putin became Russia’s president in 2000, Russian authorities have used the power of the state to gut Russian companies and seize their assets for a fraction of their value. Yukos, once Russia’s largest oil producer, was seized by Russian authorities allegedly for back taxes. Its assets were auctioned off at bargain prices to Russia’s state-owned energy giants, Rosneft and Gazprom, while its CEO and other company officials were arrested and imprisoned.
 
The government’s seizure also deprived ExxonMobil and Chevron from buying major stakes in Yukos. Sibneft, Russneft, and other Russian hydrocarbon companies have suffered similar fates.
 
More recently, TNK-BP, Russia’s third-largest oil company and a joint venture between British Petroleum and a group of Russian billionaires, has been the target of Russian government investigations. BP calls the government’s scrutiny a campaign of harassment.
 
The company’s British head, Robert Dudley, was forced to flee Russia two weeks ago, and its British CFO abruptly resigned. This after Gazprom wrested control of the $22 billion Sakhalin-2 oil and gas project from Royal Dutch Shell for a fraction of market value.
BP vows to use “all legal means” to protect its investment. But lawyers won’t be enough. For the TNK-BP dispute is about geopolitics and Russian hegemony as much as it is about money.
Since Mr. Putin became president, the Russian government has renationalized much of the energy sector; it now owns 50% of the country’s oil reserves and 89% of the gas reserves. Beyond ownership, the Kremlin has positioned high-ranking government officials and other Putin-loyalists — elites in the security services known as siloviki (men of power) — to key positions in leading Russian companies, even while they keep their government jobs.
Before becoming Russia’s current president, Dmitry Medvedev was both Gazprom’s chairman and Russia’s first deputy prime minister. siloviki also control major companies in metals, mining and other strategic sectors. While profits are fine, the Kremlin ensures that these companies promote Russia’s foreign-policy goals.
This strategy extends beyond energy. Two weeks ago, Moscow announced the formation of a state grain-trading company to control up to half of the country’s cereal exports, which are the fifth-largest in the world. Its purpose, most analysts believe, is to provide the government with greater leverage over food-importing nations at a time of rising food costs and shortages.
But it is in the natural gas sector where the Kremlin wields the most power. Numerous Western European countries depend heavily on Moscow for natural gas to heat homes and produce electricity, with some Eastern European countries almost completely dependent. Beyond supply, Russia also enjoys a near monopoly of the pipelines transporting gas to Europe from the east.
 
In a further bid to extend its grip on gas supplies, Russia — along with such anti-U.S. governments as Iran and Venezuela — is supporting the Gas Exporting Countries Forum, which some fear will become an OPEC-like cartel.
While Russia may or may not intend to start a new Cool War, it is not afraid of leaving Europeans out in the cold — literally. In the middle of winter 2006, it cut off gas supplies to Ukraine and parts of Western Europe. It has also cut off gas to Moldova, Belarus and Georgia.
This past spring, critics charge that, in part due to Russian pressure, Germany opposed Membership Action Plans for Ukraine and Georgia, the first step toward NATO membership.
 
They point to a Gazprom-led consortium building the Nord Stream gas pipeline from Russia underneath the Baltic Sea directly to Germany, while circumventing pro-U.S. countries like Poland, Ukraine, and the Baltic states. (Former German Chancellor Gerhard Schroeder’s role as Nord Stream chairman could not have hurt Russia’s influence.)
Last month, after the Czech Republic supported an antiballistic missile system opposed by Russia, the flow of Russian oil dropped 40%. President Medvedev had promised “retaliatory steps.”
Aware of their vulnerability, in March 2007 the Europeans developed an “Energy Policy for Europe” to coordinate energy security, competitiveness and sustainability. But agreeing on principles has been far easier than acting on them. Moscow continues to exploit differences among EU member states — whose dependence on Russian gas, voracity for lucrative pipeline transit fees and desire to tap into Russian energy markets vary considerably — in order to promote greater European dependence on Russian gas and pipelines.
Thus, when a consortium of European countries proposed the Nabucco pipeline, to pump gas from Central Asia and the Caucasus to Europe without going through Russia, Mr. Putin earlier this year personally met with foreign government and corporate leaders on behalf of South Stream, a rival pipeline that would go from Russia across the Black Sea to Bulgaria and the rest of Europe.
 
To ensure that South Stream would have gas to transport, Gazprom upped its offer to Caspian region suppliers to pay higher rates for natural gas. It also just signed a deal with Turkmenistan to invest in its gas infrastructure.
 
Meanwhile, the Nabucco pipeline’s future is cloudy, with one of its original sponsors, Hungary, switching to South Stream due in part to European dithering and skillful Russian negotiating.
Just as NATO’s response to Georgia will be crucial for American credibility throughout Eastern Europe, the Caucasus, and Central Asia, so too U.S. leadership is vital to maintain Europe’s energy security.
Short of sanctions, the West does not currently have much economic leverage. European, Japanese and American export credit agencies could refuse to finance any deals involving Russian companies that have acquired assets expropriated from foreign investors.
 
European countries could also bar such Russian firms from operating in Europe, or could impose a special fee to reimburse expropriated investors. And rather than expel Russia from the G-8 as John McCain has proposed, members should demand that Russia respect the rights of foreign investors and ratify the Energy Charter Treaty.
Longer term, the U.S. needs to use its diplomatic and financial clout to push forward alternative energy routes. Washington’s backing was vital to building the Baku-Tbilisi-Ceyhan oil pipeline in five years. One of the longest of its kind, the pipeline bypasses Russia and carries crude oil from offshore fields in the Caspian Sea across Georgia to the Mediterranean. Washington must make financing and constructing the NABUCCO gas pipeline a top priority.
Washington also needs to reach out to Central Asia, and should push for a Trans-Caspian pipeline from Kazakhstan and Turkmenistan across the Caspian Sea to Azerbaijan and west to Europe. Years of Russian domination have made these countries open to Western investment. Moreover, they understand the strategic importance of diversifying sales and transport options for their oil and gas. Western companies also offer superior technology.
But after Russia’s use of military force in Georgia, these countries are wary of antagonizing their former overseer. Without a strong American presence, it is impossible for the West to compete in the region. Yet Turkmenistan has lacked a full-time U.S. ambassador for more than a year.
The markets can also help hold Russia accountable for its heavy-handedness. Two weeks ago after Mr. Putin targeted Mechel, a steelmaking giant — suggesting that Russian antitrust and tax authorities investigate the company — Russia’s stock market lost $60 billion.
 
Market forces may not protect BP’s Russian investments or save Georgia, but they could make it far more costly for the Kremlin to proceed.
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Mr. Choharis is a principal in Choharis Global Solutions, an international law and consulting firm, and an adjunct fellow at the American Security Project. He recently returned from a trip to Turkmenistan.
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20.  HOW THE WEST FUELED PUTIN’S SENSE OF IMPUNITY

 
OPINION: By Garry Kasparov, The Wall Street Journal
New York, NY, Friday, August 15, 2008; Page A13

Russia’s invasion of Georgia reminded me of a conversation I had three years ago in Moscow with a high-ranking European Union official. Russia was much freer then, but President Vladimir Putin’s onslaught against democratic rights was already underway.

“What would it take,” I asked, “for Europe to stop treating Putin like a democrat? If all opposition parties are banned? Or what if they started shooting people in the street?” The official shrugged and replied that even in such cases, there would be little the EU could do. He added: “Staying engaged will always be the best hope for the people of both Europe and Russia.”
The citizens of Georgia would likely disagree. Russia’s invasion was the direct result of nearly a decade of Western helplessness and delusion. Inexperienced and cautious in the international arena at the start of his reign in 2000, Mr. Putin soon learned he could get away with anything without repercussions from the EU or America.
Russia reverted to a KGB dictatorship while Mr. Putin was treated as an equal at G-8 summits. Italy’s Silvio Berlusconi and Germany’s Gerhardt Schroeder became Kremlin business partners. Mr. Putin discovered democratic credentials could be bought and sold just like everything else.
 
The final confirmation was the acceptance of Dmitry Medvedev in the G-8, and on the world stage. The leaders of the Free World welcomed Mr. Putin’s puppet, who had been anointed in blatantly faked elections.
On Tuesday, French President Nicolas Sarkozy sprinted to Moscow to broker a ceasefire agreement. He was allowed to go through the motions, perhaps as a reward for his congratulatory phone call to Mr. Putin after our December parliamentary “elections.” But just a few months ago Mr. Sarkozy was in Moscow as a supplicant, lobbying for Renault. How much credibility does he really have in Mr. Putin’s eyes?
In reality, Mr. Sarkozy is attempting to remedy a crisis he helped bring about. Last April, France opposed the American push to fast-track Georgia’s North Atlantic Treaty Organization membership. This was one of many missed opportunities that collectively built up Mr. Putin’s sense of impunity. In this way the G-7 nations aided and abetted the Kremlin’s ambitions.
Georgia blundered into a trap, although its imprudent aggression in South Ossetia was overshadowed by Mr. Putin’s desire to play the strongman. Russia seized the chance to go on the offensive in Georgian territory while playing the victim/hero.
 
Mr. Putin has long been eager to punish Georgian President Mikheil Saakashvili for his lack of respect both for Georgia’s old master Russia, and for Mr. Putin personally. (Popular rumor has it that the Georgian president once mocked his peer as “Lilli-Putin.”)
Although Mr. Saakashvili could hardly be called a model democrat, his embrace of Europe and the West is considered a very bad example by the Kremlin. The administrations of the Georgian breakaway areas of Abkhazia and South Ossetia are stocked, top to bottom, with bureaucrats from the Russian security services.
Throughout the conflict, the Kremlin-choreographed message in the Russian media has been one of hysteria. The news presents Russia as surrounded by enemies on all sides, near and far, and the military intervention in Georgia as essential to protect the lives and interests of Russians. It is also often spoken of as just the first step, with enclaves in Ukraine next on the menu.
 
Attack dogs like Russian nationalist politician Vladimir Zhirinovsky are used to test and whip up public opinion. Kremlin-sponsored ultranationalist ideologue Alexander Dugin went on the radio to say Russian forces “should not stop until they are stopped.” The damage done by such rhetoric is very slow to heal.
The conflict also threatens to poison Russia’s relationship with Europe and America for years to come. Can such a belligerent state be trusted as the guarantor of Europe’s energy supply? Republican presidential candidate John McCain has been derided for his strong stance against Mr. Putin, including a proposal to kick Russia out of the G-8. Will his critics now admit that the man they called an antiquated cold warrior was right all along?
The conventional wisdom of Russia’s “invulnerability” serves as an excuse for inaction. President Bush’s belatedly toughened language is welcome, but actual sanctions must now be considered. The Kremlin’s ruling clique has vital interests — i.e. assets — abroad and those interests are vulnerable.
The blood of those killed in this conflict is on the hands of radical nationalists, thoughtless politicians, opportunistic oligarchs and the leaders of the Free World who value gas and oil more than principles. More lives will be lost unless strong moral lines are drawn to reinforce the shattered lines of the map.
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Mr. Kasparov, leader of The Other Russia coalition, is a contributing editor of The Wall Street Journal.
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21.  THE KREMLIN’S ‘PROTECTION’ RACKET 

 
ANALYSIS & COMMENTARY: By David B. Rivkin Jr. & Lee A. Casey
The Wall Street Journal, New York, NY, Friday, August 15, 2008; Page A15

Russia’s invasion of Georgia will be a defining moment for America’s credibility and global stability.

 
If the Medvedev (or, rather, Putin) regime succeeds in using force to topple a democratic and pro-Western government, based on spurious claims of “protecting” Georgia’s population against its own government, the stage will be set for similar aggression against the other states — from the Baltics to Ukraine — that border Russia but look to the free West. The dangers of the post-September 11 World will be combined with the challenge of a new Cold War.
 
Russia is fully aware of these ominous implications. It has accordingly sought to cloak this act of aggression in the raiment of modern international justice. Its officials and surrogates (including Mikhail Gorbachev) have falsely accused Georgian leaders of violating international law in the South Ossetia and Abkhazia regions, which have “Russian” populations on account of Russia’s extralegal issuance of its passports in those areas.
President Dmitry Medvedev has called for the “criminal prosecution” of the perpetrators of these supposed abuses and Vladimir Putin has alleged that if “Saddam Hussein [was hanged] for destroying several Shiite villages,” Georgian leaders are guilty of much more. Ruthless Kremlin realists have learned the language of global humanitarianism.
The language of “protection” was once a favorite pretext for Tsarist expansion in the 19th century. It is also the same rationale that Germany offered for absorbing the Sudetenland in 1938.
 
The Kremlin’s current claims are no more credible than its tattered justifications for invading Hungary in 1956, Czechoslovakia in 1968, and Afghanistan in 1979. Russian assertions that Georgian forces provoked the conflict by attacking Russian troops call to mind Hitler’s story that his 1939 invasion of Poland was justified by Polish attacks on Germans. This is particularly ironic, given the Kremlin’s penchant for comparing Georgian President Mikheil Saakashvili to Adolf Hitler.
Moscow’s sudden embrace of a “limited sovereignty” for Georgia doesn’t square with Russia’s own previous protestations about the sanctity of its sovereignty and stubborn insistence that it was free to act on its own soil as it saw fit.
 
Moscow’s concern about alleged atrocities and genocide is also preposterous in light of the Russian government’s callous indifference to the very real genocides conducted by its allies in Iraq and the former Yugoslavia, and in Rwanda and Darfur — not to mention Moscow’s own exceptionally brutal military campaigns in Chechnya.
Predictably, Messrs. Putin and Medvedev also assert that their actions in Georgia are no different from Western behavior vis-à-vis Iraq and the former Yugoslavia. Accordingly, they have demanded Mr. Saakashvili’s resignation.
Moscow’s clear goal is to replace a pro-Western government with a new Russian satellite, both through military action and by discrediting Georgia’s leadership through false war crimes and genocide accusations. Behind the hypocrisy, Russia may be trying to lock in a new set of international rules, by which Moscow will be free to intervene at will in its “near abroad” while the United States looks on.
 
These claims, reminiscent of the Brezhnev doctrine which posited that Moscow had a right to use force to preserve its empire, ring particularly hollow in the 21st century.
Moscow’s attack on Georgia is only part of a broader campaign against its real and perceived enemies, a mission that has been conducted without the least regard for settled principles of international law. This campaign includes the de facto annexation of South Ossetia and Abkhazia — which must now be considered “Russia-occupied territory” protected by the Fourth Geneva Convention.
 
It also encompasses cyber attacks against the Baltic states, state-ordered assassinations of individuals in Western countries, and economic intimidation, as in the recent cutoffs of Russian oil and gas shipments to Ukraine or the Czech Republic.
It is important that Moscow pays a concrete and tangible price for its latest aggression, at least comparable to the price it paid for the 1979 invasion of Afghanistan. Visa denials to all individuals connected to the Russian government and vigorous oversight and enforcement activities against Moscow’s state-owned companies would be a good way to start.
 
Given Russia’s historic insecurities, and the desire of Russian plutocrats to travel freely throughout the world, educate their children in the West, and own property overseas, such modest measures would be quite effective. Russia’s WTO membership should be blocked and its G-8 participation suspended.
The Bush administration should also make an assertive effort to deny the legitimacy of all Moscow’s legal and policy claims, and defend Mr. Saakashvili without reservations.
 
We should draw a sharp contrast between the American leadership in securing Kosovo’s independence — an infringement of Serbian sovereignty brought about by Belgrade’s real genocide and war crimes — and Moscow’s cynical encouragement of secessionist movements in countries formerly a part of the Soviet Union, which was designed to reconstitute Russian imperial control.
 
John McCain has already taken the lead on this, quickly reaching out to the Georgian president and condemning Russia’s actions as a new form of empire building.
While rebutting Moscow’s claims of today, the U.S. should also press for a historical accounting. Russia’s history goes directly to its credibility.
 
We should remind the world that Russia remains unrepentant for the sins of its past, not the least of which are its previous 1803 and 1922 invasions and annexation of Georgia, its 1939 partition of Poland with Hitler’s Germany, and the Katyn massacre that claimed the lives of tens of thousands of captured Polish officers (which Moscow still falsely blames on Germany). Russia refuses to take responsibility for its past oppression of numerous non-Russian “captive nations” — among them, of course, the Georgians.
American credibility is very much at stake here. If a true friend of the United States — an ancient country already twice annexed by Moscow in the past two centuries, a democracy that has enthusiastically reached out to NATO and the European Union, and even sent troops to fight in Iraq — can be snuffed out without concrete action by Washington, America’s friendship will quickly lose its value and America’s displeasure would matter even less. The repercussions would be felt world-wide, from the capitals of New Europe, to Jerusalem, Kabul and Baghdad.
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Messrs. Rivkin and Casey are Washington lawyers who served from 2004-2007 as members of the U.N. Subcommission on the Promotion and Protection of Human Rights.
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22.  GEORGIA/RUSSIA: SMOLDERING FEUD, THEN WAR 
Tensions at Obscure Border Led to Georgia-Russia Clash

 
By Marc Champion and Andrew Osborn, The Wall Street Journal,
New York, NY, Saturday, August 16, 2008; Page A1

TSKHINVALI, Georgia — The fighting that threatens to remake the post-Cold War world began in the craggy mountains of separatist South Ossetia province when ethnic fighting that has long plagued the area abruptly got much worse.

On Aug. 1, a roadside bomb hurt five Georgian policemen. By evening, snipers, presumably Georgian, had killed a half-dozen South Ossetians, mostly off-duty policemen out fishing or swimming.

 
After dark, artillery shells began raining down on Georgian enclaves ringing this provincial capital. The South Ossetian leaders began sending women and children to safety in Russia — and mobilizing men into brigades.
Six days later, fighting flared to a level not seen for years between the ethnically Georgian and ethnically Ossetian villages that form the patchwork of the separatist region. It was then that Georgian President Mikheil Saakashvili sent thousands of U.S.-trained troops into the province, after which Russian forces swept in, crushing his assault.
In the aftermath, Russia and Georgia have each blamed the other for the escalating violence, insisting their own intentions were peaceful — and forcing Washington to choose between two erstwhile allies. But an examination by The Wall Street Journal suggests both sides had been preparing for war for months, if not years.
 
With the two historic enemies armed and convinced an attack could come at any time, all it needed was a trigger. That appears to have come last Thursday, in the form of intense shelling by the Ossetians, an ethnic group that identifies strongly with Russia.
On Friday, President George W. Bush, in his strongest declaration of support for Georgia yet, accused Russia of “bullying and intimidation.” The U.S. is sending military aircraft to support Georgia, a former Soviet state which Washington has promoted as a beacon of democracy in the troubled Caucasus region.
Also Friday, with U.S. Secretary of State Condoleezza Rice at his side, Mr. Saakashvili said he had signed a Western-brokered cease-fire. Ms. Rice said it protects Georgia’s interests and all Russian troops “must leave immediately.” But on Friday, they remained in control of the central Georgian city of Gori, effectively cutting Georgia in half. 
 
Tension had been simmering since the early 1990s. After the Soviet Union collapsed, South Ossetia and another Georgian province, Abkhazia, fought to secede from Georgia. With the help of Russian military aid and volunteers, they defeated Georgian forces and became, in effect, unrecognized Russian protectorates. The end of those skirmishes left South Ossetia patrolled by hundreds of Russian, Georgian and Ossetian peacekeepers and a few dozen European observers.
This year, two things pushed tensions higher: Over Russian objections, Georgia moved toward joining the North Atlantic Treaty Organization; and Western countries, ignoring Russian opposition, recognized the independence of the onetime Yugoslavian province of Kosovo.
Russia strengthened its contingents of peacekeepers and periodically it sent planes over Georgia, sometimes launching rocket attacks. Georgia, with U.S. financial aid, built up its military and warned Western allies that Moscow was planning an attack. Pro-Russian separatist leaders in South Ossetia repeatedly told Russian officials that Georgia was preparing an assault.
Blaming the Other
In fact, both sides were preparing for war. Earlier in the year, Russia sent railroad troops to repair a railway in Abkhazia helpful for transporting military equipment. In April it shot down a Georgian unmanned spy plane. In July, Russia held exercises called Caucasus 2008 that were an undisguised rehearsal for invasion.
 
Georgia, meanwhile, had by Aug. 7 pulled much of its army up to the area of Tskhinvali, the capital of its pro-Russian South Ossetian province, according to officials and witnesses on both sides.
Each side blames the other for the escalation early in August. Georgian officials say South Ossetians first fired artillery at ethnically Georgian villages Aug. 1.

An Ossetian official says the Georgians had been fortifying their positions near the provincial capital of Tskhinvali for weeks, and claims they were just looking for a pretext to go to war. On the day the fighting began, “The whole day was planned by the Georgians, from the start to the finish, to provoke a clash,” says Murat Tkhostov, an Ossetian who sits on a commission meant to settle the conflict.

Late that day, ethnically Georgian villages “came under tremendous bombardment from the South Ossetians,” says William Dunbar, who was a correspondent for Russia Today, a Kremlin-funded television channel that promotes pro-Russian views. He visited the next day and says he tried to file a report on the shelling but his editors weren’t interested. He soon resigned.
South Ossetian officials evacuated thousands of women and children to safety in Russia, a move Georgian officials interpreted as preparations for war. The civilian men who remained formed into partisan battalions. In Russia, ethnic Ossetians and their Cossack supporters — quasi-military groups still active in southern Russia — called on volunteer fighters to head to South Ossetia to fight.
Some Missing
On Aug. 7, Georgia’s minister for reintegration, Temuri Yakobashvili, arrived in Tskhinvali for talks on the future of the province. They were supposed to include his Russian opposite number, Yuri Popov, and Ossetian leaders. But the only other person there was a Russian general, Marat Kulakhmetov.
Mr. Yakobashvili says the Russian general told him that the South Ossetian leader, Eduard Kokoity, had left. The Georgian minister then phoned Mr. Popov, and the Russian replied that he was stranded on the roadside 20 miles away with a flat tire.
“I asked him about the spare and he said that was flat, too,” says Mr. Yakobashvili, an account Mr. Popov confirms.
The Ossetian capital was almost a ghost town by then, Mr. Yakobashvili says. He asked the Russian general what he would advise Georgia do in response to the shelling by South Ossetians. The answer: “Order a unilateral cease-fire and don’t respond.”

In the car on the way home, Mr. Yakobashvili phoned that advice to Georgian President Saakashvili. By the time he got back to the Georgian capital of Tbilisi, the president was on TV announcing such a ceasefire and no-response order.

The Russian Mr. Popov, meanwhile, says that when he arrived in Tbilisi, Ossetian leaders were no longer willing to meet as planned, citing a military build-up by Georgia. After fixing his flat at around 6 p.m., he headed to Tskhinvali to change their minds. He saw large numbers of Georgian tanks, armored personnel carriers, howitzers and other equipment rolling up the road from the Georgian town of Gori.
The troops, according the Mr. Yakobashvili, the Georgian minister, were meant only as a deterrent, as if “to say: don’t mess with us.”
Russian armor was on the move that day, too, according to Tamari Betsunashvili, a resident of Beloti, an ethnically Georgian Ossetian village in South Ossetia. Beloti is close to a rough road the Russian military long ago cut through the forests to reach Ossetian villages, bypassing the main road partly under Georgia’s control.
Military convoys were a common sight there, but on Aug. 7 there were unusually large numbers of Russian army vehicles moving toward South Ossetia, she said, speaking in a Tbilisi school where refugees from South Ossetia are being housed.
In Tskhinvali, the Ossetian capital, Russia’s Mr. Popov met with the South Ossetian leader, Mr. Kokoity, a former wrestler, Communist-youth leader and fighter in past separatist wars. Mr. Popov says he persuaded the South Ossetian boss to set talks for the next day at 1 p.m. The meeting never took place. By then, Georgian troops had stormed Tskhinvali.
The heaviest shelling started at around 11 p.m., when refugees from ethnically Georgian villages in South Ossetia say they started getting hit. According to the Russian military, meanwhile, Georgian shelling of the South Ossetian capital began at 12:30 a.m. It lasted much of the night.
In the Georgian presidential palace in Tbilisi, increasingly dire reports flowed in from the field. Two ethnically Georgian villages near Tskhinvali were reported destroyed, says Mr. Yakobashvili, who was in the room as President Saakashvili took the calls. Ground commanders on the ground were begging to be allowed to return fire and saying they couldn’t evacuate the wounded, Mr. Yakobashvili says.
 
President Saakashvili says he initially resisted, but then he got a call reporting that a column of 150 military vehicles had been spotted coming into South Ossetia through the Roki tunnel from Russia.
 
He says he figured a Russian invasion had begun, and the only way to stop it was to blow up a bridge on the road to the Ossetian capital and confront them north of Tskhinvali. That would require invading the capital city itself.
President Saakashvili spoke on the phone to Secretary of State Rice to brief her, according to the State Department’s point man on Georgia, Matthew J. Bryza. Other U.S. and Georgian officials were talking too. Mr. Bryza says all had the same message, one they had been delivering for months: “Avoid an unwinnable confrontation with Russia.”
President Saakashvili was undeterred. He ordered troops to take Tshkinvali, the Ossetian capital, and to knock out the bridge.
Hearing of the attack, Russia’s Mr. Popov says he again called Georgia’s Mr. Yakobashvili, who told him about the shelling of Georgian villages and about the Russian tanks moving south. The tank report “was absolute nonsense,” Mr. Popov says. Georgian officials have provided no evidence to confirm the existence of the tank column.
Tough Response
Russian officials contend the Georgians planned the attack from the start. “They moved their forces into positions on high ground around Tskhinvali,” says a Russian official. “It’s very simple: The Georgians decided to take South Ossetia by force.” He adds: “They thought we’d whine like over Kosovo but our response was very tough.”
“They were using 19 planes,” says a Georgian officer, Maj. Malkhaz Shavadze. “We pulled out and they kept bombing, because they didn’t know we had left.”
By this past Monday, Georgia’s army was fleeing in disarray, south through Gori and back toward Tbilisi. Hundreds of Russian tanks, trucks, volunteers and troops continued to pour into South Ossetia through the Roki tunnel through the mountains. In Georgia’s other separatist province, Abkhazia, more Russian troops landed both by sea and overland.
 
They triumphantly confiscated large amounts of U.S.-supplied military equipment that Washington had shipped to the Georgian army in recent years. “American rations are really tasty,” said Col. Igor Konoshenko, speaking in Tskhinvali this week.
Western leaders frantically pressured Russian President Dmitry Medvedev and his patron and prime minister, Vladimir Putin, to stop the advance. The Russians were defiant. In a conversation with French President Nicholas Sarkozy, Mr. Putin was “beside himself” with anger, says a French official familiar with the talk.
One Concession
Mr. Medvedev initially demanded the removal of Georgia’s president as a condition of any cease-fire. Western leaders successfully resisted, but that was about the only concession they won.
On Wednesday, Russian leaders appeared to place a seal on their military victory, receiving South Ossetian leader Kokoity and Abkhaz leader Sergei Bagapsh in the Kremlin. The Russians pledged to guarantee, on the ground and internationally, whatever status the two separatist, pro-Russian provinces of Georgia choose. Abkhazia, whose majority Georgian population was driven out in the early 1990s, has previously voted for independence. South Ossetia has voted to join Russia.
The world, said Russian Foreign Minister Sergei Lavrov, “can forget about any talk about Georgia’s territorial integrity.”
On Thursday, with Russian armored personnel carriers within 25 miles of the Georgian capital of Tbilisi, Secretary of State Rice was persuading the Georgian president to accept a cease-fire.
“The U.S. has lost the Caucasus,” said Georgy Khaindrava, a onetime Georgian minister for reintegration, who contends Mr. Saakashvili made a huge strategic error in trying to retake the South Ossetian capital. “My country is cut in pieces.”
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Yaroslav Trofimov, Alan Cullison, Gregory L. White and Alessandra Galloni contributed to this article.
Write to Marc Champion at marc.champion@wsj.com  and Andrew Osborn at andrew.osborn@wsj.com
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23.  U.S. DIPLOMAT, CLOSE TO SAAKASHVILI, PLAYS KEY ROLE IN CONFLICT

 
By Jay Solomon in Washington and March Champion, in Tbilisi, Georgia
The Wall Street Journal, NY, NY, Saturday, August 16, 2008; Page A5

When Russian tanks rolled out of South Ossetia and into Georgia proper Monday, triggering fears of a full-scale invasion, a man began furiously shoving U.S. diplomat Matthew J. Bryza around the lobby of the Marriott Tbilisi, the capital’s fanciest hotel.

“It’s your fault too,” shouted Georgy Khaindrava, a former Georgian minister for conflict resolution. “If you hadn’t propped up Misha Magariya [Misha the strong], we wouldn’t have tanks here now,” he said, referring to Georgian President Mikheil Saakashvili.

Mr. Bryza, who is in his mid-40s, is a household name in Georgia, closely identified with U.S. support for Georgia and for its pro-Western president, Mr. Saakashvili. When he goes out in the street, people sometimes ask to take their picture with him. They ask for his autograph. And, like Mr. Khandraiva, a fierce critic of Mr. Saakashvili since being fired, some of them get mad.
In this conflict, which threatens to rewrite U.S.-Russian relations, the Stanford and Tufts University-educated Mr. Bryza has taken a central role, despite his title. A deputy assistant secretary of state for European and Eurasian affairs, he has been Washington’s point man on territorial disputes in the Caucasus since the beginning of President George W. Bush’s first term.
He also oversaw U.S. efforts to break Moscow’s stranglehold over Central Asia’s oil and gas supplies to Europe, a project for which Georgia is essential. That project suffered a setback after Russia apparently tried to bomb oil pipelines in Georgia.
The affable Mr. Bryza has developed a reputation as a hard-liner on Russia’s actions towards the former states of the Soviet Union and a staunch defender of both Georgia and the 40-year-old Mr. Saakashvili, with whom he has a close personal relationship.
Critics say that has complicated the U.S.-Georgian relationship, possibly diluting State Department warnings to Tbilisi against engaging in a military confrontation with Russia. Some say there were signs for months that Russia was laying a trap for Mr. Saakashvili.
Lt. Col. Robert Hamilton, who headed the Office of Defense Cooperation in the U.S. Embassy in Tbilisi until last month, said Russia took a number of steps that appeared designed either to spark a war or force a “creeping annexation” of the two disputed provinces at the center of the conflict.
Col. Hamilton said he was particularly concerned about Russia’s deployment in April of hundreds of “railroad workers” to reconnect transportation links between Russia and Abkhazia, which U.S. officials now believe was preparation for the conflict. “In every case, Georgia appealed for international assistance,” he said.
Mr. Bryza said Washington has been firm with Tbilisi. He said that for at least four months, he and Secretary of State Condoleezza Rice as well as other U.S. diplomats had repeatedly delivered the same message to Mr. Saakashvili: that the Georgian leader should “avoid an unwinnable confrontation with Russia.”
 
Though he acknowledges a close and long relationship with Mr. Saakasvili, Mr. Bryza says his diplomatic role is not about friendship. “This is not about any one leader, it’s about democracy,” he says.
He noted that in November, when Mr. Saakashvili cracked down on opposition protesters using tear gas and rubber bullets, shutting down an opposition television station, he was the one who took a “very tough” message to the Georgian president. “We’ll support you as long as you are a democrat,” Mr. Bryza says he told Mr. Saakashvili.
This time around, he has expressed firm public support for the Georgians. Arriving in Tbilisi Monday to try to negotiate a cease-fire, Mr. Bryza blasted Russian forces for what he said were their premeditated military actions in South Ossetia and Georgia. He also challenged Russian claims that Moscow’s offensive inside Georgia was akin to Washington’s 2003 invasion of Iraq, essentially an act of self-defense.
“Saddam Hussein was not a leader who transformed his country into the world’s leading economic reformer,” Mr. Bryza told reporters at Tblisi’s international airport. “President Saakashvili and his government are democratically elected.”
Mr. Bryza, who speaks fluent Russian and Polish, was based in Poland from 1989 to 1991. From 1995 to 1997, he served in the U.S. Embassy in Moscow and monitored the Russian legislature and the Communist Party as a political officer.
The U.S. diplomat must manage a widening crisis with a Georgian leadership remarkably short of international experience. Defense Minister David Kezerashvili is just 30 years old, and many of Mr. Saakashvili’s other top aides have yet to hit 40. Russian Prime Minister Vladimir Putin is 55.
“You had this massive generational change in Georgia’s leadership in recent years that gave young officials enormous responsibilities,” says Cory Welt, who directs Georgetown University’s Eurasian Strategy Project. “This can lead to mistakes.”
In recent days, Mr. Bryza and Ms. Rice, who visited Tbilisi Friday, have worked to safeguard Georgia’s democratic transition by trying to hammer out a cease-fire agreement between Russia and Georgia and a plan for the deployment of international peacekeepers into disputed regions. The U.S. has also worked to ferry humanitarian supplies into Georgia as international relief agencies say there are now more then 100,000 displaced peoples in the country.
Mr. Bryza says there may be a silver lining to the conflict. “This need not be the defeat that many people in Georgia perceive it to be,” he said. “The situation is serious, make no mistake,” he added, but with Russia’s international reputation “back on its heels, Georgia has an opportunity to reshape the international mechanisms around the frozen conflict zones.”
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Write to Jay Solomon at jay.solomon@wsj.com & Marc Champion at marc.champion@wsj.com
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24.  “NATO NOW!” SHOULD BE NEW RALLYING CRY FOR ALL POLITICIANS IN UKRAINE 

Russia truly represents a threat to an independent Ukraine.
 
EDITORIAL: Kyiv Post, Kyiv, Ukraine, Thursday, Aug 14, 2008
Russia’s successful blitz through South Ossetia, Abkhazia and other parts of Georgia was a rude wake-up call. Other than Tbilisi, the capital most in shock is Kyiv.
 
Just over a week ago, the thought of Russia invading Ukraine to solve territorial or political disputes — such as the simmering one in Sevastopol over the Russian Black Sea Fleet — was ludicrous. After the events in Georgia, it is not so laughable.
Ukraine’s Ministry of Foreign Affairs must be disconcerted by the ineffectual European, American and world response to the crisis. While Russians bombed and paratroopers rolled into Georgia, the West bombarded the Kremlin with diplomatic dispatches.
Ukraine finds itself in a precarious geopolitical situation. Russia truly represents a threat to an independent Ukraine. Moreover, Ukraine – like Georgia – is facing this threat on its own. The nation’s leaders must finally realize their isolation and vulnerability.
After wasting 17 years on political squabbles fueled by the redistribution of Soviet-era wealth, the nation is not secure. Ukraine, stuck between Hitler and Stalin in World War II, doesn’t have a favorable geographic position or friendly neighbors. Instead, Russian Prime Minister Vladimir Putin is reported to have openly sneered at the idea of Ukraine being a sovereign nation.
Russia’s adventurism in Georgia was meant to send the bluntest of signals to its neighbors: “Don’t get too cozy with the West, because we rule this region.” The fossilized communists and other Kremlin toadies all too willingly obey. But such a subservient response will only take Ukraine backwards. 
To the contrary, the solution is for Ukraine to join the North Atlantic Treaty Organization military alliance. Ukraine will have a better fate with NATO, a grouping of 26 democratic European and North American countries, rather than with Kremlin autocrats.
“NATO now!” should be the new rallying cry for all politicians in Ukraine. But as we have seen, the Kremlin-friendly Party of Regions and ex-Prime Minister Victor Yanukovych are determined to block and delay.
The desire of France and Germany not to irritate Russia, which supplies a quarter of Europe’s natural gas, is blamed for the April decision at the NATO summit in Bucharest to delay the membership applications of Ukraine and Georgia.
Ukraine’s political divisions and the ambivalence of average Ukrainians also contribute to wariness from the West. It’s all the more unfortunate because, outside of the three Baltic states, Ukraine and Georgia are the only two relatively bright spots for democracy among the 15 former Soviet republics.
Ukraine needs to take a couple of other steps as well.
Faced with a resurgent Russia, Ukraine’s military needs billions of hryvnias to improve its readiness and bring it closer to NATO standards. Ukraine’s leaders should also press for an earlier exit of Russia’s Black Sea Fleet from the nation’s territory than 2017, the year the current agreement expires.
It’s hard to say exactly who is to blame for the start-up of the hostilities between Georgia and Russia. Did South Ossetian separatists provoke Georgia with violence? Or did Georgian President Mikheil Saakashvili blunder by invading the separatist province without anticipating the fury of the Russian response?
Either way, Ukraine and the Caucasus have similar circumstances that make them ripe for provocations.
Ukraine has a large ethnic Russian population that the Kremlin courts in its unyielding opposition to attempts at Western integration and NATO membership. Crimea has plenty of Russian troops and Russian passport holders, creating the opportunity for Kremlin leaders to justify an invasion as essential to protecting its citizens, as they did in South Ossetia.
Ukraine can start with a public education campaign on the benefits of NATO membership. With all the disinformation out there, such information is essential. But a campaign will take time and money to change public opinion.
Western leaders, meanwhile, should recognize that their ambivalence to Ukraine and Georgia is encouraging Russia to menace and threaten beyond the Caucasus and Black Sea.
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AUR#896 Aug 16 Conflict in Georgia, Lessons for Ukraine; Is Ukraine Next?; Europe Reassesses; Mythmaking in Moscow; Yushchenko; Tymoshenko

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

Ukrainian History, Culture, Arts, Business, Religion,
Sports, Government, and Politics, in Ukraine and Around the World       
 
CONFLICT HOLDS LESSONS FOR UKRAINE
                        
ACTION UKRAINE REPORT – AUR – Number 896
Mr. E. Morgan Williams, Publisher and Editor, SigmaBleyzer
WASHINGTON, D.C., SATURDAY, AUGUST 16, 2008
 
INDEX OF ARTICLES  ——
Clicking on the title of any article takes you directly to the article.               
Return to Index by clicking on Return to Index at the end of each article
COMMENTARY & ANALYSIS: By Steven Pier
Visiting Fellow, Brookings Institution, Washington, D.C.
U.S. Ambassador to Ukraine from 1998-2000.
Senior Advisor, U.S.-Ukraine Business Council (USUBC)
Radio Free Europe/Radio Liberty (RFL/RL)
Washington, D.C., Friday, August 15, 2008
 
Richard Weitz, Senior Fellow, Hudson Institute
World Politics Review contributing editor
World Politics Review Exclusive, Institute of World Politics
Washington, D.C., Friday, August 15, 2008

3.  LIMITED LEVERAGE: EURASIA AND THE WEST

OP-ED: William Horton Beebe-Center
President, Eurasia Foundation, Washington, D.C.
International Herald Tribune (IHT), Paris, France, Friday, August 15, 2008
4UKRAINIAN ENVOY SAYS GEORGIA A ‘LESSON FOR UKRAINE’
Interview with Ukrainian Deputy Prime Minister Hryhoriy Nemyria
By Maryana Drach, Kyiv, Ukraine
Radio Free Europe/Radio Liberty (RFE/RL)
Prague, Czech Republic, Friday, August 15, 2008
By Peter Fedynsky, Moscow, VOA Correspondent
Voice of America (VOA), Washington, D.C., Friday, August 15, 2008
At least for now, the smoke seems to be clearing from the Georgian battlefield.
But the extent of the wreckage reaches far beyond that small country.
COMMENTARY: By John R Bolton
Former US Permanent Representative to the United Nations
Telegraph, London, UK, Friday, August 15, 2008
7FOREIGN DIRECT INVESTMENT (FDI) RISKS BECOMING A CASUALTY OF WAR
“We think that Ukraine may be the next investment casualty…”
By Rachel Morajee in London, Financial Times
London, UK, Friday, August 15 2008
SigmaBleyzer, The Bleyzer Foundation
Kyiv, Ukraine, Tuesday, August 12, 2008
By Peter Apps, Reuters, London, UK, Friday August 15 2008
Peter Apps, Reuters, London, UK, Thu Aug 14, 2008
OP-ED: By Mikheil Saakashvili, President of Georgia
The Washington Post, Washington, D.C.
Thursday, August 14, 2008; Page A17
OP-ED: By Anne Applebaum, Author, Columnist
Telegraph, London, UK, Friday, August 8, 2008
 
COMMENTARY & ANALYSIS: By Igor Khrestin
Central Europe Digest, Center for European Policy Analysis
Washington, D.C., Friday, 15 August 2008

14UKRAINE UNSETTLED BY RUSSIA’S INVASION OF GEORGIA
By Brian Bonner, Special Correspondent, McClatchy Newspapers
The Herald Tribune, Rock Hill, South Carolina, Friday, August 15, 2008

15UKRAINE’S PRESIDENT WANTS NEW RUSSIAN FLEET DEAL 

The Associated Press, Kiev, Ukraine, Saturday, August 16, 2008
UkrInform – Ukraine News, Kyiv, Ukraine, Friday, August 15, 2008 

17RUSSIA’S OMINOUS NEW DOCTRINE?

OP-ED: By Strobe Talbott, President, Brookings Institution
Deputy Secretary of State, Clinton Administration
The Washington Post, Washington, D.C., Fri, Aug 15, 2008; Page A21 
 
18PRESIDENT YUSHCHENKO SAYS UKRAINE SUPPORTS UNCONDITIONAL
UkrInform – Ukraine News, Kyiv, Ukraine, Friday, August 15, 2008

19UKRAINIAN GOVERNMENT EXPRESSES STRONG SUPPORT FOR GEORGIA

Will Ukraine be next after Georgia?
ANALYSIS & COMMENTARY: By Taras Kuzio
Eurasia Daily Monitor, Volume 5, Issue 154
The Jamestown Foundation, Wash. D.C., Tuesday, August 12, 2008

20UKRAINE AND THE CONFLICT IN SOUTH OSSETIA
Ukraine threatens to prevent return of Russian Black Sea Fleet vessels
Commentary & Analysis: By Roman Kupchinsky
Eurasia Daily Monitor, Volume 5, Issue 153

The Jamestown Foundation, Wash. D.C., Monday, August 11, 2008
 
21. KYIV ON GEORGIA: DIPLOMACY AWKWARD, PARTIES DIVIDED
Support for Georgia varies among political parties in Ukraine
COMMENTARY & ANALYSIS: By Pavel Korduban
Eurasia Daily Monitor, Volume 5, Issue 157
The Jamestown Foundation, Wash. D.C., Friday, August 15, 2008
 
COMMENTARY & ANALYSIS, By Jan Maksymiuk
Radio Free Europe/Radio Liberty (RFE/RL)
Prague, Czech Republic, Friday, August 15, 2008
 
NEWS ANALYSIS: By Judy Dempsey, The New York Times
New York, New York, Friday, August 15, 2008
 
24MYTHMAKING IN MOSCOW 
Georgia wasn’t committing ‘genocide,’ and the Russians aren’t keeping the peace.
LEAD EDITORIAL, The Washington Post
Washington, D.C., Saturday, August 16, 2008; Page A14
 
Bush Administration’s second-rate response to the crisis
By Andrew Ward in Washington, Financial Times
London, UK, Saturday, August 16, 2008
 
By Chrystia Freeland, U.S. Managing Editor of the FT

Financial Times, London, UK, Saturday, August 16 2008
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1
SOUTH OSSETIA CONFLICT HOLDS LESSONS FOR KYIV
 
COMMENTARY & ANALYSIS: By Steven Pier
Visiting Fellow, Brookings Institution, Washington, D.C.
U.S. Ambassador to Ukraine from 1998-2000.
Senior Advisor, U.S.-Ukraine Business Council (USUBC)
Radio Free Europe/Radio Liberty (RFL/RL)
Washington, D.C., Friday, August 15, 2008
 
Analysts have begun to weigh the significance of the Russian-Georgian conflict for Russia’s other neighbors and for Western relations with those countries. What lessons should Ukraine draw?
 
The speed of the launch of Russian military operations makes clear that Moscow was ready to act and only sought a pretext; the Georgians, unfortunately, provided one. Russian forces quickly broadened the conflict beyond South Ossetia, launching air strikes throughout Georgia, deploying into Abkhazia, and occupying parts of Georgia outside of South Ossetia and Abkhazia.
 
The scale of the Russian attack suggests Moscow was motivated by more than just the situation in South Ossetia. Tbilisi’s independent foreign-policy course, particularly its desire to join NATO and the European Union, angers Moscow, which seeks a zone of influence in the former Soviet space.
 
The Kremlin also intended its actions to send a message to other neighboring states, including Ukraine, and to the West. As Ukrainians think through what this means for their foreign-policy course, there are a number of considerations.
 
The Russians seek to draw a line between Europe and the former Soviet space. Moscow wants Ukraine and Georgia on the eastern side of that line, and wants neither NATO nor the European Union to cross it. While the Kremlin focuses its objections now on NATO enlargement, Ukrainians should assume that, if prospects develop for Ukraine’s entry into the European Union, Russia will object vociferously to that as well.
 
Moscow’s increasingly assertive policy poses challenges for Kyiv and the West. NATO and the European Union must consider carefully their strategies of engaging states to their east. Some will argue that, given Russian opposition, NATO should back away from Membership Action Plans (MAPs) for Ukraine or Georgia.
 
That would be a mistake. It would encourage Moscow to believe that its pressure tactics — which have included threatening Ukraine with nuclear weapons and questioning the country’s territorial integrity and, in Georgia’s case, worse — have succeeded. A Russia that sees success in such tactics will not be an easy country with which to deal.
 
Moscow would like to limit Ukrainian sovereignty and independence, to isolate it from European and Euro-Atlantic institutions. Most Ukrainians who favor joining NATO and the European Union do so because they want their country to be a “full member” of Europe. This is not anti-Russian. The Kremlin, however, applies an outdated zero-sum logic by which Ukraine’s drawing closer to Europe somehow damages Russian interests.
 
Dealing with this is a challenge for Ukrainian foreign policy. Whatever decision Ukraine ultimately makes on joining NATO and the European Union is a decision for Ukrainians. Regardless of their specific preferences regarding relations with NATO or the European Union, all Ukrainian political forces presumably want to protect the sovereignty of Ukrainian decision-making.
 
Faced with the likelihood of continuing Russian pressure against Ukraine’s pro-European course, what should Kyiv do?
 
[1] First and foremost, it is not the time for a divided government. President Viktor Yushchenko and Prime Minister Yulia Tymoshenko must end their infighting and together pursue a coherent policy. The government should also talk to the Party of Regions. Leaders of that party may one day be back in power. They should share the government’s interest in protecting Ukraine’s right to set its own foreign-policy course.
 
[2] Second, the government needs to make a real education effort on NATO and the advantages and disadvantages of membership for Ukraine. Based on an understanding of what NATO is today — a very different organization from it was during the Cold War — and what it can offer Ukraine, the Ukrainian people can decide what is in their country’s interest.
 
If Ukrainians continue to oppose membership, the leadership should draw the appropriate conclusion. NATO will not take in a country if the population disagrees. If, on the other hand, better understanding leads to growing public support for NATO, that will strengthen the government’s hand.
 
[3] Third, the government should reduce vulnerabilities to Russian pressure. This means paying energy debts on time, so that Moscow has no pretext for reducing the flow of gas. It means energy conservation and developing domestic gas and oil resources in order to enhance Ukraine’s energy security. And it means managing the gas-transit system in an open and transparent manner.
 
A Ukraine that strengthens its own energy-security situation and serves as a reliable and transparent transporter of energy to Europe will reduce its exposure to Russian energy pressures and can become an indispensable part of Europe’s energy future.
 
[4] Fourth, Russia has exploited the breakaway regions of South Ossetia and Abkhazia to destabilize Georgia. While the Georgian and Ukrainian situations are different, the Ukrainian government should keep a close watch to make sure Russia does not use the language or ethnic issues to create pressure points, especially in Crimea. One potential pressure point is the Black Sea Fleet.
 
Ukraine has the right, as a sovereign country, to insist on the fleet’s departure when the current basing agreement lapses in 2017 and to address with Moscow the activities of warships operating from Ukrainian ports. But perhaps now may not be the time to try to accelerate negotiations on the fleet’s departure. Ukraine can be pro-European and still try to maintain good relations with Russia.
 
Russia is playing a serious game with regard to the former Soviet space. Kyiv needs to respond with equal seriousness. A serious Ukrainian response — a coherent government, growing public support for a pro-European course, and addressing vulnerabilities in the Ukraine-Russia relationship — will strengthen Ukraine’s ability to withstand Russian pressure. It likewise will have a positive effect on how the West and Euro-Atlantic institutions view Ukraine and its pro-European course.
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NOTE: Steven Pifer, who served as U.S. ambassador to Ukraine from 1998 to 2000, is a visiting fellow at the Brookings Institution. Pifer also serves as a Senior Advisor to the U.S.-Ukraine Business Council (USUBC). The views expressed in this commentary are the author’s own and do not necessarily reflect those of RFE/RL or USUBC.  
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2. IS UKRAINE NEXT? GEORGIAN WAR EXACERBATES RUSSIA-UKRAINE RELATIONS

 
By Richard Weitz, Senior Fellow, Hudson Institute
World Politics Review contributing editor
World Politics Review Exclusive, Institute of World Politics
Washington, D.C., Friday, August 15, 2008

The War in Georgia has seriously exacerbated relations between Russia and Ukraine’s pro-Western government. On Aug. 12, Ukrainian President Victor Yushchenko joined the leaders of four other former Soviet states in Tbilisi to show solidarity with Georgia and its embattled president, Mikheil Saakashvili.

 
Yushchenko told the crowd that had assembled in Tbilisi’s central square: “You will never be left alone! . . . We have come to reaffirm your sovereignty, your independence, your territorial integrity. These are our values. Independent Georgia is and independent Georgia will always be!”

The following day, President Yushchenko boldly imposed severe restrictions on the movement of Russian military units in Ukraine. Specifically, he directed that Russian warships, warplanes, or other military units give 72 hours’ notice before moving within Ukrainian territory.

 
The order also applies to ships of the Russian Black Sea Fleet seeking to reenter their home base at Sevastopol. The Russian Foreign Ministry attacked the measures as a “serious, new anti-Russian step.”

Ukrainian officials claimed that the restrictions were not a direct result of the Russian military intervention in Georgia. Instead, they maintain that they had long sought to regulate more effectively Russian operations at the Sevastopol base, but that Moscow had repeatedly delayed commencing talks on the issue by arguing that it had no plan to employ the Black Sea Fleet in foreign military operations.

Nevertheless, the Ukrainian Foreign Ministry had stated at the onset of the war that they would not necessarily allow Russian warships to return to Sevastopol if they supported military operations against Georgia. “We have information confirmed by our specialists that several vessels of the Black Sea Fleet left Sevastopol and either made their way or were making their way toward the territory of Georgia,”

 
Ukraine Foreign Minister Volodymyr Ohryzko explained while in Georgia on Aug. 10. “Obviously, if this is confirmed we will have to reconsider the conditions under which these vessels would be able to be stationed on the territory of Ukraine.”

On Aug. 13, moreover, the Ukrainian Security Council issued a statement declaring that the presence of foreign warships in its waters “poses a potential threat to Ukraine’s national security, particularly if parts of Russia’s Black Sea Fleet are used against third countries.” The Ukrainian government has long insisted it will not renew Russia’s lease regarding Sevastopol when it expires on May 28, 2017.

For their part, Russian officials denounced the Ukrainian government for siding with Saakashvili, who Moscow holds responsible for starting the war and committing war crimes against Russian citizens in South Ossetia.

 
After the Georgian War began, Sergei Shoigu, Russia’s minister for emergency situations, expressed indignation that, “One week before these events, we send a column of humanitarian aid to Ukraine to help flood victims and the next we find they’re offering military aid, arms for the destruction of civilians.”
 
One month prior to the invasion, Ukrainian troops participated in a large, multinational military exercise in Georgia, “Immediate Response 2008” which also involved Azeri, Armenian and American soldiers.

After the war ended in an overwhelming Russian military victory, former Georgian President Eduard Shevardnadze, who as the last Soviet foreign minister helped dismantle the Soviet Union — a development that Putin called the “greatest geopolitical catastrophe” of the 20th century — warned that “Ukraine most likely'” would be the next country to experience increased Russian military pressure to abandon foreign and defense policies opposed by Moscow.

There are certainly many disturbing parallels in the situations Ukraine and Georgia find themselves with respect to Moscow. Pro-Western governments came to power following popular revolutions in both countries — in Georgia in 2003 and Ukraine in 2004. Along with Georgia, the Ukrainian government is seeking to join NATO.

 
At this April’s NATO summit in Bucharest, the alliance’s communiqué said that both countries “will become NATO members” eventually. The Georgian and Ukrainian governments also have collaborated to pursue energy transit routes linking the Caspian Sea to Europe that bypass Russia.

Unfortunately, Ukraine shares some of Georgia’s vulnerabilities as well. The Ukrainian region of Crimea has a majority Russian-speaking population. Some of its members would like to join Russia. The peninsula also hosts an important naval base that Russia does not want to relinquish.

 
The Kremlin might be able to instigate a pro-Russian uprising in the Crimea in which the insurgents, following the South Ossetian precedent, would appeal for Russian military intervention to protect them from Kiev.

Various Russian leaders have suggested that, if Ukraine actually joins NATO or attempts to expel the Russian Black Sea Fleet from Sevastopol, then Russia might annex the Crimea. After the Bucharest summit, Putin told a news conference that, “The appearance on our borders of a powerful military bloc . . . will be considered by Russia as a direct threat to our country’s security.”

 
Army Gen. Yury Baluyevsky, chief of the Russian General Staff, said that the entry of Ukraine or Georgia into NATO would lead Moscow to “undoubtedly take measures to ensure its security near the state border. These will be both military and other measures.”
 
Foreign Minister Sergei Lavrov likewise said Moscow “will do everything possible to prevent the accession of Ukraine and Georgia to NATO.” These statements appear aimed at stoking tensions with Ukraine to exacerbate the country’s internal differences and reinforce West European reluctance to allow Ukrainian entry into NATO.

Nevertheless, there are certain major differences between Georgia and Ukraine. First, the Ukrainian armed forces are much stronger than those of Georgia. Whereas Georgia’s prewar military had approximately 37,000 soldiers under arms, the Ukrainian military numbers over 200,000.

 
The Russian armed forces is still five times larger, but would find a war with Ukraine, with a population — which, though divided about NATO membership, would presumably rally to defend Ukraine’s territorial integrity — some 10 times larger than that of Georgia, a much greater challenge.

In addition, the United States and some other NATO countries have belatedly sought to reinforce their political-military position in the former Soviet bloc. The Bush administration appears to have accepted Saakashvili’s warning that the weak U.S. response to the Russian intervention was creating a situation in which “America is losing the whole region” to Russia.

After days of supporting the Georgian position with nothing but rhetoric, President Bush announced on Aug. 13 that the U.S. military would conduct a relief operation in Georgia. Whatever humanitarian assistance it might provide the Georgian people would pale in significance to the deployment’s symbolic importance as reaffirming Washington’s continuing role and interests in Russia’s neighborhood.

The announcement that NATO would hold a special meeting on the conflict, as well as the long-awaited consummation of a Polish-American deal on basing U.S. missile interceptors in Poland, also signaled that Washington and some of its allies were now determined to shore up their presence in the region to dissuade further Russian predations.

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LINK: http://www.worldpoliticsreview.com/article.aspx?id=2571
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3.  LIMITED LEVERAGE: EURASIA AND THE WEST

 
OP-ED: William Horton Beebe-Center
President, Eurasia Foundation, Washington, D.C.
International Herald Tribune (IHT), Paris, France, Friday, August 15, 2008
WASHINGTON: Even before the dust settles on the humanitarian tragedy unfolding today in South Ossetia and the full extent of the damage is known, one essential truth has emerged: The Caucasus region, Russia and indeed all the nations that once comprised the Soviet Union are of crucial strategic interest to the United States.
 
Witness the spike in oil prices within hours of the outbreak of hostilities, concerns about oil pipeline safety, weapons proliferation, and the fact that both U.S. presidential candidates devoted valuable campaign time to this foreign policy issue.
Despite the region’s importance, the current crisis has demonstrated that the United States and Europe have disturbingly limited diplomatic leverage in the Eurasia region.
Less than a week after Russia and Georgia started fighting, European and American officials have actively begun shuttle diplomacy between Moscow and Tbilisi and the results so far are positive but inconclusive. The fact remains that similar initiatives in the past failed to prevent the outbreak of hostilities, much less resolve the underlying conflict, and it is far from certain that they will work any better this time.
This diplomacy deficit has many causes – including conflicting economic and energy interests in the West, inconsistent policies of multilateral organizations and regressive politics in many former Soviet states – but a major cause is the limited investment of time and money in the region by many Western nations since 2001.
 
The United States and European governments have neglected the quotidian work of formal diplomatic relations as well as the informal connections that constitute civil society. Unglamorous but essential, these formal and informal relations are the ties that bind, especially when it comes to a crisis like the one we faced this week in Georgia.
Preoccupied with other conflicts and increased demands on the Treasury, the U.S. government in particular has reduced its foreign assistance to the region each year for the last seven years, so that today financial support for engagement between citizens and institutions in America and their counterparts in the Eurasia region is one-half what it was in 2000.
Projects ranging from the improvement of local governments to small business development to international education exchanges – activities that not only help build prosperity and stability in the region, but also improve the environment in which economic and diplomatic relations occur – are put at risk by the sharp reduction in government financing.
 
This in a region of 12 rapidly developing countries – six of which are secular Muslim nations – all of which are essential to managing some of the most serious international challenges we face, from nuclear proliferation to energy security to labor migration.
There is considerable political will today in the United States and Europe to do something to contain the current crisis in Georgia and prevent the outbreak of new ones in the many hotspots in the Eurasia region.
 
As leaders apply themselves to the deferred maintenance on formal relations with the countries of Eurasia, they should not overlook the importance of strengthening international engagement at the citizen level, the soft power that, if stewarded properly, can help prevent conflict and help resolve conflicts when they arise.
When the dust settles on the current crisis in the Caucasus, debate over what precisely went wrong will no doubt continue for some time. One point on which all should be able to agree is that engagement at the citizen level must be fostered, and financed, to help avert future crises like the one in Georgia and to extend the diplomatic reach of the governments concerned when they do erupt.
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4. UKRAINIAN ENVOY SAYS GEORGIA A ‘LESSON FOR UKRAINE’
Interview with Ukrainian Deputy Prime Minister Hryhoriy Nemyria

 
By Maryana Drach, Kyiv, Ukraine
Radio Free Europe/Radio Liberty (RFE/RL)
Prague, Czech Republic, Friday, August 15, 2008
 
A Ukrainian government official has called on the European Union to help Kyiv avoid a “security vacuum” like the one that led to the current conflict between Russia and Georgia.
 
“For a very long time, it’s been clear that there was a security vacuum in the South Caucasus,” Deputy Prime Minister Hryhoriy Nemyria said in an interview with RFE/RL’s Ukraine Service. “It’s a lesson for Ukraine. Ukraine is the largest post-Soviet country after Russia, and one that shares a long border with the European Union. It can’t be left in a similar vacuum.”
 
Nemyria was speaking in Kyiv following three days in Tbilisi meeting with Georgian officials and coordinating humanitarian aid shipments to the country.
 
Ukraine, a recent ally of Georgia since both countries’ “colored revolutions” brought pro-democratic leaders to office, has been staunch in its support of Tbilisi since the start of Georgia’s armed conflict with Russia over the breakaway republic of South Ossetia.
 
Ukrainian President Viktor Yushchenko joined a delegation of five Eastern European leaders who traveled to the Georgia in a show of solidarity with Georgian leader Mikheil Saakashvili, and Ukraine has warned that Russia would face restrictions on if its Black Sea Fleet, which is based in the Ukrainian port city of Sevastopol, was used in any aggressive actions against Georgia.
 
The posture has angered Russia, which often seems to regard both Ukraine and Georgia as wayward neighbors that should be brought back into Moscow’s orbit. Kyiv and Tbilisi have actively sought membership in the NATO military alliance, an aim that infuriates the Kremlin and is believed to have played a significant role in Russia’s military advance on Georgia.
 
Nemyria acknowledged the possibility that Russia might next turn its focus to Ukraine. “I think old habits die hard,” he said of Russia. “What we can see in this overreaction is that there is a risk [for Ukraine]. And of course, Ukraine has a frozen conflict on its own border” — a reference to Moldova’s breakaway region of Transdniester, which like South Ossetia and a third separatist region, Abkhazia, enjoys Moscow’s strong support.
 
“We want to avoid a security vacuum that will be prone to a defrosting of such a frozen conflict,” he said. “European leaders must now realize that the South Ossetia conflict has opened such a vacuum throughout the entire area that Moscow sometimes calls its ‘near abroad.’ We welcome the EU’s effort — led by France, and supported by Germany and others — to be more visible as an actor in the region.”
 
Nemyria dismissed speculation that Prime Minister Yulia Tymoshenko — who has been notably silent on the current Georgia-Russia conflict — is hoping to secure Russia’s support for a future presidential bid.
 
“The government of Ukraine adopted a clear position, the centerpiece of which was the recognition and support of the sovereignty and territorial integrity of Georgia,” he said. “The president of Ukraine took the lead in voicing the official Ukrainian position, and we felt no need to repeat it. Those accusations against the prime minister are misplaced.”
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http://www.rferl.org:80/Content/Ukrainian_Envoy_Says_Georgia_A_Lesson_For_Ukraine/1191452.html
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U.S.-Ukraine Business Council (USUBC): http://www.usubc.org
Promoting U.S.-Ukraine business relations since 1995.
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5.  COULD UKRAINE BECOMES RUSSIA’S NEXT TARGET?

 
By Peter Fedynsky, Moscow, VOA Correspondent
Voice of America (VOA), Washington, D.C., Friday, August 15, 2008
 
The former Soviet republics of Georgia and Ukraine are allies engaged in similar attempts to establish democratic rule, to join NATO and realign themselves with the West, much to the displeasure of Russia.
 
During the conflict in Georgia, Ukrainian President Viktor Yushchenko prohibited ships from the Russian Black Sea Fleet that are engaged off the
Georgian coast from returning to port on Ukraine’s Crimean peninsula without Kyiv’s official permission. VOA correspondent Peter Fedynsky examines how the Kremlin may react to Ukraine’s pro-Georgian and pro-Western position.
 
Ukraine’s current President, Viktor Yushchenko flew to Tbilisi to join his Georgian friend and fellow head of state, Mikheil Saakashvili, in the school’s re-dedication ceremony.  Both men rode to power following mass pro-democracy protests that came to be known as colored revolutions. Georgia’s was the Rose Revolution and Ukraine’s was the Orange. Accordingly, the Hrushevsky School was painted orange.
 
Moscow has not disguised its displeasure with the colored revolutions and refuses to deal with Mr. Saakashvili. On Tuesday, President Yushchenko again
flew to Tbilisi, accompanied this time by the presidents of Poland, Latvia, Lithuania and Estonia.
 
Mr. Yushchenko says the task of the presidential mission is to show that Georgia is not alone, that in this age the power of reason should not be replaced by the iron fist.
 
The Ukrainian leader says the five presidents came to Georgia to prohibit the of killing people and the execution of the country.
 
Ukrainian military analyst Oleksiy Melnyk, of the Razumkov Center think tank in Kyiv, told VOA the Polish, Ukrainian and Baltic leaders do not
necessarily agree with all of the actions undertaken in the conflict by Georgian leadership, but notes they risked their own physical security to send a signal to Moscow.
 
Melnyk says Moscow should see the presidential show of solidarity in Tbilisi as a serious signal that Russian foreign policy of establishing control over
former Soviet republics and its neighborhood achieves a totally opposite effect. The analyst says Russia is surrounding itself with nations that are, at a minimum, not friendly and perhaps even hostile toward Moscow.
 
Oleksiy Melnyk says Russian military actions in Georgia could lead the majority of Ukrainians who now oppose to their country’s NATO membership to
reassess their opinions about the respective security threats posed by the Western alliance and Russia.
 
The chairman of the European Integration Forum in Tbilisi, Soso Tsiskarishvili, agrees with Melnyk’s assessment, but notes Ukraine is better prepared to meets NATO’s democratic standards for membership than Georgia.
 
Tsiskarishvili says Ukraine’s two recent parliamentary elections and Georgia’s presidential and parliamentary contests differ from one another like heaven and earth in terms of democratic and transparent procedures.
 
But Russian military analyst Pavel Felgenhauer cautions that Ukraine could be Russia’s next target as part of what he says is a grand Kremlin plan for the partial restoration of Russian greatness.
 
“Russia right now wants at least half of Ukraine to be annexed,” said Felgenhauer. “Vladimir Putin talked about that rather openly at the NATO summit in Bucharest, Romania in April. Ukraine will disintegrate into two halves, and we want the eastern half, including of course, first and foremost, Crimea.”
 
Felgenhauer says Ukraine’s overwhelming vote for independence in 1991, which included a majority of Crimeans, means nothing to Kremlin rulers, who the analyst says do not respect the will of even their own people.
 
Nonetheless, the analyst says Russia is tied down in Georgia and will not make any immediate military moves against Ukraine. He notes, however, that
Russia’s Black Sea Fleet, which leases naval facilities in Sevastopol in Crimea, will likely steam back to port in defiance of a Ukrainian presidential order that it must first ask for Ukrainian permission.
 
“If Russia openly challenges Ukrainian sovereignty, I think that Ukraine will then turn to the West and say, ‘you know guys, they’re challenging our
sovereignty with their fleet.’ And this will happen without any kind of use of arms, or anything made in anger. Ukraine right now, apparently wants to
make the threat to its sovereignty obvious to outside powers,” said Felgenhauer.
 
Felgenhauer says Moscow’s vision of the world is that of Prime Minister Vladimir Putin; one in which Russia and Washington share spheres of influence. The analyst notes that Russia withdrew its bases from Cuba and Vietnam, expecting the United States to stay away from what Moscow thought was to be its sphere of influence. He says Moscow felt betrayed when Washington began supporting colored revolutions among Russia’s neighbors.
 
But Soso Tsiskarishvili points to this week’s visit to Tbilisi by presidents of five countries that border Russia as a sign that they do not trust the Kremlin.
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6.  AFTER RUSSIA’S INVASION OF GEORGIA, WHAT NOW FOR THE WEST?

At least for now, the smoke seems to be clearing from the Georgian battlefield.
But the extent of the wreckage reaches far beyond that small country.

COMMENTARY: By John R Bolton

Former US Permanent Representative to the United Nations
Telegraph, London, UK, Friday, August 15, 2008
Russia’s invasion across an internationally recognised border, its thrashing of the Georgian military, and its smug satisfaction in humbling one of its former fiefdoms represents only the visible damage.
As bad as the bloodying of Georgia is, the broader consequences are worse. The United States fiddled while Georgia burned, not even reaching the right rhetorical level in its public statements until three days after the Russian invasion began, and not, at least to date, matching its rhetoric with anything even approximating decisive action. This pattern is the very definition of a paper tiger.
 
Sending Secretary of State Condeleezza Rice to Tbilisi is touching, but hardly reassuring; dispatching humanitarian assistance is nothing more than we would have done if Georgia had been hit by a natural rather than a man-made disaster.
The European Union took the lead in diplomacy, with results approaching Neville Chamberlain’s moment in the spotlight at Munich: a ceasefire that failed to mention Georgia’s territorial integrity, and that all but gave Russia permission to continue its military operations as a “peacekeeping” force anywhere in Georgia.
 
More troubling, over the long term, was that the EU saw its task as being mediator – its favourite role in the world – between Georgia and Russia, rather than an advocate for the victim of aggression.
Even this dismal performance was enough to relegate Nato to an entirely backstage role, while Russian tanks and planes slammed into a “faraway country”, as Chamberlain once observed so thoughtfully. In New York, paralysed by the prospect of a Russian veto, the UN Security Council, that Temple of the High-Minded, was as useless as it was during the Cold War.
 
In fairness to Russia, it at least still seems to understand how to exercise power in the Council, which some other Permanent Members often appear to have forgotten.
The West, collectively, failed in this crisis. Georgia wasted its dime making that famous 3am telephone call to the White House, the one Hillary Clinton referred to in a campaign ad questioning Barack Obama’s fitness for the Presidency. Moreover, the blood on the Bear’s claws did not go unobserved in other states that were once part of the Soviet Union.
 
Russia demonstrated unambiguously that it could have marched directly to Tbilisi and installed a puppet government before any Western leader was able to turn away from the Olympic Games. It could, presumably, do the same to them.
Fear was one reaction Russia wanted to provoke, and fear it has achieved, not just in the “Near Abroad” but in the capitals of Western Europe as well. But its main objective was hegemony, a hegemony it demonstrated by pledging to reconstruct Tskhinvali, the capital of its once and no-longer-future possession, South Ossetia. The contrast is stark: a real demonstration of using sticks and carrots, the kind that American and European diplomats only talk about.
 
Moreover, Russia is now within an eyelash of dominating the Baku-Tbilisi-Ceyhan pipeline, the only route out of the Caspian Sea region not now controlled by either Russia or Iran. Losing this would be dramatically unhelpful if we hope for continued reductions in global petroleum prices, and energy independence from unfriendly, or potentially unfriendly, states.
It profits us little to blame Georgia for “provoking” the Russian attack. Nor is it becoming of the United States to have anonymous officials from its State Department telling reporters, as they did earlier this week, that they had warned Georgia not to provoke Russia.
 
This confrontation is not about who violated the Marquess of Queensbury rules in South Ossetia, where ethnic violence has been a fact of life since the break-up of the Soviet Union on December 31, 1991 – and, indeed, long before.
 
Instead, we are facing the much larger issue of how Russia plans to behave in international affairs for decades to come. Whether Mikhail Saakashvili “provoked” the Russians on August 8, or September 8, or whenever, this rape was well-planned and clearly coming, given Georgia’s manifest unwillingness to be “Finlandized” – the Cold War term for effectively losing your foreign-policy independence.
So, as an earlier Vladimir liked to say, “What is to be done?” There are three key focal points for restoring our credibility here in America: drawing a clear line for Russia; getting Europe’s attention; and checking our own intestinal fortitude.
 
Whether history reflects Russia’s Olympic invasion as the first step toward recreating its empire depends – critically – on whether the Bush Administration can resurrect its once-strong will in its waning days, and on what US voters will do in the election in November. Europe also has a vital role – by which I mean the real Europe, its nation states, not the bureaucracies and endless councils in Brussels.
[1] First, Russia has made it clear that it will not accept a vacuum between its borders and the boundary line of Nato membership. Since the Warsaw Pact and the Soviet Union collapsed, this has been a central question affecting successive Nato membership decisions, with the fear that nations in the “gap” between Nato and Russia would actually be more at risk of Russian aggression than if they joined Nato.
 
The potential for instability and confrontation was evident.
Europe’s rejection this spring of President Bush’s proposal to start Ukraine and Georgia towards Nato membership was the real provocation to Russia, because it exposed Western weakness and timidity. As long as that perception exists in Moscow, the risk to other former Soviet territories – and in precarious regions such as the Middle East – will remain.
Obviously, not all former Soviet states are as critical to Nato as Ukraine, because of its size and strategic location, or Georgia, because of its importance to our access to the Caspian Basin’s oil and natural gas reserves.
 
Moreover, not all of them meet fundamental Nato prerequisites. But we must now review our relationship with all of them. This, in effect, Nato failed to do after the Orange and Rose Revolutions, leaving us in our present untenable position.
By its actions in Georgia, Russia has made clear that its long-range objective is to fill that “gap” if we do not. That, as Western leaders like to say, is “unacceptable”. Accordingly, we should have a foreign-minister-level meeting of Nato to reverse the spring capitulation at Bucharest, and to decide that Georgia and Ukraine will be Nato’s next members.
 
By drawing the line clearly, we are not provoking Russia, but doing just the opposite: letting them know that aggressive behaviour will result in costs that they will not want to bear, thus stabilising a critical seam between Russia and the West. In effect, we have already done this successfully with Estonia, Latvia and Lithuania.
[2] Second, the United States needs some straight talk with our friends in Europe, which ideally should have taken place long before the assault on Georgia. To be sure, American inaction gave French President Sarkozy and the EU the chance to seize the diplomatic initiative.
 
However, Russia did not invade Georgia with diplomats or roubles, but with tanks. This is a security threat, and the proper forum for discussing security threats on the border of a Nato member – yes, Europe, this means Turkey – is Nato.
Saying this may cause angst in Europe’s capitals, but now is the time to find out if Nato can withstand a potential renewed confrontation with Moscow, or whether Europe will cause Nato to wilt. Far better to discover this sooner rather than later, when the stakes may be considerably higher. If there were ever a moment since the fall of the Berlin Wall when Europe should be worried, this is it.
 
If Europeans are not willing to engage through Nato, that tells us everything we need to know about the true state of health of what is, after all, supposedly a “North Atlantic” alliance.
[3] Finally, the most important step will take place right here in the United States. With a Presidential election on November 4, Americans have an opportunity to take our own national pulse, given the widely differing reactions to Russia’s blitzkrieg from Senator McCain and (at least initially) Senator Obama. First reactions, before the campaigns’ pollsters and consultants get involved, are always the best indicators of a candidate’s real views.
 
McCain at once grasped the larger, geostrategic significance of Russia’s attack, and the need for a strong response, whereas Obama at first sounded as timorous and tentative as the Bush Administration. Ironically, Obama later moved closer to McCain’s more robust approach, followed only belatedly by Bush.
In any event, let us have a full general election debate over the implications of Russia’s march through Georgia. Even before this incident, McCain had suggested expelling Russia from the G8; others have proposed blocking Russia’s application to join the World Trade Organisation or imposing economic sanctions as long as Russian troops remain in Georgia.
 
Obama has assiduously avoided specifics in foreign policy – other than withdrawing speedily from Iraq – but that luxury should no longer be available to him. We need to know if Obama’s reprise of George McGovern’s 1972 campaign theme, “Come home, America”, is really what our voters want, or if we remain willing to persevere in difficult circumstances, as McCain has consistently advocated. Querulous Europe should hope, for its own sake, that America makes the latter choice.
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NOTE: John R Bolton is the former US Permanent Representative to the United Nations. Currently a Senior Fellow at the American Enterprise Institute in Washington, he is the author of the recently published “Surrender Is Not an Option: Defending America at the United Nations” (Simon & Schuster/Threshold Editions. 
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7.  FOREIGN DIRECT INVESTMENT (FDI) RISKS BECOMING A CASUALTY OF WAR
“We think that Ukraine may be the next investment casualty…”

 
By Rachel Morajee in London, Financial Times
London, UK, Friday, August 15 2008
Within hours of the ceasefire in Georgia, Heidelberg Cement reopened its cement factories near Tblisi. The German company’s three cement plants supply about 60 per cent of the country’s market and are one of Georgia’s biggest foreign investments.
 
They have flourished thanks to a construction boom in Georgia and neighbouring Azerbaijan and could be set to cash in on reconstruction. Brigitte Fickel, a spokeswoman for Heidelberg Cement, said a plant warehouse was damaged during Russian air raids but production had not been affected.
Damage to Georgia’s civilian and business infrastructure has been minimal, but the brief conflict may have done serious harm to the outlook for future foreign investment not just here but in other former Soviet states that clash with Moscow.
“Georgia’s economic growth will be much reduced and foreign investment that has been so important to Georgia’s fundamentals could be revised,” says Olivier Descamps, a managing director at the European Bank for Reconstruction and Development. “We cannot say Georgia’s economy has been physically damaged. But there is the matter of risk and the impairment of confidence.”
Ratings agencies Fitch and Standard & Poor’s both downgraded Georgia after fighting broke out and warned that the end of combat operations would not shield the country from the longer-term economic impact.
FDI flows are crucial to financing Georgia’s current account deficit and have been a key driver of growth.
Foreign investment stood at 19.8 per cent of GDP in 2007 compared with 13.9 per cent in 2006, according to the Tbilisi government. Georgia attracted more than $2bn (Euro1.3bn, lbs1.06bn) in FDI last year mainly in banking, real estate, mining and agriculture.
The conflict will have a macroeconomic impact in the short to medium term but analysts say there is unlikely to be a clear-cut resolution to the conflict between Georgia and Russia and political uncertainty could cloud investment prospects.
While established projects will not be affected by the conflict, new investors are likely to shy away from Georgia and other countries such as Ukraine, which are seen as standing in Russia’s line of fire.
“We think that Ukraine may be the next investment casualty because it was asked in a veiled fashion if it wants to join Nato and Russia’s actions hark back to the cold war and the desire to retain spheres of influence on its borders,” said Elizabeth Stephens, head of credit and political risk analysis at Jardine Lloyd Thompson.
In Ukraine, FDI has also been a significant part of growth. Net FDI stood at 7 per cent of GDP in 2007 up from 5.2 per cent in 2006, according to the Kiev government.
The Baltic states have tighter trade links with Russia and export large amounts of food as well as being a corridor for Russian exports to western Europe, so are likely to be less affected by the conflict in Georgia, analysts say.
Estonian exports to Russia doubled between 2005 and 2007 and as the share of exports flowing east rose from 6.5 per cent to 8.9 per cent over the period.
“I don’t think there will be a knock-on effect to the Baltic states. They have had tense relations with Russia for some time but that is unlikely to weigh heavily on investors decisions,” said Edward Parker at Fitch Ratings.
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8.  POSSIBLE IMPACT OF THE RUSSIA-GEORGIA CONFLICT

ON UKRAINE AND OTHER CIS COUNTRIES
 
SigmaBleyzer, The Bleyzer Foundation
Kyiv, Ukraine, Tuesday, August 12, 2008
 
The current military confrontation between Georgia and Russia is the result of a prolonged dispute between these two countries over the future of South Ossetia and Abkhazia. Georgia’s desire to join NATO, against Russia’s wishes, also played a role. 
 
Many observers also believe that Russia’s strong use of power against Georgia can be seen as an attempt to intimidate other countries – particularly Ukraine, which declared its desire to join NATO and seek EU integration, and Moldova with its ongoing conflict in Transnistria (Pridnestrovie).
 
Although it is very unlikely that the “Georgian scenario” can play out in Ukraine, the situation may become more critical closer to 2017, when the lease agreement for Russia’s fleet in Crimea terminates.  Many political forces in Ukraine believe that this agreement should not be renewed, a position that would antagonize Russia.
 
CIS countries have achieved mixed performance in terms of building modern democratic institutions. Aside from the Baltic States, Ukraine and Georgia are the only two countries in the region considered to be fairly free and democratic states by most international observers. Almost twenty years after the break-up of the Soviet Union, less than one fifth of the 290 million people living in the FSU enjoy healthy democracies. 
 
Since Ukraine is a rapidly developing new democracy surrounded by several non-democratic countries, including Russia, some Western countries may decide to support the provision of additional safeguards for Ukraine. This might include both fast-track negotiations for NATO membership and a clearer prospect for EU membership.
 
However, other European countries with a higher dependency on Russian energy resources may be more concerned with ensuring their own energy supply and may not want to initiate any action that could annoy Russia.
 
A Brief Summary of the Georgian Economy
 
Over the last five years, annual GDP growth in Georgia has been around 10% yoy, with an impressive 12% yoy growth in 2007. This growth was mostly driven by net inflows of foreign direct investments (FDI), which can be attributed to the unprecedented improvement in the business environment. Indeed, net FDI grew from 8% of GDP in 2003 to 15% of GDP in 2007.
 
In the World Bank’s Ease of Doing Business Ranking for 2008, Georgia is placed in 18th position worldwide (compared to 106th for Russia). Furthermore, Georgia was listed among the top 10 reformers since it managed to improve investor protection and visibly reduced the cost of starting a business. Still, GDP per capita, which stood at $2,300 in 2007, is three times lower than in Kazakhstan, four times lower than in Russia and 25% lower than in Ukraine.
 
Georgia runs a huge deficit in its international trade in goods, which surged from around 15% of GDP in 2003 to nearly 30% of GDP in 2007. Exports represent only 20% of GDP.  Nevertheless, net FDI inflows financed 77% of the $2 billion current account gap in 2007. With large capital inflows, the foreign exchange reserves of the central bank doubled to $1.6 billion in 2007.
 
Georgia’s trade diversification by commodity is typical for a transition economy with limited deposits of energy resources. In particular, beverages (wines and bottled water), metal ores and transportation equipment are staple export commodities, while petroleum products, cereals, machinery and manufacturing goods are the main types of imported goods.
 
The geographical orientation of Georgia’s foreign trade is towards the CIS economies (which account for 37% of Georgia’s international trade). The EU accounts for 25% of Georgia’s trade, while the US represents 13%. 
 
Within the CIS countries, Azerbaijan (which supplies petroleum products to Georgia) and Armenia remain the main CIS markets for Georgian goods, accounting for one fifth of all exports. Georgia ships only 4.3% of its exports to Russia (compared to 24% in 2001), as Russia’s embargo on imports of Georgian goods virtually closed access to the Russian market. 
 
The recent military developments in Georgia may have significant effects on the quality of the investment environment in Georgia, which, taking into account the country’s dependence on FDI, may result in a material slowdown of the economy and a collapse of its currency.
 
Impact of Georgia’s Conflict on the Economy of Ukraine and Kazakhstan
 
The economic impact of the Russian-Georgian conflict on Ukraine and Kazakhstan is likely to be minimal as the economic links between these countries are quite modest.  International trade and capital transactions with Georgia constitute very small shares of the total transactions for these two countries.
 
Ukraine’s merchandise exports to Georgia represent only 1% of Ukraine’s total exports.  About 50% of these exports are in iron and steel, food products, and machinery and equipment.  Ukraine’s imports from Georgia are also negligible (0.2% of imports) and are mainly in wines and alcoholic beverages.  Trade in services is also small, at less that 1% of total Ukrainian trade.  Flows of capital, including FDI, are also less than 1% of the total flows of Ukraine.
 
Kazakhstan is in a similar situation, with the share of Kazakhstan’s international trade with Georgia at about 0.1% of Kazakhstan’s total trade figures.
 
Reaction of Ukraine’s top officials
 
On August 12th, President Yuschenko (accompanied by the Presidents of Poland and Lithuania) flew to Georgia with the intention of assisting in the peace talks. His visit to Georgia appears to be a diplomatic necessity to show support for a friendly nation rather than a way to facilitate an effective solution of this crisis. Other top Ukrainian officials have shown no (or rather weak) reaction to the conflict.
 
The absence of a comment or response from the Ukrainian Prime Minister may be explained by the fact that according to the Constitution of Ukraine, the President is responsible for shaping the foreign policy of the country.
 
So far, the Head of the Parliament has made some trivial comments on the superiority of a diplomatic resolution to this crisis. Moreover, taken into account that leading political groups in Ukraine have opposing views on the foreign policy of Ukraine (the main opposition is pro-Russian, while the President wishes to see Ukraine joining NATO and the EU) it would be rather difficult for the country to declare a clear position on the Russian-Georgian conflict.
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9.  FITCH SEES WORSE THREATS TO UKRAINE THAN RUSSIA ROW,
SERIES OF STRESSES IN UKRAINIAN ECONOMY
 
By Peter Apps, Reuters, London, UK, Friday August 15 2008
 
LONDON – Credit ratings agency Fitch does not yet see rising tension with Russia as a major threat to Ukraine’s creditworthiness, it said on Friday, but remains concerned about a series of stresses in the Ukrainian economy.
 
The aftermath of conflict between Georgia and Russia has seen a deepening row between Ukraine and its larger neighbour over the use of a Ukrainian port by Russia’s Black Sea Fleet, prompting investors to price its debt as riskier.
“It’s not one of our key worries for the rating at this stage,” Fitch director of emerging Europe sovereigns Andrew Colquhoun. “We are more worried about the current account deficit, rising external debt levels and inflation.”
He said that a small clash in the Black Sea that went no further might not have too great an impact on Ukraine’s current BB- rating with stable outlook.
“But if you had escalation or even if a small clash simply prompted capital flight then that would have a negative effect. Conflict would certainly be negative but that is not something we see as very likely at this stage.”
Ukraine’s hvrynia currency has been appreciating this year, but any sudden shift in sentiment that prompted currency weakening would threaten both inflation as well as the banking sector, with a lot of domestic private sector debt in dollars and therefore hard to repay in the event of a major currency move, he said.
He also warned Ukraine must do more to tackle inflation. “If inflation stays at these levels in quite high double figures then that would add to risks to the macroeconomy and possibly prompt negative ratings action,” Colquhoun said.
He said Fitch was also looking to the results of negotiations with Russian state gas giant Gazprom over the price of gas supplies to Ukraine, a process that may be impacted by worsening relations with Moscow. Ukraine currently receives cheap gas from its neighbour, but supplies were briefly cut off in early 2006 in another row.
“Negotiations with Gazprom have always been politicised,” he said. “But if the price of gas to Ukraine did suddenly increased to the same price for European gas exports (from Russia) the economy would struggle to cope.”
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10.  UKRAINE CREDIT DEFAULT SWAPS (CDS) WIDENS
ON WORSENING RUSSIA RELATIONS 
 
Peter Apps, Reuters, London, UK, Thu Aug 14, 2008
LONDON – The cost of insuring Ukrainian government debt in the credit default swaps market sharply increased on Thursday, with investors increasingly worried about worsening relations with Russia.

Ukrainian credit default swaps widened roughly 20 basis points to 437 on Thursday, compared to 401 last Friday. Investors are concerned both over ongoing domestic political worries and worsening relations with Russia over its conflict with Georgia.

“It’s a perfect storm for Ukraine at the moment,” said Commerzbank debt strategist Luis Costa. “The government has made it clear that it is on a collision course with Russia and there are other issues as well.”
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U.S.-Ukraine Business Council (USUBC) www.usubc.org.
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11.  RUSSIA’S WAR IS THE WEST’S CHALLENGE

 
OP-ED: By Mikheil Saakashvili, President of Georgia
The Washington Post, Washington, D.C.
Thursday, August 14, 2008; Page A17
TBILISI, Georgia — Russia’s invasion of Georgia strikes at the heart of Western values and our 21st-century system of security. If the international community allows Russia to crush our democratic, independent state, it will be giving carte blanche to authoritarian governments everywhere. Russia intends to destroy not just a country but an idea.
 
For too long, we all underestimated the ruthlessness of the regime in Moscow. Yesterday brought further evidence of its duplicity: Within 24 hours of Russia agreeing to a cease-fire, its forces were rampaging through Gori; blocking the port of Poti; sinking Georgian vessels; and — worst of all — brutally purging Georgian villages in South Ossetia, raping women and executing men.
The Russian leadership cannot be trusted — and this hard reality should guide the West’s response. Only Western peacekeepers can end the war.
Russia also seeks to destroy our economy and is bombing factories, ports and other vital sites. Accordingly, we need to establish a modern version of the Berlin Airlift; the United Nations, the United States, Canada and others are moving in this direction, for which we are deeply grateful.

As we consider what to do next, understanding Russia’s goals is critical. Moscow aims to satisfy its imperialist ambitions; to erase one of the few democratic, law-governed states in its vicinity; and, above all, to demolish the post-Cold War system of international relations in Europe. Russia is showing that it can do as it pleases.

The historical parallels are stark: Russia’s war on Georgia echoes events in Finland in 1939, Hungary in 1956 and Czechoslovakia in 1968. Perhaps this is why so many Eastern European countries, which suffered under Soviet occupation, have voiced their support for us.
Russia’s authoritarian leaders see us as a threat because Georgia is a free country whose people have elected to integrate into the Euro-Atlantic community. This offends Russia’s rulers. They do not want their nation or even its borders contaminated by democratic ideas.
Since our democratic government came to power after the 2003 Rose Revolution, Russia has used economic embargoes and closed borders to isolate us and has illegally deported thousands of Georgians in Russia. It has tried to destabilize us politically with the help of criminal oligarchs. It has tried to freeze us into submission by blowing up vital gas pipelines in midwinter.
When all that failed to shake the Georgian people’s resolve, Russia invaded.
Last week, Russia, using its separatist proxies, attacked several peaceful, Georgian-controlled villages in South Ossetia, killing innocent civilians and damaging infrastructure.
On Aug. 6, just hours after a senior Georgian official traveled to South Ossetia to attempt negotiations, a massive assault was launched on Georgian settlements. Even as we came under attack, I declared a unilateral cease-fire in hopes of avoiding escalation and announced our willingness to talk to the separatists in any format.
But the separatists and their Russian masters were deaf to our calls for peace. Our government then learned that columns of Russian tanks and troops had crossed Georgia’s sovereign borders. The thousands of troops, tanks and artillery amassed on our border are evidence of how long Russia had been planning this aggression.
Our government had no choice but to protect our country from invasion, secure our citizens and stop the bloodshed. For years, Georgia has been proposing 21st-century, European solutions for South Ossetia, including full autonomy guaranteed by the international community. Russia has responded with crude, 19th-century methods.
It is true that Russian power could overwhelm our small country — though even we did not anticipate the ferocity and scale of Moscow’s response. But we had to at least try to protect our people from the invading forces. Any democratic country would have done the same.
But facing this brutal invading army, whose violence was ripping Georgia apart, our government decided to withdraw from South Ossetia, declare a cease-fire and seek negotiations. Yet Moscow ignored our appeal for peace.
Our repeated attempts to contact senior Russian leaders were rebuffed. Russia’s foreign ministry even denied receiving our notice of cease-fire hours after it was officially — and very publicly — delivered. This was just one of many cynical ploys to deceive the world and justify further attacks.
This war threatens not only Georgia but security and liberty around the world. If the international community fails to take a resolute stand, it will have sounded the death knell for the spread of freedom and democracy everywhere.

Georgia’s only fault in this crisis is its wish to be an independent, free and democratic country. What would Western nations do if they were punished for the same aspiration?

I have staked my country’s fate on the West’s rhetoric about democracy and liberty. As Georgians come under attack, we must ask: If the West is not with us, who is it with? If the line is not drawn now, when will it be drawn? We cannot allow Georgia to become the first victim of a new world order as imagined by Moscow.
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http://www.washingtonpost.com/wp-dyn/content/article/2008/08/13/AR2008081303364_2.html?sid=ST2008081401253&s_pos=

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12.  WHY IS VLADIMIR PUTIN SO SCARED OF GEORGIA?

 
OP-ED: By Anne Applebaum, Author, Columnist
Telegraph, London, UK, Friday, August 8, 2008
‘It is a riddle, wrapped in a mystery, inside an enigma.” In recent days, this famous Churchillian pronouncement on Russia has echoed through many an analysis. In particular, Vladimir Putin – former Russian president, current Russian prime minister, the man still clearly in charge of the country – has been held up as a great puzzle. 
 
What he wants; why he has behaved so aggressively towards Georgia, a much weaker neighbour; why he seems so angry at the West; all of this is widely considered unfathomable.
But in fact, Putin’s mindset isn’t really all that hard to understand: Ever since he was first appointed prime minister by Boris Yeltsin in 1999, we’ve known perfectly well who he is.
After all, one of the first things he did after taking that job was to visit the Lubyanka, the former headquarters of the KGB and its most notorious jail, now the home of the FSB, Russia’s internal security services.
There – on the 82nd anniversary of the founding of the Cheka, Lenin’s secret police – he dedicated a plaque in memory of Yuri Andropov.
 
Andropov was director of the KGB for many years before briefly becoming, in 1982, general secretary of the Communist Party. Within Russia, however, he is best remembered for his theory about how to reform the Soviet Union: to put it bluntly, he believed that “order and discipline”, as enforced by the methods of the KGB – arrests of dissidents, imprisonment of corrupt officials, the cultivation of fear – would restore the sagging fortunes of the Soviet economy.
There was no nonsense about “perestroika” or “glasnost”, let alone joining Western institutions. All of that clearly appealed to Putin, a former secret policemen who first tried to join Andropov’s KGB at the tender age of 15.
This is not to say that Putin is Stalin, or even Andropov, or that Putin wants to bring back the Soviet Union. But it does mean that Putin, like most of the people around him, is steeped in the culture of the old KGB.
He has a deep belief in the power of the state to control the life of the nation: events cannot be allowed to just happen, they must be controlled and manipulated.
He has a deep, professional wariness of people who believe otherwise: At a very profound level, he does not believe that Russian citizens will make good political or economic choices if left to their own devices.
In practice, this means that he does not believe that markets can – or should be – genuinely open. He does not believe in unpredictable elections.
He does not believe that the modern equivalent of the Andropov-era dissidents – the small band of journalists and activists who continue to oppose centralised Kremlin rule – have anything important to say; on the contrary, he assumes, as did his KGB predecessors, that anyone not loudly supportive of the regime is a foreign spy.
At a rally in 2007, he declared that: “Unfortunately, there are still those people in our country who act like jackals at foreign embassies … who count on the support of foreign friends and foreign governments, but not on the support of their own people.”
This was a direct warning to Russia’s few remaining human rights and trade union activists, as they well understood. He continues to believe instead, as Soviet secret policemen did before him, that all important decisions should be made in Moscow by a small, unelected group of people who know how to resist these foreign conspiracies.
Given his world view, it’s not very surprising that Putin and his entourage have been so openly hostile, not only towards Georgia, but also towards Ukraine and Estonia, the post-Soviet countries that present the greatest contrast to his vision of Russia.
These, after all, are countries in which genuine elections have taken place – sometimes with the help of street demonstrations – and in which people who have not been picked by the ruling oligarchy can rise to power.
In some cases, they have also moved much farther along the path of genuine economic reform, and at least intend to create real market economies, in which people who have not been picked by the ruling oligarchy can set up businesses and make money.
It is not mere nationalism that makes leaders such as the Georgian president, Mikheil Saakashvili, or the Ukrainian president, Viktor Yuschenko, try to escape the political influence of Russia and to move closer to the West: it is also the desire to make their countries more open, more liberal, more authentically democratic.
In that sense, the war between Georgia and Russia really is ideological, and not merely national in origin. Of course Russia retains “great power” instincts, and of course some of the disdain the Russian media shows for Saakashvili represents nothing more than a large country’s dislike of defiance from a small one. But the Russian leadership’s dislike of Georgia also reflects hatred – and fear – of the kind of democracy that Georgians have chosen.
Georgia’s “Rose Revolution”, like Ukraine’s “Orange Revolution”, is precisely the kind of popular uprising that the Russian elite fears most deeply. Putin’s paranoia about Georgia is – unlikely though it may sound – at base a paranoia about Russia itself.
What this means, of course, is that any Western support for the Georgian cause will only increase Russian paranoia. And yet, at another level, we have no choice: Western credibility is on the line here, too.
Any outright abandonment of Georgia to Putinist domination will be correctly perceived – not only in the post-Soviet world, but also everywhere else – as an abandonment of an ideological ally, of a country that has chosen, at great cost, to join the West.
What we are left with, then, is not exactly a new Cold War, but an unavoidable, possibly very long-term ideological battle with Russia, above and beyond the normal economic and political competition.
We need to start thinking again about what it means to be “the West”, and about how Western institutions – not just Nato, but also the BBC World Service, say, or the British Council – can be brought into the 21st century, not merely to counter terrorism, but to argue the case for Western values, once again.
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LINK: http://www.telegraph.co.uk/opinion/main.jhtml?xml=/opinion/2008/08/15/do1501.xml
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13.  UKRAINE’S NATO ACCESSION: POLITICS AS USUAL
 
COMMENTARY & ANALYSIS: By Igor Khrestin
Central Europe Digest, Center for European Policy Analysis
Washington, D.C., Friday, 15 August 2008

In all likelihood, the recent crisis in Georgia has sunk that country’s chance to enter NATO anytime soon. But as analysts spar over whether Georgia’s NATO aspirations played a decisive role in precipitating the conflict, Ukraine’s entry looms ever larger on NATO’s agenda.

 
With full view of Russia’s aggressive and disproportionate response to the South Ossetian crisis, will Ukraine be offered a Membership Action Plan (MAP) at the forthcoming meetings of the Alliance in December 2008 or April 2009?
 
Whereas Germany and France are routinely accused of “blocking” Ukraine’s MAP in Bucharest, ostensibly in response to Vladimir Putin’s hectoring and NATO’s unpopularity among Ukrainians, it is domestic instability and indecisiveness of the Orange Coalition of President Viktor Yushchenko and Prime Minister Yulia Tymoshenko that are the real culprits.
Given the right political will in Kiev, Ukraine’s chances of receiving MAP by next year are actually rather high. The Bucharest Summit last April ended with a joint statement that in unequivocal terms declared that “We agreed today that these countries [Ukraine and Georgia] will become members of NATO.”
 
At the most recent meeting of the NATO-Ukraine Commission on June 16, NATO leaders yet again praised Ukraine’s participation in joint military operations and maneuvers. Though a number of reforms are yet to be implemented, the general consensus is that Ukraine has so far “punched above its weight” in cooperating with the Alliance.
 
Thus, if Yushchenko and Tymoshenko manage to put their differences aside – and if necessary, risk their political careers – the Russia factor and low public support should not present a significant hurdle to Ukraine’s NATO aspirations.
Before the outbreak of recent hostilities in the Caucasus, Western leaders generally agreed that for all of Russia’s intransigence – ranging from the emotional incantations of a brotherly nation “losing its sovereignty” to brazen threats to aim missiles at that same brotherly nation – the Putin/Medvedev ruling tandem are scarcely interested in starting a new Cold War, even over Ukraine. That assumption will now undergo a significant rethinking in the West – and clearly not to Russia’s benefit.
 
Moreover, with Putin’s recent comments to President Bush that “Ukraine is not even a country” and Moscow mayor Yury Luzhkov’s dogged insistence that Crimea is living on borrowed time as a part of Ukraine, one might think the Ukrainian elites – whether from L’viv, Kiev, or Donetsk – should realize that the real threat to their sovereignty lies to the East, not the West.
 
As the recent Georgia crisis was a direct result of longstanding and festering “frozen conflicts” in Abkhazia and South Ossetia, Ukrainian elites must now begin considering the frightening repercussions of allowing Crimea – or even the Black Sea port of Sevastopol – to descend into such muddy waters. 
As for public opinion, NATO membership should generally not be a matter of broad public acquiescence, but of a conscious geopolitical choice by a consolidated national elite. As part of NATO’s post-Soviet expansion, only Slovenia and Hungary have held referendums on membership – and Hungary’s was nonbinding. Slovakia’s 1997 referendum was declared invalid, as it gathered only 10 percent of eligible voters.
 
Yet, NATO detractors in Ukraine and abroad often showcase their greatest “counterpoint”: domestic public opinion polls, which routinely show only a minority support for entry. For instance, a poll conducted in June 2008 by the Fund for Public Opinion reported that 55 percent of Ukrainian respondents were against NATO membership, with only 22 percent in favor.  
Meanwhile, the Ukrainian government recently approved a four-year, $6 million “information campaign” to improve NATO’s image. While the jury is still out regarding its effectiveness, even with the best of PR campaigns and outreach programs, the West by now has generally accepted the uncomfortable fact that NATO may never gain broad popularity among Ukrainians, especially in the eastern regions of the country.
 
Yet, the matter is wrapped up in domestic politics; President Yushchenko signed an agreement (the National Unity Declaration) in 2006 with then-Prime Minister Viktor Yanukovych, which stipulated a popular referendum before any decision can be taken on NATO membership. 
The last real push for NATO membership by the Orange Coalition came early this year. In January, President Yushchenko, Prime Minister Tymoshenko, and Speaker of the Rada (Ukraine’s parliament) Arseniy Yatsenyuk sent a letter to NATO Secretary General Jaap de Hoop Scheffer, reaffirming Ukraine’s commitment to join the Alliance.
 
When the letter became public, the opposition (Yanukovych’s Party of Regions and the Communist Party) blocked parliamentary work until March 6, relenting only after Yushchenko openly threatened to dissolve the parliament once again.
 
The deputies returned to work, but not until a resolution stating that “a decision on an international agreement on Ukraine joining NATO shall be taken only as a result of a national referendum” passed by 248 votes in the 450-seat body. Given that the Orange Coalition actually holds a slim two-seat majority, the vote clearly showcased the lack of commitment and party discipline for the Yushchenko/Tymoshenko camp. 
After this latest victory for the opposition, it became politics as usual in Ukraine. Gearing up for the 2010 presidential elections, Yushchenko and Tymoshenko remain perennially locked in domestic political battles. After Tymoshenko secured an agreement on gas prices with Gazprom in late July, the Prime Minister has been less willing to openly antagonize Russia on NATO membership.
 
Despite Yushchenko’s continued vociferous support for the MAP and a constitutional mandate to handle foreign policymaking, he has recently become embroiled in a high-profile public battle with his former political ally David Zhvania, whom Yushchenko accuses of instigating his September 2004 dioxin poisoning.
 
In addition, Yushchenko and Tymoshenko disagree on about every other domestic issue of relevance to Ukrainian voters:  from rampant inflation to the best way to handle the recent horrific floods in the western part of the country.
In short, Ukraine’s political elites lack the political courage and conviction to put aside petty political squabbles to ensure what would amount to a momentous geopolitical breakthrough for their country. The Russia-Georgia war does not change that. Those lambasting Berlin and Paris would do well to re-direct some of their criticism towards Kiev itself.
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NOTE: Igor Khrestin is an analyst and writer specializing in Russian and East European affairs based in Washington, DC. The views expressed in this article are those of the author and do not necessarily reflect the opinions of the Center for European Policy Analysis.
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14.  UKRAINE UNSETTLED BY RUSSIA’S INVASION OF GEORGIA

By BRIAN BONNER, Special Correspondent, McClatchy Newspapers
The Herald Tribune, Rock Hill, South Carolina, Friday, August 15, 2008

Russia’s invasion of Georgia has unsettled this former Soviet republic, which like Georgia has applied for membership in NATO but now fears that the U.S. could do little to prevent similar Russian action here.

“If the West swallows the pill and forgives Russia the Georgian war, the invasion of ‘peacekeeping tanks’ into Ukraine will just be a matter of time,” Oleksandr Suchko, the research director of the Kiev-based Institute for Euro-Atlantic Cooperation, wrote on Ukrainska Pravda (Ukrainian Truth),
a leading online news site.

Still, not everyone here thinks that Russia would invade Ukraine, which is nearly nine times larger than Georgia, 10 times more populous and much better armed. Many note, moreover, that Ukraine’s president, Viktor Yushchenko, is highly unpopular and isn’t expected to win re-election in 2010.

There are many disputes between the countries, however.

Ukraine has a long-standing issue with the presence of Russia’s Black Sea Fleet at Sevastopol, a holdover from when Ukraine was part of the Soviet Union, which collapsed in 1991. Many in Ukraine want the Russians gone in 2017, when the lease agreement expires, but Russia has been suggesting that it intends to stay longer.

Russian politicians also provoke Ukrainian ire by reminding them that the Crimean peninsula was a gift from Soviet leader Nikita Khrushchev in 1954,
giving rise to fears that Moscow might stoke secessionist sentiments in the area, which is part of Ukraine but inhabited predominantly by ethnic Russians.

Other supposed slights fan tensions.

One that burns, though perhaps apocryphal, is a supposed conversation between Russia’s then-President Vladimir Putin and President Bush during the
April NATO-Russia Council summit in Bucharest, Romania, at which the membership applications of Ukraine and Georgia were delayed.

Putin supposedly told Bush that “Well, you understand, George, Ukraine isn’t even a state,” according to Russia’s newspaper Kommersant, citing a
diplomatic source in attendance.

Many here suspect Russian involvement in the still-unsolved and nearly fatal dioxin poisoning of Yushchenko, who fell ill while he was a presidential
candidate in 2004. The Kremlin backed his rival, Viktor Yanukovych, whose path to power was blocked when the democratic Orange Revolution overturned the results of a rigged election.

Yushchenko flew to Tbilisi, Georgia’s capital, earlier this week in a show of support for Georgian President Mikhail Saakashvili, and said Thursday that Russia must seek Ukraine’s permission before moving its warships out of port. Russian leaders responded by saying they’d ignore Yushchenko.

The two countries also have an ongoing dispute over the price of natural gas. Ukraine is heavily dependent on Russian energy supplies, as is much of
Europe, while Russia depends on Ukraine’s transit pipelines to carry its gas to customers in other nations.

Even religion is a source of friction in the mainly Orthodox Christian countries. The most recent spat came during last month’s events celebrating the 1,020th anniversary of the conversion from paganism to Christianity of Kyivan Rus, the medieval empire from which the modern nations of Russia, Ukraine and Belarus arose.

Yushchenko irritated Moscow by asking Patriarch Bartholomew of Constantinople, the nominal leader of the world’s Orthodox faithful, to recognize a single Orthodox Church in Ukraine. Currently, Ukrainians are divided, with millions of faithful still loyal to Russian Patriarch Alexei II.

Still, many here also have a hard time imagining a Russian-Ukrainian military conflict.

Ukrainians and Russians share centuries of Slavic kinship – Georgians have a separate cultural history – and rule by czars and Soviets. Ukrainians, stuck
between Hitler and Stalin during World War II, are accustomed to navigating unfavorable geographic positions. Moreover, some 8 million of Ukraine’s 46
million people are ethnic Russians.

Polls show that Ukrainians are divided over the prospect of NATO membership, with many opposed and others ambivalent. That ambivalence is clear in
interviews.

“Russia will never invade Ukraine, not even for Sevastopol,” said Sergei Ribak, a security guard in Kiev. “This thesis is ridiculous.” Others aren’t so sure, but draw different conclusions about what Ukraine’s foreign policy should be.

“I agree that, under certain circumstances, a Russian invasion of Ukraine is possible,” said Elena Guzva, a Kiev homemaker. “That’s why Ukraine should be
more serious about maintaining balanced and friendly relations with our eastern neighbor in order to avoid the risk.”
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LINK: http://www.heraldonline.com:80/wire/world/story/752294.html
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15.  UKRAINE’S PRESIDENT WANTS NEW RUSSIAN FLEET DEAL 
 
The Associated Press, Kiev, Ukraine, Saturday, August 16, 2008
 
KIEV, Ukraine: Ukraine’s president has urged Russia to work out an accord on using its Ukraine-based Black Sea Fleet for military purposes. Viktor Yushchenko says Russia’s use of the fleet in fighting in neighboring Georgia “showed how Ukraine can be very easily dragged … into an international conflict against its will.”
 
Under a 1997 lease agreement, Russia’s Black Sea Fleet can remain in its historic base in the Crimean port of Sevastopol through 2017. On Wednesday, Ukraine restricted movements of the fleet’s ships in response to Russian incursions into Georgia, prompting Russian criticism.
 
Yushchenko said in a statement on his Web site Friday that he asked his Russian counterpart to launch talks on an accord about the fleet.
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16.  SEVASTOPOL PRO-RUSSIAN PUBLIC ORGANIZATIONS PREPARE MAGNIFICENT
WELCOME OF RUSSIAN VESSELS COMING BACK FROM GEORGIA “WITH VICTORY”
 
UkrInform – Ukraine News, Kyiv, Ukraine, Friday, August 15, 2008 
 
KYIV – Sevastopol activists of pro-Russian public organizations and parties established duty on the raid for meeting the vessels of the Russian Black Sea Fleet. According to head of the Russian People’s Assembly of Sevastopol Oleksandr Kruhlov, the meeting will be magnificent, with flowers and music.
“The whole Sevastopol should find out that squadron is coming back at once and should participate in welcoming,” Kruhlov said. “The ships are returning not only with victory, they participated in saving civilians of South Ossetia from Georgian genocide!”
The group of Russian ships which participated in making Georgia accept peace includes guided weapon cruiser Moskva, guard-ship Smetlivyi, three big assault ships, small guided missile ships and anti-submarine ships, support vessels.
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17.  RUSSIA’S OMINOUS NEW DOCTRINE?

 
OP-ED: By Strobe Talbott, President, Brookings Institution
Deputy Secretary of State, Clinton Administration
The Washington Post, Washington, D.C., Fri, Aug 15, 2008; Page A21
 
Russia has been justifying its rampage through Georgia as a “peacekeeping” operation to end the Tbilisi government’s “genocide” and “ethnic cleansing” of South Ossetia. That terminology deliberately echoes U.S. and NATO language during their 1999 bombing campaign against Serbia, which resulted in the independence of Kosovo.
 
Essentially, it’s payback time for a grievance that Russia has borne against the West for nine years. The Russians are relying on the conceit that Georgian President Mikheil Saakashvili is today’s equivalent of Slobodan Milosevic, and that the South Ossetians are (or were until their rescue by the latter-day Red Army last week) being victimized by Tbilisi the way the Kosovar Albanians suffered under Belgrade.
 
This analogy turns reality, and history, upside down. Only after exhausting every attempt at diplomacy did NATO go to war over Kosovo. It did so because the formerly “autonomous” province of Serbia was under the heel of Belgrade and the Milosevic regime was running amok there, killing ethnic Albanians and throwing them out of their homes. By contrast, South Ossetia — even though it is on Georgian territory — has long been a Russian protectorate, beyond the reach of Saakashvili’s government.
 
An accurate comparison between the Balkan disasters of the 1990s and the one now playing out in the Caucasus underscores what is most ominous about current Russian policy. Seventeen years ago, the Soviet Union came apart at the seams more or less peacefully. That was overwhelmingly because Boris Yeltsin insisted on converting the old inter-republic boundaries into new international ones.
 
In doing so, he kept in check the forces of revanchism among communists and nationalists in the Russian parliament (which went by the appropriately atavistic name “the Supreme Soviet”).
 
Meanwhile, Yugoslavia collapsed into bloody chaos because its leaders engaged in an ethnically and religiously based land-grab. Milosevic, as the best-armed of the lot, tried to carve a “Greater Serbia” out of the flanks of Bosnia and Croatia.
 
If Yeltsin had gone that route, seeking to create a Greater Russia that incorporated Belarus and the parts of Ukraine, northern Kazakhstan and the Baltic states populated by Russian speakers, there could have been conflict across 11 time zones with tens of thousands of nuclear weapons in the mix.
 
A question that looms large in the wake of the past week is whether Russian policy has changed with regard to the permanence of borders. That seemed to be what Russian Foreign Minister Sergei Lavrov was hinting yesterday when he said, “You can forget about any discussion of Georgia’s territorial integrity.” He ridiculed “the logic of forcing South Ossetia and Abkhazia to return to being part of the Georgian state.”
 
Lavrov is a careful and experienced diplomat, not given to shooting off his mouth. That makes his comments all the more unsettling. If he has given the world a glimpse of the Russian endgame, it’s dangerous in its own right and in the precedent it would set. South Ossetia and Abkhazia might be set up as supposedly independent countries (“just like Kosovo,” the Russians would say) — but would in fact be satrapies of Russia.
 
While Russia might see that outcome as proof of its comeback as a major power, the Balkanization of the Caucasus may not end there: Chechnya is just one of several regions on Russian territory that are seething with resentment against the Kremlin and that might hanker after a version of independence far less to Moscow’s liking than what may be contemplated for Abkhazia and South Ossetia.
 
Among Secretary of State Condoleezza Rice’s important tasks in the days ahead is to get clarity on whether a Lavrov doctrine has replaced the Yeltsin one of 16 years ago. If so, big trouble looms — including for Russia. Moscow’s action and rhetoric of the past week have highlighted yet another, potentially more consequential respect in which this episode could bode ill for all concerned.
 
For the Bush administration — and those of Bill Clinton and George H.W. Bush as well — the fundamental premise of American policy has been that Russia has put its Soviet past behind it and is committed, eventually, to integrating itself into Europe and the political, economic and ideological (as opposed to the geographical) “West.”
 
Prominent Russians have said as much. In one of my first meetings with Vladimir Putin, before he became president, he spoke of his country’s zapadnichestvo, its Western vocation. Yet it now appears that beyond the undisguised animosity that Putin bears toward Saakashvili, he and his government regard Georgia’s pro-Western bent and its aspiration to join two Western institutions, NATO and the European Union, as, literally, a casus belli.
 
If that is the case, the next U.S. administration — the fourth to deal with post-Soviet Russia — will have to reexamine the underlying basis for the whole idea of partnership with that country and its continuing integration into a rule-based international community.
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18.  PRESIDENT VICTOR YUSHCHENKO SAYS UKRAINE SUPPORTS
UNCONDITIONAL TERRITORIAL INTEGRITY OF GEORGIA AS IT
EQUALIZES SUCH GEORGIAN THREAT & OWN SOVEREIGNTY
 
UkrInform – Ukraine News, Kyiv, Ukraine, Friday, August 15, 2008

KYIV – We really went through most likely the most terrifying ten days of our contemporary history as for the first time over 17 years the war started between the countries which formed the Soviet Union in past, Ukrainian President Viktor Yushchenko noted in the comment published on his official web-site. He proposes to make some conclusions from this “unexampled situation” which can not leave Ukraine indifferent.

[1] The first conclusion lies in the fact that each national security and defense model can not ensure all-sufficient reply to the national sovereignty.
Viktor Yushchenko is convinced that all that happened in Georgia is a bright example how easily military operations, violation of territorial integrity in present conditions can be transferred to any territory if it is not supported by the system, mechanisms of collective guarantees. “In other words, without guarantees any territory may run the danger of such actions,” he notes.
[2] Second, “providing adequate national sovereignty, integrity of our border may be ensured only in one way – Ukraine’s drifting to the system of collective security,” the president underscores, noting that he mentions the need to fight but not the one to fight with.
“Only the system of collective security will guarantee anyone, including Ukraine, the highest international standards which probably could prevent from some actions including the ones that occurred on August 7-8 first on the territory of South Ossetia and later on other Georgian territories,” he underscores.
Confirming that Ukraine supported and still supports the principle of territorial integrity and sovereignty of any countries regardless of who started aggression or who settled a conflict, Viktor Yushchenko reminded that, in fact, Europe came out of World War II in 1975 when the Helsinki Final Act was adopted.
If now territorial integrity of any country is challenged by anyone “so we are facing the beginning of deep serious military actions,” he considers. So, Ukraine should support Georgian territorial integrity and state sovereignty”, this issue should not be discredited in our polemics and in our discussion”.
The president equalizes the threat for the territorial integrity of any European country and revision of Ukrainian territorial integrity. “We support Georgian territorial integrity and its sovereignty because we stand for Ukrainian territorial integrity and sovereignty,” he emphasizes.
He opposes to appeals of some politicians to keep neutrality on this issue as it is “the safest position”.
The president reminded that on August 9, Ukraine formed its vision of immediate termination of the conflict and expressed it by diplomatic channels of the EU countries. “With this, we wanted to say that we may be the party that will actively participate in democratic settlement of this conflict,” the president said.
Touching upon his settlement plan which envisages suspension of arms, withdrawal of troops of the parties to the zones of their previous disposition, humanitarian assistance and unconditional recognition of Georgian territorial integrity, the president stressed that the tripartite peacemaking mission which acted in Georgia “is ineffective”. So, the peacemaking corps should be internationalized.
“And surely, Ukraine is ready to direct particular number of peacemakers for this peacemaking operation under the relevant international mandate”.
The president is convinced that the facts that a part of the Russian Black Sea Fleet temporarily located in Ukraine partook in blocking Georgian marine water area demonstrated “how easily, without agreement and desire of Ukraine it can be drawn into, in passive meaning of this word, any international conflict.
The president said that he sent a proposal to his Russian counterpart to start immediate talks on coordination of similar situations by a separate agreement which should ensure Ukraine’s national security.
For this purpose he issued decrees on peculiarities of crossing Ukrainian territorial waters and state border by subdivisions of the Russian Black Sea Fleet. “It is not about attitude to somebody. It is about attitude to the policy of national security,” he underscored.
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19.  UKRAINIAN GOVERNMENT EXPRESSES STRONG SUPPORT FOR GEORGIA
Will Ukraine be next after Georgia?
 
ANALYSIS & COMMENTARY: By Taras Kuzio
Eurasia Daily Monitor, Volume 5, Issue 154
The Jamestown Foundation, Wash. D.C., Tuesday, August 12, 2008

Ukraine’s president and the Ministry of Foreign Affairs, which comes under his jurisdiction, have reacted sharply to the Georgian-Russian conflict. President Viktor Yushchenko has close personal relations with President Mikhail Saakashvili with whom he is direct contact on a daily basis

(www.president.gov.ua, August 9).

The Yushchenko-Saakashvili relationship is a political alliance based on the shared aims of the 2003 Rose and 2004 Orange revolutions, a common desire to join NATO and support for an alternative to Russia energy sources through the GUAM (Georgia, Ukraine, Azerbaijan, and Moldova) regional group.

 
Ukraine and Georgia have also supported pro-U.S. positions in the UN on Belarus’s human rights record and in the CIS through the Community of Democratic Choice created in 2005. Ukraine and Georgia contributed the third largest military forces to the US-led intervention in Iraq (Ukraine until 2005 and Georgia since 2006).

Ukraine’s parliament, which is in summer recess, is a different matter. The two orange forces (the Yulia Tymoshenko bloc and Our Ukraine-Peoples Self Defense [Nuns]) follow the president’s line in support of Georgia’s position.

 
Meanwhile, the Party of Regions (PR) and the Communist Party (KPU) hold positions that are not sympathetic to Georgia, at times pro-Russian and at other times contradictory and duplicitous.

The PR and KPU have both demanded an investigation into Ukrainian supplies of arms to Georgia. The KPU has accused the Ukrainian authorities of having armed the Saakashvili regime and has described Saakashvili as an “international criminal.”

Such accusations and inflammatory rhetoric echo those emanating from Moscow and the South Ossetian and Abkhaz separatists. Russian and separatist leaders have accused Ukraine of assisting alleged Georgian “ethnic cleansing” of South Ossetia and of “arming the Georgian army to the teeth.” The Georgian Ministry of Foreign Affairs defended Ukraine by accusing Russia of having armed the separatists (Ukrayinska Pravda, August 9-10).

These accusations ignore the fact that “military-technical cooperation between Ukraine and Georgia, which has taken place over the last 15 years, has been within the parameters of international law” (Zerkalo Nedeli, August 9).

 
Ukrainian supplies of military equipment to Georgia began during Leonid Kuchma’s presidency, and continued under the government of PR leader Viktor Yanukovych from 2002 to 2004. Ukrainian troops were sent to Iraq by the same Yanukovych government.

The Ukrainian Foreign Ministry’s demand that Russia withdraw its troops and respect Georgia’s territorial integrity is an established position articulated under Kuchma. Ukraine’s offer of acting as a mediator is again a long-standing proposal that was rejected by Russia under Kuchma and again now (Ukrayinska Pravda, August 8-9).

Former U.S. Assistant Secretary of State Richard Holbrooke’s comment that Russia’s next objective would be Ukraine is a fear long held in Kyiv. The initial impetus for creating the GUAM group in 1998 was that of Russian-backed separatism in three of its members (Moldova, Georgia, Azerbaijan) and a threat to the Crimea. The Russian parliament continually laid claim to the Crimea and Sevastopol in the 1990s, the island of Tuzla in 2003 and to Sevastopol as recently as May l.

Ukraine’s unease at Russia’s continued territorial demands led to a presidential decree ordering the government to prepare legislation and conduct negotiations with Russia on a full withdrawal of the Black Sea Fleet (BSF) personnel by 2017. BSF personnel, who are Russian citizens, have illegally participated in anti-NATO and pro-separatist rallies.

Russian nationalist, Communist and pro-regime politicians are unanimous in using the Crimea and Sevastopol as a potential bargaining chip to halt Ukraine’s NATO membership. This reflects long-standing Russian views as expressed by President Vladimir Putin at the April NATO-Russia Council that the alleged “fragility” of Ukraine would cause it to disintegrate if it joined NATO (Zerkalo Nedeli, April 19).

Crimean KPU leader Leonid Grach threatened to support the peninsula’s secession from Ukraine if it joined NATO. The view was criticized by the head of the parliamentary Committee on European Integration and deputy leader of the Nuns faction Borys Tarasyuk (www.nuns.com.ua, August 8).

 
Crimea’s Communists, which are a regional branch of the KPU, played a positive role in the 1990s in supporting Ukraine’s territorial integrity and adopting the 1998 pro-autonomy constitution.

The Simferopol city council voted on July 24 to declare itself a “‘territory free from NATO.” The vote was supported by the “For Yanukovych” faction and the national Bolshevik-oriented Natalia Vitrenko bloc. The PR would lose votes in eastern Ukraine if it began to play, like the KPU and Vitrenko bloc, with separatism.

Russian Communist leader Gennady Zyuganov arrived in the Crimea during the Ossetian crisis to hold negotiations with Crimean Communists on a “joint anti-NATO struggle.” Zyuganov said the Saakashvili regime was undertaking “state terrorism” with the support of the United States and NATO (UNIAN, August 9). Zyuganov supported the independence of South Ossetia and Abkhazia and has long supported Sevastopol’s transfer to Russia.

The stakes are high for Yushchenko and Ukraine in the Ossetian crisis. The removal or weakening of the Saakashvili regime would undermine the Ukrainian-Georgian partnership, destroy the GUAM group (which already has a passive Moldova) and thereby neutralize the pro-Western wing of the CIS.

 
Ultimately, the most important impact of the crisis will be on the December meeting of NATO Foreign Ministers set to review Ukraine and Georgia’s “‘progress,” held at a time of regime change in the United States.

The two arguments against admitting Ukraine and Georgia to NATO–political instability in Ukraine and Georgia’s military conflict with Russia–have become stronger since they were raised by Germany and France at the April Bucharest NATO summit. It is therefore unlikely that the review meeting will send a positive signal to Ukraine and Georgia about being granted NATO MAPs.

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20.  UKRAINE AND THE CONFLICT IN SOUTH OSSETIA
Ukraine threatens to prevent return of Russian Black Sea Fleet vessels

COMMENTARY & ANALYSIS: By Roman Kupchinsky, Analyst, Writer
Eurasia Daily Monitor, Volume 5, Issue 153

The Jamestown Foundation, Wash. D.C., Monday, August 11, 2008
 
In the morning of August 10, the Ukrainian Ministry of Foreign Affairs informed its Russian counterpart that in order to prevent Ukraine from being drawn into an armed conflict, Ukr