AUR#907 Sep 17 Ukraine Bank Profits & Assets Grow; Huge Grain Crop; Raiffeisen; UIA; Volia; Ruling Coalition Collapses

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Interfax Ukraine Business Panorama, Kyiv, Ukraine, Mon, Sep 15, 2008
Interfax Ukraine, Kyiv, Ukraine, Monday, September 15, 2008
Largest grain crop in Ukraine since 1991.
UkrAgroConsult, Kyiv, Ukraine, Tuesday, September 16, 2008
Agro Complex News, Kyiv, Ukraine, Monday, September 15, 2008 
Interfax Ukraine Economic, Kyiv, Ukraine, Tuesday, September 16, 2008
Analysis: U.S.-Ukraine Business Council (USUBC), Washington, D.C., Wed, Sep 17, 2008 
U.S.-Ukraine Business Council (USUBC), Washington, D.C., Tuesday, September 16, 2008
Ukraine International Airlines (UIA), Kyiv, Ukraine, Tuesday, September 16, 2008
Oreanda – News from Regions, Moscow, Russia, Tues, September 16, 2008
Interfax Ukraine, Kyiv, Ukraine, Tuesday, September 16, 2008

By Natalya Zinets, Reuters, Kiev, Ukraine, Monday September 15 2008
Interfax Ukraine Business Panorama, Kyiv, Ukraine, Monday, September 15, 2008
bne Ukraine Daily List, Berlin, Germany, Tuesday, September 16, 2008
Delo, Kiev, Ukraine, in Russian 8 Aug 08; pp 8, 9., BBC Monitoring Service, UK, in English, Tue, 16 Sep 2008
Maksim Birovash, Korrespondent, Kyiv Post, Kyiv, Ukraine, Thu, Sep 11, 2008
By Maria Danilova, Associated Press (AP), Kiev, Ukraine, Tuesday, Sep 16, 2008  


By Daryna Krasnolutska and Halia Pavliva, Bloomberg, Kiev, Ukraine, Tue, Sep 16, 2008
OP-ED: By Doug Bandow, Eureka Reporter, Eureka, CA Sunday, Sep 14 2008
Analysis & Commentary: Jonathan Russin, Leonid Sevastianov, Tom Thomson
Moscow Times, Moscow, Russia, Wednesday, September 17, 2008 
Analysis & Commentary: by Chuck Spinney, Huffington Post, USA, Mon, Sep 15, 2008
OP-ED: by Doug Bandow, National Interest, Washington, D.C., Tue, Sep 9, 2008
Tensions have risen since the war in Georgia and Kiev’s plans to join Nato
Luke Harding in Sevastopol, The Guardian, London, UK,  Tuesday September 16 2008 
Analysis & Commentary: by Bernardo V. Lopez, Business World
New Manila, Quezon City, Philippines, Wednesday, September 17, 2008 

Interfax Ukraine Business Panorama, Kyiv, Ukraine, Mon, Sep 15, 2008

KYIV – Ukrainian banks’ net profit January through August 2008 amounted to UAH 6.8 billion, which was 60% up on same period last year, while growth
over seven months was 63% and growth over six months was 71%, the National Bank of Ukraine said in a statement posted on its official Web site.

The banks’ aggregate net profit in August 2008 alone was UAH 700 million (in July 2007 it was UAH 900 million), whereas it was UAH 1 billion in June
2008, UAH 400 million in May 2008, UAH 1 billion in April 2008, UAH 800 million in both March and February 2008, and UAH 1.3 billion in January

Over the eight months, the NBU said, the banks’ revenues January through July increased by 68% year-over-year, to UAH 67.9 billion, while spending
rose by 67.6%, to UAH 61 billion.

According to the statement, from January to July 2008, the banks’ net worth expanded by 32.6%, to UAH 92.2 billion. The share of paid-in, registered
statutory capital was 65.2% of the banks’ own capital, general reserves, the reserve fund and other funds accounted for 10.7%, and reassessed fixed assets, intangible assets, securities in a bank’s portfolio for sale, and investment in associated companies accounted for 10%.

The banks’ liabilities over the eight months grew by 22.4%, to UAH 648.3 billion, the NBU said. Fixed deposits or loans by other banks accounted for
28% of all liabilities, economic entities’ funds for 20.5%, individuals’ assets for 30.9%, loans from international and other financial organizations for 5.4%, the banks’ own debt securities for 2.9%, and subordinated debts for 1.5%.

Over the eight months, the bank’s overall assets expanded by 23.7%, to UAH 765.8 billion. The share of highly liquid assets was 9% of overall assets, that of loan operations was 80.4%, and investments in securities 4.1%. The NBU also reported that long-term loans January through August grew by 25.2%,
to UAH 365.6 billion (59.4% of the amount of extended loans). According to the NBU, by the beginning of September, there were 180 banks registered in Ukraine.

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Interfax Ukraine, Kyiv, Ukraine, Monday, September 15, 2008

KYIV – Kyiv-based Foyil Securities Investment Company has confirmed its forecast of a 40% rise in the net assets of the Ukrainian banking system in 2008, according to a company survey, with the reference to one of its analysts, Ahshyn Mirzazade.

“According to data from NBU, the Ukrainian banks from January to August considerably increased their credit and deposit volumes. However, we’ll have
to wait for official data from the NBU to see the whole situation in assets growth. We confirm our forecast of a 40% rise in net assets in 2008,” the analyst said.

As reported, referring to data from the NBU, the total volume of credits in the banking system in January to August 2008 grew by 28.4%, to UAH 547.9
billion year-over-year, while credits issued to the public grew by 30.2%.

The total volume of deposits grew by 20.2%, to UAH 336 billion. Deposits by the general public as of September 1 were UAH 202 billion. Their share of
the total deposits of the banking system is 60%.

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Largest grain crop in Ukraine since 1991.

UkrAgroConsult, Kyiv, Ukraine, Tuesday, September 16, 2008

KYIV – Ukraine’s grain crop may reach 53 MMT, the Deputy Ag Minister reported last week. According to Ag Ministry reports, 43 MMT of grain were gathered so far.

In addition, Ukraine is planning to harvest another 10 MMT of late grains, in particular of corn. This is the largest crop registered in Ukraine since 1991 when so large a total grain crop (51 MMT) was observed.

UkrAgroConsult believes that the crop estimate of 53 MMT is correct for grain in raw weight. UkrAgroConsult predicts the total crop in finished weight will be 47.5 MMT.
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Agro Complex News, Kyiv, Ukraine, Monday, September 15, 2008 
KYIV – According to the estimations of the experts of Association “Ukrainian Club of Agrarian Business” , in 2007 Ukraine, having 19.1 mln. tonnes, took the forth place on gross production of potatoes after China, Russia and India, and the third place on production of potatoes per head after Belarus and Netherlands.
Ukraine also occupies the leading global positions for consumption of this product. In general, Ukrainians consume about 6.5 mln. tones of potatoes yearly and take the sixth place according to this figure after such high-populated countries as China, Russia, India, the USA, Great Britain, leaving behind the traditional consumers of potatoes – Poland and Germany.
On an average, each Ukrainian consumes about 141 kg of potatoes yearly or 380 gramms daily, taking the fourth place on potato consumption per head. The leaders of potato consumption are Belarusian with the level of 1 kg per head daily (338 kg per head yearly). It should be noted that seven from ten consumption leaders are the countries of ex-USSR which traditionally have the high level of consumption.
According to Alex Lissitsa, the President of Ukrainian club of agrarian business, despite high places of Ukraine in the global rates of potatoes producers, the industry still has a lot of problems restricting the following growth of production and expanse to the markets of Russia, China and India.
Lissitsa said that these problems are connected with the potato production structure in Ukraine because almost 90 % of potatoes are produced mostly for domestic consumption. Farms and agrarian holdings enter potatoes business reluctantly, growing grain and oilseeds, adding shortage of infrastructure for storing and transportation of potatoes.
The industry development may be stimulated by governmental support of investment projects, enterprises-producers or infrastructure development that is enable to lead Ukraine to the global leader in export of potatoes.
You can get the detailed information about the prospects of potato market in Ukraine and Russia visiting during the largest conferences in the CIS: the Third International Conference “Fruit & Vegetable Business of Russia – 2008″ and the Fifth International Conference ” Fruits and Vegetables of Ukraine 2008″ .
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Interfax Ukraine Economic, Kyiv, Ukraine, Tuesday, September 16, 2008

KYIV – Ukraine’s real GDP growth in 2008 would be 6.8%, according to a survey of Kyiv-based Concorde Capital Investment Company, referring its
analyst Andriy Parkhomenko. “We stick to our forecast at 6.8% of real GDP growth in 2008, and believe that the slow in industry and other sectors will be compensated by a rise in the agricultural sector,” the analyst said.

The expert said that in August 2008 GDP growth was only due to a rise in agriculture. “The agricultural sector grew by 24.4% in January to August 2008 year-over-year thanks to the rich harvest and large investment in the sector [their growth was 45.3% in H1 2008 year-over-year],” he said.

Parkhomenko said that growth slowed in most sectors, in particular, in August 2008 industry fell by 0.5% compared to August 2007. As reported, referring to the State Statistics Committee, real GDP growth in Ukraine in January to August was 7.1% year-over-year, while in January to July it was 6.5%.

According to estimated data, nominal GDP in January to August was UAH 628.108 billion, including UAH 97.832 billion in August. Index GDP deflator
in January to August was 134.3%. In 2007, Ukraine’s GDP grew by 7.6%.

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ANALYSIS: U.S.-Ukraine Business Council (USUBC), Washington, D.C., Wed, Sep 16, 2008 
WASHINGTON, D.C. – Maintaining and developing a strong oil refining industry should be an important matter of national security for Ukraine. Since Ukraine is two-thirds dependent on the import of hydrocarbons – oil and gas – it is vital for the country to preserve the ability to produce sufficient amounts of oil products domestically to avoid the situation of being dependent even for the import of ready-made oil products.
This is particularly important when viewed in the context of the major geopolitical changes caused by recent dramatic events in the Caucasus.
However, the current situation on the Ukrainian oil products market is quite the opposite. The elimination of import duties for oil products in 2005 placed outdated Ukrainian refineries in an extremely vulnerable position when compared to neighboring markets with a surplus of oil products supply.
Furthermore, no measures were undertaken by the Ukrainian government to provide domestic producers with either the time or preconditions to modernize and gradually adapt their refineries to meet the new market and economic conditions. As a result in three years time the situation on the Ukrainian market has been reshaped dramatically.
Today Ukraine is heavily dependent on imported oil products whose market share is expected to grow by more than 55% by the end of 2008. Though there are six refineries situated on the territory of Ukraine only two of them are working on a relatively stable basis. A number of key legal issues and the current state over regulation of the oil products market results in only about a 60% utilization of the actual refining capacity in Ukraine.
Consequently, import consignments are the major factor that sets the reference point for pricing oil products in Ukraine as domestic producers are no longer a benchmark for pricing on the market because of the insufficient level of production, technically lagging refineries and lower quality of fuels compared to imports.
As a result Ukraine is now highly dependent on the supply and price of imported oil products.
All off this leads to serious losses for the Ukrainian state budget (unpaid taxes) and for oil refining enterprises (no return on investments or even negative margin) and keeps reducing the stimulus needed for major investments in the development of the Ukrainian refining industry. Moreover, except for affecting the investment climate, some of these issues put the investments already in place and the existing businesses, as well as a entire Ukrainian oil refining industry, under real threat.
1. Timely export VAT refund —–
The inappropriate implementation of legislative mechanisms for refunding export VAT has been a huge problem for businesses in Ukraine for many years. Today this results in hundreds of millions USD outstanding in arrears to the domestic producers of both Ukrainian and international origin in such a vital industry as oil refining.
Because of the enormous delays in export VAT refunds Ukrainian refineries are placed in a disadvantaged position compared to importers and are forced to slow down implementation of their investment plans and suffer heavy losses.
Further insufficient attention to this issue on behalf of the government may not only significantly reduce investments in the Ukrainian oil refining industry but even lead to the termination of the operations of major refineries which would result in a fuel crisis and soaring oil products prices in Ukraine as well as increasing the country’s energy dependence.
2. Create real stimuli for investments in developing oil refining as a strategic industry for Ukraine in terms of energy security
Today there are no real stimuli for domestic oil products producers to increase volumes and quality of production. The following steps should be made by the government to boost investments in the development of the industry and to create equal conditions for both domestic producers and importers:
[1] Eliminate duties and VAT for importing equipment purposed for modernization of Ukrainian refineries
[2] Establish a working system of oil products quality control: increase funding for equipping controlling bodies with essential gear, introduce stiffer penalties for trading low-quality oil products, provide stimuli for producing high-quality fuel on legislative level and eliminate practice of prolonging allowance for production and trade of ecologically-dangerous and  high-sulfur fuels
[3] Standardize tariff policy on services of natural monopolies’ bodies such as “Ukrzaliznycya”, which unreasonably raises tariffs on rail transportation of oil products in Ukraine, thus making export activities of domestic refineries loss-making  
[4] Change Ukrainian antimonopoly legislation that allows the Antimonopoly Committee of Ukraine to be a tool of political pressure on businesses
If implemented, the above mentioned recommendation will provide the preconditions and stimuli for larger investments in the Ukrainian oil refining industry which will consequently produce a secure stable oil products market in Ukraine and reduce the country’s severe energy dependence. 
LINK:  U.S.-Ukraine Business Council, Washington, D.C.,
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U.S.-Ukraine Business Council (USUBC), Washington, D.C., Tuesday, September 16, 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 RZB Finance LLC (Raiffeisen) has been approved for USUBC membership.  RZB Finance LLC is USUBC member number 91 according to Morgan Williams, SigmaBleyzer, who serves as president of the USUBC.

RZB Finance LLC is organized under the laws of the State of Delaware and is a wholly owned subsidiary of Raiffeisen Zentralbank Osterreich AG (RZB), the central institution of the Austrian Raiffeisen Group and third-largest Austrian bank with assets in excess of $200 billion.  
While RZB has a long history of representation in the US dating back to 1980, RZB Finance LLC commenced operations in 1997. The company is head-quartered in New York with offices in Bethel, CT, Chicago, IL, Houston, TX and Los Angeles, CA.
USUBC has been working with Vice President Brad Woodhouse for several months.  Brad heads up the RZB Finance Ex-Im Bank Group and works in the Bethel, CT office. Dieter Beintrexler, President, will represent RZB Finance LLC on the USUBC Board of Directors. 

One of the leading banking groups in Central & Eastern Europe
With its constantly expanding network in Central and Eastern Europe (CEE), Raiffeisen International Bank-Holding AG has developed into one of the region’s leading banking groups. Raiffeisen International is a fully-consolidated subsidiary of Raiffeisen Zentralbank Osterreich AG (RZB). RZB owns about 69 per cent of the common stock, the balance is free-float. The shares are traded on the Vienna Stock Exchange.

Starting already in 1986 by founding what is today Raiffeisen Bank, Hungary, Raiffeisen International has consistently entered growth markets and expanded its regional and local presence. Recent examples are the acquisitions of banks in Kosovo, Belarus, Albania and Ukraine from 2002 through 2005.

In January 2006, Raiffeisen International acquired 100 per cent of Russian Impexbank. In July 2006, it purchased Czech eBanka. Both banks were integrated into the network by merging them with the existing local Raiffeisen banks.

As of 30 June 2008, Raiffeisen International managed subsidiary banks, leasing companies and a number of other financial service providers in 17 markets

of the region. More than 61,800 employees serve 14.4 million customers in more than 3,000 business outlets. No other international bank in the region has a similarly extensive and closely-knit distribution network.
Raiffeisen Bank Aval was founded in 1992 as Joint Stock Post-Pension Bank Aval and rapidly developed into one of Ukraine’s leading retail banks. Raiffeisen International acquired 93.5 per cent of the bank in October 2005 and increased its stake to 95.7 per cent by December 2007.
Raiffeisen Bank Aval confirmed its position as the country’s second-largest bank with a balance sheet total of euro6.1 billion, which represents an increase of 42 per cent. It also has one of the largest local networks, comprising 1,180 business outlets.
At the end of 2007, Raiffeisen Bank Aval was serving 4.1 million personal customers, about 196,000 small and medium-sized enterprises, and more than 9,000 corporate customers. Particular success was once again achieved in personal customer business in 2007. That segment’s loan portfolio grew by 43 per cent to 2.9 billion euro, and deposits rose by 20 per cent to 2.6 billion euro.
The product range for affluent customers was extended by the founding of Asset Management Company Raiffeisen Aval in September 2007. LLC Raiffeisen Leasing Aval surpassed all expectations with new business amounting to almost 115 million Euros already in its first full year.
Moody’s gave Raiffeisen Bank Aval a foreign currency bank deposit rating of B2 with a positive outlook in May 2007. That put the bank only negligibly below the country rating of B1 with a positive outlook.
The Banker honored Raiffeisen Bank Aval in 2007 as Bank of the Year. Additional information can be found at
“The U.S.-Ukraine Business Council (USUBC) is most pleased to have RZB Finance LLC join the rapidly expanding USUBC membership.” said Morgan Williams, SigmaBleyzer, who serves as President of USUBC. 
RZB Finance LLC is the 40th new member for 2008, and the 70th new member since January of 2007. USUBC membership has quadrupled in the past 20 months, going from 22 members in January of 2007 to 91 members in September 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, Standard Chartered Bank, 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, Doheny Global Group, Foyil Securities, KPMG, Asters law firm, Solid Team LLC,  R & J Trading International, Vasil Kisil & Partners law firm, AeroSvit Ukrainian Airlines, ContourGlobal, Winner Imports LLC (Ford, Jaguar, Land Rover, Volvo, Porsche), 3M, Edelman, and CEC Government Relations.

The complete USUBC membership list and other information about USUBC can be found at:

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Ukraine International Airlines (UIA), Kyiv, Ukraine, Tuesday, September 16, 2008

KYIV – Ukraine flag carrier airline Ukraine International Airlines (UIA) continues its spectacular growth carrying 21% more passengers in the period
from January to August 2008 than in the same period in 2007.

August has proven to be another record braking month for UIA carrying 200,000 passengers on 1,900 flights to 32 destinations. The passenger load factor across the whole fleet of 17 aircraft rose by 9.7% from 68.8% in August 2007 to a record of 78.5% in 2008.

Deputy President of UIA Richard Creagh said.  “Our growth in August alone was 14% higher than in the previous year and our passenger total for the year to date is already well over a million passengers.  This is nothing short of extraordinary as many airlines in Europe today are closing routes and mothballing aircraft as the real cost of flying becomes a reality.

“UIA is now demonstrating the benefits of our low operating cost approach and high utilisation factor.  Our new freighter is also proving its worth carrying 30 tons more cargo and mail that in previous months”.

Ukraine International Airlines is Ukraine’s leading international carrier. Founded in 1992, UIA was one of the first businesses in Ukraine to attract foreign investment. UIA was the first airline in CIS to introduce Boeing 737 aircraft. Today UIA’s fleet consists of 16 modern Boeing 737 aircrafts of different

he airline connects Ukraine with nearly 3,000 locations of the world, operating about 300 scheduled flights a week to London, Paris, Amsterdam, Brussels, Berlin, Frankfurt, Vienna, Zurich, Rome, Milan, Madrid, Barcelona, Lisbon, Helsinki, Dubai, Kuwait, Tbilisi, Pula, Morastir, Dubrovnik, Nice, Lviv and Simferopol.  The base airport for UIA is Kiev-Boryspil (KBP).

The shareholdings in Ukraine International Airlines are as follows: State Property Fund of Ukraine – 61.6%, Austrian Airlines – 22.5%, Aer Cap – 6%
and European Bank for Reconstruction and Development (EBRD) – 9.9%. Detailed information about UIA is available at

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Oreanda – News from Regions, Moscow, Russia, Tues, September 16, 2008

KYIV – On 16 September it was announced, that Volia supported the First All-Ukrainian ORELI Children Folk Festival popularizing Ukrainian traditions
of child fostering.

This kind of partnership strictly corresponds to Volia’s activity in terms of principle of business social responsibility. One of the goals of such activity is informational and educational youth-oriented projects.

“This step absolutely meets our principles. Supporting such projects is of great significance when it goes about harmonic fostering of rising generation.
Such events urge development of our children’s spiritual potential and talent, and thus they are important for cultural, social, and economic development of Ukraine as well as for strengthening its international image. We believe in success of this undertaking”, noted Volia President Sergiy Boyko.

‘Oreli’ is an ancient name for cradle. As a rule cradle was transferred from generation to generation together with traditions of child fostering. The “cradle” of the festival made its home in the Ukrainian Centre of People’s Culture “Ivan Gonchar Museum”.

Owing to this offspring given birth to by active Ukrainian culture popularizes – artist Petro Gonchar and singer Nina Matviyenko – such rarely used and so much saturated word “plekannia” (author’s note: outdated Ukrainian word for ‘fostering’) meaning “cherishing” becomes current again.

In the course of the festival parents (especially city residents) will open for themselves a traditional Ukrainian custom of fostering-cherishing. And the children… are going to have a real holiday! During these two days they are going to visit arts and crafts workshops.

They will be taught by folk craftsmen who are at the same time experienced pedagogues. This all-Ukrainian master-class will be decorated with performances from 15 original children’s teams from different regions of the country. Here you can listen to the tales of the wise grandmas from all over
Ukraine and those told by Sashko Lirnyk and watch the presentation of Lys Mykyta (Fox Named Mykyta) animated cartoon.

The organizers are planning to make the festival annual and its activities are going to take place across the country all the year through. In particular, their plans include arranging folk camps where children will study the whole list of Ukrainian holidays.

Volia employees as well as their children are looking forward to the festival, since all the events offered to the public by the Ivan Gonchar Museum are imbued with kind and faith in the future. We are going to witness and participate in the national act for the sake of children’s love. And the fact that it is going to be opened by lullabies sung by the inimitable Nina Matviienko – is a good sign! (

NOTE: Volia Limited operates in more than 15 large cities of Ukraine, providing cable television and Internet access services to over 2.5 million
households. Volia was founded in 2000 by the SigmaBleyzer Emerging Markets Private Equity Management Company.  SigmaBleyzer manages funds and special investment companies worth over $1 billion, and from 1994 has invested in over 80 companies in Ukraine.  SigmaBleyzer is a member of the U.S.-
Ukraine Business Council (USUBC) in Washington, D.C.
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Interfax Ukraine, Kyiv, Ukraine, Tuesday, September 16, 2008

KYIV – Ukraine’s cabinet has increased the forecast for the deficit of the balance of trade for 2008 from $15.416 billion to $17.713 billion. The relevant forecast of the cabinet is stipulated in an explanatory note to the draft 2009 national budget.

“As a whole, goods and services exports in 2008 are expected at 38.2% [earlier, the government forecasted a 30.2% rise], imports by 47.7% [37.4%]. The deficit of the balance of foreign trade would be $17.7 billion,” reads the document.
According to the explanatory note, total exports of Ukrainian goods and services in 2008 would reach $88.449 billion, while imports would be $106.162 billion.
“The pace of growth in exports would be explained by a rise in Ukrainian production volumes, favorable international situation on the markets,[although a small fall in the prices of metals is possible, but they would remain high], the growth in demand on engineering products, and a rise in exports of agricultural products,” reads the document.
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Standard & Poor’s, London, UK, Tuesday, September 16, 2008

LONDON – The dissolution of the governing coalition in Ukraine is not unexpected, and will have no immediate impact on the sovereign credit ratings on the country (foreign currency, B+/Stable/B; local currency, BB-/Stable/B), international credit rating agency Standard & Poor’s (S&P) said on September 16, 2008.

Since the Orange Revolution in 2004 the frequent turnover of governments and the abbreviated electoral cycle has fostered pro-cyclical fiscal policy and
impeded progress on privatisation and structural reforms. Over the near term, the demise of the governing coalition may not wreak much macroeconomic
damage, as it could prevent the passage of another supplementary budget, and therefore lead to a tighter than previously anticipated fiscal stance.

Over the longer term, however, the dissolution further reduces prospects for reform as it ushers in the beginning of the campaign for presidential elections, scheduled for early 2010.

As long as the atmosphere remains politicised, there will be little room for consensus policy-making on key issues including any passage of further
anti-inflation measures, privatisation, or adjustment of debt issuance plans. Ukraine’s potential growth rate remains among the highest of all rated sovereigns.

However, as the global liquidity squeeze tightens, the fate of the economy hinges more than ever on what happens to the terms of trade, particularly to
steel prices, and prices of imported gas. For this reason, downside risks to growth over the medium term remain high and uncertain.

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By Natalya Zinets, Reuters, Kiev, Ukraine, Monday September 15 2008
KIEV – The council of Ukraine’s central bank said on Monday it would in 2009 broaden to five percent from four the variation to be allowed in the hryvnia currency’s forecast value of 4.85 to the U.S. dollar. Chairman Petro Poroshenko announced the change at a news conference that followed a council meeting.
Next year’s forecast, like this year’s adopted in July until the end of the year, assumes the same base rate of 4.85 hryvnias. “For now, the range of permitted variations has been broadened to 5.0 percent from 4.0 this year,” Poroshenko said.
He said that figure could be revised early next year depending on the budget to be adopted by parliament, the price to be paid for imported gas from Russia and the situation on international markets.
“It was agreed that the central bank will take a further look at exchange indicators,” Poroshenko said. “We firmly believe that on the bases of information available now, the range of permitted variation is to be expanded.” He also said he believed the hryvnia would remain within the permitted variation from now until the end of 2008.
“We believe that the forecast rate set at the last council meeting will hold throughout the year,” he said. “For now, we see no reason to review this regardless of the situation throughout the world.” There were no grounds, he said, for any further revaluation of Ukraine’s currency.
The central bank had maintained the hryvnia within a narrow corridor of 5.0-5.06 hryvnias for three years until it revalued the currency last May to 4.85. It has since made several adjustments, with the currency currently trading at that level.
Ukraine’s government last week approved macroeconomic indicators for 2009 that see inflation slowing to 9.5 percent in 2009 from a 2008 forecast of 15.9 percent and GDP growth of 6.0 percent against a 2008 forecast of 6.8 percent. (Reporting by Natalya Zinets, writing by Ron Popeski; Editing by Ron Askew)
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Interfax Ukraine, Kyiv, Ukraine, Monday, September 15, 2008
KYIV – Ukrainian Rada Speaker Arseniy Yatseniuk is criticizing attempts of the National Bank of Ukraine to retain inflation using monetary means. During a meeting with students of the National Technical University in Zaporizhia on Friday, Yatseniuk compared this method to “stopping bleeding in the brain by applying a tourniquet to the neck.”
He said that a neutral position of the NBU would bring more positive results than the steps to cut credit activity and strengthen the national currency taken by the NBU.
“I don’t support the position of the central bank on the issue… restraining of inflation by monetary means cannot be seen in the modern Ukrainian economy,” he said. He said that one possible way to fight inflation is to make a cut in social payments. [Yatseniuk formerly served as the Minister of Economy and as the Minister of Foreign Affairs.]
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Interfax Ukraine Business Panorama, Kyiv, Ukraine, Monday, September 15, 2008
KYIV – The lack of political stability in Ukraine affects the country’s investment attractiveness, President of the American Chamber of Commerce in Ukraine Jorge Zukoski said in an exclusive interview with Interfax-Ukraine.
Today’s situation, with the lack of the political stability and lack of predictability of the business environment, causes the competitive level of Ukraine’s investment attractiveness to fall considerably. All countries compete to attract a limited amount of foreign direct investment funds and unfortunately, due to political instability, Ukraine is not competing well, he said.
He voiced confidence that the majority of foreign investors that have already invested into Ukraine will remain committed to the country. They will stay in Ukraine to develop their business, he said.
“However, the political instability in the country prevents it from attracting new investors. Most of them prefer not to invest in the Ukrainian market, as there are many other markets which are more stable and which can offer higher returns,” he said.
Zukoski said that a statement announced at the recent Ukraine-EU summit on the possible provision of the status of the associated member of the European Union to Ukraine and on the start of a dialogue on the introduction of non-visa regime was unlikely to radically change Ukraine’s investment climate in the eyes of investors.
“Businesses are very pragmatic, but this is a good sign for them,” he said. They will wait for further practical steps and will fix their eyes on Ukraine’s integration to Europe, he added.
He also said that Ukraine needs to conduct many reforms in legislation to improve its investment climate. He said that the adoption of the Tax Code of Ukraine is of top-priority, as is a law on joint-stock companies, which would protect the rights of minority shareholders.
[return to index] [Action Ukraine Report (AUR) Monitoring Service]

bne Ukraine Daily List, Berlin, Germany, Tuesday, September 16, 2008

As we expected, the Ukrainian stock market sank like a stone yesterday on the back of global markets working out the Lehman Brothers bankruptcy shock, and so it was no surprise that by midday the PFTS stock exchange suspended trading to prevent a crash.

However, this did not help much, as in the end the PFTS Index fell by 5.9% while the broad-based Foyil Ukraine 40 Index suffered an even bigger loss of 9.4%. The stock trading volume was a meager USD 3.6m, while the steel stocks Zaporizhstal and Azovstal were what passed for the darlings of the market with the majority of the trading volume (26% in total).

The major price decliners were Sumy NVO Frunze (-17.7%) and Bank Aval (-14.3%), while the sectors that brutalized the Foyil 40 Index were construction (-36.6%), mining (-21.5%), and banks (-18.9%). As of today, only the rarely traded Zaporizh Ferroalloy remains on our YTD-gainers list. As of 11:15 today, trading on the main Ukrainian stock exchange was suspended again after a massive drop in quotes.

Alfa writes: The most oversold market
The PFTS Index is the most oversold market in the world, according to Bloomberg, and this trend will certainly be reinforced by the 5.9% decline seen on Monday.

The market has ignored the acceleration in GDP growth in 2M08 and two months of deflation, as the pending Lehman bankruptcy and poor expectations for UBS’s upcoming report has pushed stock markets down globally. In Ukraine, the official announcement of the break-up of the Ukrainian parliamentary coalition only adds nervousness to the market.

According to our estimates, there is still room for further correction on the market, with approximately 15% downside potential. However, the Ukrainian economy remains fundamentally sound, as it is not directly exposed to commodity bubbles. The major export commodity prices for steel and fertilizers are determined outside exchanges and directly between producers and consumers.

There are no instruments for speculators to gain exposure to these commodities, unlike oil, for example. The real estate sector is expecting a boom, especially as preparations gather pace for Euro-2012. All in all, it is hard to believe that the pending bankruptcy of Lehman will have any influence on real estate prices in Ukraine or on price instability on the steel and fertilizer markets.
[return to index] [Action Ukraine Report (AUR) Monitoring Service]

Reuters, Kiev, Ukraine, Tuesday September 16 2008

KIEV – Ukraine’s government on Tuesday asked its state banks to borrow up to $3.7 billion on foreign debt markets to fund mortgage lending in return for
raising their charter capital. Under the 2009 budget draft law, Ukraine’s Oshchadbank and Ukreximbank and the state mortgage institute will receive 500 million hryvnias (just over $100 million) to boost their charter capital.

“We are giving them the opportunity to borrow cheap money on foreign markets worth more than six times their charter capital,” Prime Minister Yulia
Tymoshenko said at a public presentation of the budget draft.

“This cash will be set at up to 18 billion hryvnias. It can be received via Oshchadbank and Ukreximbank with a minimal first down payment and at low
rates, naturally, for 25-30 years.”

The central bank has recently tightened consumer lending and increased payment requirements, worried that the domestic debt market would overheat and in an attempt to cool inflation. At the same time, the construction sector has slowed.

She did not say, however, who could lend to the banks under the current expensive and illiquid climate in the debt markets thanks to the credit crunch sparked last year by the collapse of low standard mortgage lending. (Reporting by Natalya Zinets; writing by Sabina Zawadzki)

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

Delo, Kiev, Ukraine, in Russian 8 Aug 08; pp 8, 9. , BBC Monitoring Service, UK, in English, Tue, 16 Sep 2008
The management of the state-run UT1 TV channel has been trying hard to overcome the channel’s financial difficulties, the acting head of the State TV and Radio Company, Vasyl Ilashchuk, has said in an interview with a business daily. He said that the management has decided to declare redundant half of the channel’s personnel to be able to upgrade its technical equipment and launch new projects. He added, however, that the changes will be implemented gradually.
The following are excerpts from Ilashchuk’s interview with Olena Khladskykh entitled “Head of the first button” published in the Ukrainian business daily newspaper Delo on 8 August:
Our interview with Vasyl Ilashchuk was recorded the evening before his trip to the Olympic games in Beijing, which will be broadcast by the state-run UT1 channel. The acting president of the National TV and Radio company of Ukraine talked about his accomplishments during his first half year in the post, as well as how he plans to “freshen up” the channel.
[Delo] You came to the channel six months ago. Did you bring your team with you?
[Ilashchuk] Yes. I came with my three deputy heads. But the other three vice presidents used to work at the channel, too.
[Delo] Could you name the people you rely on.
[Ilashchuk] First Vice-President for Economic Issues Mikhail Koblya. He’s just a powerhouse when it comes to these affairs. He quickly learned the ropes of the television industry. And I can’t hide the fact that today he understands many things about television better than people who have worked here for years.
[Delo] Where is he from?
[Ilashchuk] He came from Khmelnytskyy. We have been working together for a long time. My second deputy is Roman Nedzelskyy (husband of the propresidential MP Oksana Belozir – Delo). He is the first vice-president for cultural issues. Television is a show. Roman had worked on a music channel for a long time and, as a result, he understands these issues. Vice-President Andriy Chernyuk also came to the channel. He had worked for national radio for a long time, and later on television in Chicago.
[Delo] What have you been able to accomplish over the past half year?
[Ilashchuk] I was surprised when asked just one week after my appointment: “Why is nothing changing at the channel?” Everything will change gradually. Sociologists say that two years are needed to radically change a channel. The first 25 per cent of these changes will already take place from 1 September. The second 25 per cent will probably happen from 1 January 2009. We cannot say that we’ will change everything 100 per cent, but we will change things gradually.
[Delo] So again what have you been able to accomplish?
[Ilashchuk] The channel will be on a satellite from 1 September. This is one of the most serious accomplishments. But the most important thing we have been able to achieve is to get the company onto clear and transparent books. I cannot catch fish in muggy water. It’s easier for me to work in clear water and see that fish. It makes the sport more interesting. The first half year we were learning the ropes of the television company where we’re working. We were busy with economic and technical issues. That’s the biggest problem for the company today.
[Delo] Did you buy any new equipment?
[Ilashchuk] We’re currently in the process of making these purchases. Everything depends on financing. Misunderstandings in the cabinet have seriously have let us down: they cannot make any changes to the budget. We have spent all our money on broadcasting the European football championship and Bartholomew’s visit (Ecumenical Patriarch of Constantinople – Delo).
Finances were shifted from December to July for us to cover some of our expenses. We have figured that it’s pointless to depend on the budget alone. We cannot take loans as we are a state structure. Everything points to the fact that the channel needs an individual budget or must engage in serious commercial activity to survive. [Passage omitted: Castings for new TV presenters are under way.]
[Delo] What is your position? What will you do with the personnel who, as is well known, make all the decisions?
[Ilashchuk] I’m convinced that 1,850 people is too much for a TV channel. Even yesterday at a meeting of the state TV and Radio committee I heard remarks that a maximum of 300-500 people work at other channels that broadcast 24 hours per day. Our channel broadcasts 18 hours per day because we share our frequency with Era (a TV and radio company controlled by opposition Party of Regions MP Andriy Derkach – Delo). But we still have this huge staff. It’s ineffective. People are used to just coming to work, sitting back all day and then getting their salary at the end of the month like in old times.
[Delo] If it’s not a secret, what is an overage wage at the channel? Do they get 500 dollars?
[Ilashchuk] I don’t want to name any figures because wages vary. These are questions for our accounting department.
[Delo] But are they lower than at commercial channels?
[Ilashchuk] Significantly lower. But we are prepared to take in serious specialists and get them serious salaries to improve our channel.
[Delo] How many people could you fire who are working today without detriment?
[Ilashchuk] Today we could easily get by if we fired no less than half our personnel. But we don’t want to hurt anyone. I had worked with these people for many years and for me to now say: “You’re not needed”… [ellipsis as published] That’s painful for a person to hear. People won’t understand this until certain professional norms are introduced. However, any company director knows full well who is redundant in his team and who he can go without.
[Passage omitted: repetition]
[Delo] What creative departments would you like to improve first?
[Ilashchuk] First off, I would strengthen the informational and analytical sphere as information and analysis are what television hinges on.
[Delo] So today you need editors and authors who could make analytical shows. Is this a weak link?
[Ilashchuk] It is not a weak link. The link simply does not exist. This is why we want to launch a weekly analytical show on Sundays as of 1 September that will summarize the week we have lived through. In fact, right now we are working on this project with analysts. We will have new projects from 1 September, 1 October and the New Year that I won’t talk about at the moment. Let it be a surprise for viewers.
[Delo] Today, the UT1 channel is starting to broadcast the Olympic games. But after the agreement with Inter [TV channel] to sublicense the broadcasting of the Olympics fell through (it was believed that the supermarker network Foxtrot would be the general sponsor for broadcasts of the games in Beijing), the National TV and Radio company of Ukraine wound up without any sponsors. In any case, one week before the games we were told at the UT1 channel: “Negotiations are under way.” Could you tell who will sponsor the Olympic broadcast now?
[Ilashchuk] Our commercial director could answer these questions. He handled the sponsor search. I’ll put it this way. I’m satisfied we are the only ones who will broadcast the Olympics. Just because we didn’t give a sublicense for the 2008 [European football] championship or the Olympics doesn’t mean we need money. No. The channels that wanted to buy the sublicenses from us just couldn’t meet our conditions. And they aren’t just our conditions, they are the conditions of the EBU (European Broadcasting Union – Delo).
[Delo] It’s a known fact that the cost of being a general sponsor dropped from $2.5 million, which was the initial offer. to $800,000 and then $400,000. The cost of the official and regular sponsorship also decreased twice to become $150,000. But regardless, as far as I understand, you still had problems finding a sponsor. Why?
[Ilashchuk] A minimum of one year is needed to find sponsors for such massive promotions like Eurovision or the Olympics. But when you go to a sponsor two months or a month before the event, when the companies’ budgets are already allocated to the end of the year, they can’t make this kind of commitment. How could we cope with this if Eurovision ended, the European football championship began, the European championship ended and then the Olympics started? We just didn’t have the human resources in our commercial department.
NOTE: The profile of Vasyl Ilashchuk, acting president of the National TV and Radio company of Ukraine.
Born on 20 July 1963 in Chernivtsi.
1990 – graduated from Chernivtsi State University with a degree in the Russian language and literature.
1981 – worked as a carpenter at the Chernivtsi furniture factory.
1981-1983 – served in the Armed Forces of the USSR.
1983-1992 – presenter of the TV and radio broadcasting committee of the Chernivtsi regional executive committee.
1992-1995 – presenter of the Chernivtsi regional TV and radio broadcasting union.
1995-1997 – presenter of the Chernivtsi regional state TV and Radio company.
1997-2008 – show host, presenter at the National TV and Radio company of Ukraine. For four years, he headed the production studio “Studio of exclusive TV shows”. The studio made over 50 episodes of documentaries “Along Ukraine’s roads,””Roads of Ukrainians” and others.
From January 2008 – an advisor to President Viktor Yushchenko. On 21 February 2008 appointed acting president of the National TV and Radio company of Ukraine.
[return to index] Action Ukraine Report (AUR) Monitoring Service]
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Maksim Birovash, Korrespondent, Kyiv Post, Kyiv, Ukraine, Thu, Sep 11, 2008
KYIV – When foreigners come to Ukraine to start their own small business, they often risk more than capital. They risk their health and possibly, even their lives.

When foreigners come to Ukraine to start their own small business, they often risk more than capital. They risk their health and, possibly, even their lives.
One common threat: the one two punch of local businessmen and officials who team up in envy against the successful foreign entrepreneur.

According to the World Bank, Ukraine ranked 145-th out of 155 countries in protection of foreign investors, despite attracting $36.5 billion in foreign investment since independence in 1991. Only Uzbekistan and some African countries ranked worse. The report concluded the situation is unlikely to change for the better in the next two years.
This could mean more bad news – and bad beatings – for investors who follow in the unfortunate footsteps of Swiss businessman Maurits Stamm.
Stamm, 28, became the first foreign investor in the picturesque village of Bahva in the Cherkasy Oblast. In December 2007, he arrived to find fallow land. The collective turned private farms had gone bankrupt. The irrigation system had been destroyed by scrap hunters and much of the land had been taken over by local oligarchs to build their country villas.
The village residents said Stamm was a real ascetic. Until his company started bringing in a steady income, he lived in a repair shop for 18 months. A graduate of a provincial agricultural school, he invested 1.5 million euros into his Ukrainian farm. Within a year, he renovated an abandoned farm that soon became the first profitable enterprise in the area.
Stamm became a victim of his own success. The first person to show interest was Petro Yevych, then head of the Korsun Shevchenkivsky district administration, and now head of the agricultural firm RosAgro.
“He came together with his broadshouldered assistants and hinted that I have to hand my business over to him, or I would be in trouble,” Stamm said. The regional police department told Korrespondent, the Russian language sister publication of the Kyiv Post, that three of the visitors were members or coaches at the Cherkasy kickboxing club. Their second visit sent the foreign farmer to intensive care in Kyiv.
His misfortune is nothing unusual. Ihor Skoryk, analyst at the Center for Work with Foreign Investors, said that his organization recorded 1,500 violations of foreign investors’ property rights due to the whims of local authorities and businesses since early 2007.
Most victims speak out only after realizing that they are facing a much stronger opponent. While Stamm is facing only a former provincial government chief, wine importer Christina Xinias is fighting with a business partner in Kyiv who, she said, is backed by someone higher in the government hierarchy – the chief of the National Committee for Energy Regulation.
Zbigniew Wroblewski, a Polish ice cream maker working in the Kyiv oblast, said he is losing his battle to one of Ukraine’s largest business groups. His compatriot, Dariusz Kwiecinski, has all but lost his business as a result of a decision to fire his local top manager.
“In most cases the local raiders attack businesses outside the capital,” said Dietrich Treis, head of the Association of Foreign Investors.
Local farmers say that in Stamm’s case the attack was out of envy. His company was paying over Hr 1,000 in wages to once destitute farmers, and, in return, they leased him more land in 18 months than the former government official, Yevych, had managed to rent for many years.
Apart from physical attacks, Stamm’s farm was set on fire. The very same people who had beaten him up organized several meetings with land owners, trying to persuade them to reclaim his land ownership certificates and, therefore, the land itself. But nobody would agree to it. Korrespondent contacted RosAgro for comments, but Yevych could not be reached.
Stamm has not recovered from the assault, but has maintained his company. His case is being monitored by the Cherkasy regional governor and the Swiss Embassy.
Stamm said that, despite his extreme investment experience, he will not leave Ukraine. “My whole life is in this farm. There is no way back,” he said, adding that he is considering hiring armed personal guards.
The case of ice cream maker Wroblewski is not so straightforward. In 1997, he invested $11 million in a unique ice cream factory in the village of Kyselyovka in the Kyiv oblast. He said it had the potential to become a monopoly in the region, so the Privat business group became interested in it.
Wroblewski himself said the threat to his factory came as soon as he got Ukrainian shareholders. “When we were catastrophically short of revenue to start operating, I went to some people in a Kharkiv bank and offered them partnership for $4 million of additional investment,” he said.
KIB-Service, a Kharkiv company, and Cyprus registered Avagno Enterprises Limited both offered him investment in exchange for a share in the statutory fund of FermaKi, the company that owned the factory.
The money never materialized, but the Ukrainian partners had received enough statutory documents to attempt a takeover. “The documents I signed effectively gave my former partners a chance to take over the factory,” said Wroblewski.
In 2006 the Supreme Court confirmed that Wroblewski owned 100 percent of his company, while the General Prosecutor’s office started criminal proceedings against KIB-Service and Avagno Enterprises Limited, accusing them of largescale fraud. But Wroblewski’s joy was premature.
On Aug. 5, he lost the case in the High Economic Court in Kyiv, and almost immediately the greater part of his joint stock company was sold.
The Polish investor said he fell victim to a takeover by Privat, a large business group led by oligarch Ihor Kolomoiskiy. Wroblewski has mentioned in many interviews to the Ukrainian press that the security company that seized his factory was connected to Biola food concern, where Kolomoiskiy is an investor.
Korrespondent contacted Biola, but their marketing department said they knew nothing of Wroblewski and had nothing to do with the takeover.
Another Polish businessman, Dariusz Kwiecinski, is facing a different set of circumstances in Bibrka, Lviv oblast. After he dismissed his local manager from Polisyntez, a foamed polyurethane maker, a part of the 5 million euro factory was burned down.
His losses of 1.5 million euros and a cross left on top of the burned building were just the beginning of his troubles. The local council closed down the factory, claiming it threatened the environment, and a third of his company’s shares were quietly bought out by a third party.
“My partners and I realized that the dismissal, the fire, the local council ban and the purchase of shares were not a coincidence – they are links of the same chain,” said Kwiecinski. He stopped his investment projects and began extended court procedures. “Ukraine is a country where it’s impossible to defend your rights,” he said.
In some cases, Ukrainian business partners make it clear to the foreign investor that it makes sense for them to quit their business voluntarily to avoid hassles and expensive lawyers. The weightiest arguments for persuasion in such cases: high ranking state officials who turn out to be close relatives of the Ukrainian side.
This was the case with Christina Xinias, a Greek business lady who founded wine importer and distributor DolmartUkraine 15 years ago. She said she started another company called Sommelier in 2006 to handle some aspects of the business, and appointed former commercial director of Dolmart, Anna Kalchenko, to run it.
Dolmart invested Hr 4 million into Sommelier, which later tried to take over the whole business, according to Xinias. “I have two letters that Sommelier sent to our suppliers saying that Dolmart went bankrupt, and their products will be imported to Ukraine by Sommelier,” said Xinias, who later sued Sommelier. On the eve of court hearings, strange things started happening at Dolmart. “Information started disappearing, then computers,” said Xinias.
Finally, she was paid a visit from an powerful guest, about whom she had heard many times before. It was Valery Kalchenko, the father of Anna Kalchenko and head of Ukraine’s energy regulating body. Xinias said he threatened “special interference” if Dolmart failed to withdraw its lawsuit. Korrespondent could not reach Anna or Valery Kalchenko for a response to the accusations.
According to the State Statistics Committee, in the first half of 2008 alone, foreign investors withdrew $500 million from Ukraine, and twice that in 2007. It was partly due to the stock exchange crash, but partly because of the problems facing foreign investors. The country’s president has only just noticed the trend, saying at a recent press conference that he was “concerned” by the scandals.
In the meantime, none of the cases are likely to be resolved soon. Investigation into Stamm’s case has been dragging for months, and no court hearings have been appointed. The ice cream maker Wroblewski describes his relations with Ukraine as “cold war.”
He and his embassy are desperately bombarding government organs with petitions, but getting nowhere. “Everything is within the frame of Ukrainian law,” Wroblewski quotes the most popular response.
The cold shower of local realities has forced those investors who persist in staying in Ukraine to think about selfdefense. The Polish entrepreneurs united into the Association of Polish Businessmen, which grew to include representatives of other nationalities.
It was transformed into the Association of Foreign Investors, now headed by Treis, who also heads the Kyiv bureau of O.L.T. Ñonsult GMBH, a consultancy for foreign investors in Ukraine.
“After the cases of Stamm, Wroblewski and Kwiecinski, and a number of other outrageous reprisals, it is obvious that an organization is needed to defend the rights of foreign investors,” said Treis. He said a further increase in the number of disgruntled investors can lead to a chain reaction when other investment projects start closing down.
In the meantime, business investors are adapting to local economics, preferring to negotiate rather than fight. “You need to solve problems not with the police, but by negotiating with local authorities,” said the limping Stamm. LINK:
[return to index] [Action Ukraine Report (AUR) Monitoring Service]

By Maria Danilova, Associated Press (AP), Kiev, Ukraine, Tuesday, Sep 16, 2008  
KIEV, Ukraine – President Viktor Yushchenko accused Russia on Tuesday of trying to destabilize Ukraine by encouraging separatists in the Crimea, as fears grow about Russia’s willingness to throw its weight around the former Soviet Union.
In an interview with The Associated Press, Yushchenko sought to tamp down criticism of his leadership in Ukraine after the collapse of his pro-Western coalition raised the possibility of a third parliamentary election in as many years.
Russia’s war with Georgia last month rattled Yushchenko’s pro-Western government, which like Georgia has pushed for membership in NATO and the European Union. Many Ukrainians wonder whether Ukraine will be the next victim of Russia’s drive to stop NATO’s expansion to its borders.
Many fear Moscow could lay claim to Crimea, the Black Sea peninsula that once belonged to Russia and is now home to Russia’s Black Sea fleet. More than half its residents are ethnic Russians.
Yushchenko said Russia was interested in causing “internal instability” in parts of Ukraine. “Without a doubt, such scenarios exist,” he said.
“For some of our partners, instability in Ukraine is like bread with butter,” he said.
Yushchenko said Ukraine was too big and strong to give in to threats from Russia or a repeat of the war in Georgia, which resulted in Russia invading the country, routing its military and occupying large swaths of its territory. Moscow has recognized two breakaway Georgian regions as independent nations.
“Will they repeat the Georgian scenario?” Yushchenko asked. “For sure, no.”
“Ukraine is not Georgia,” he said. “I think that today to deal with a country like Ukraine in such an inconsiderate manner … is not a good idea for anyone.”
Russia wants to continue leasing the Sevastopol naval base in the Crimea from Ukraine after the current agreement expires in 2017. Yushchenko said the war with Georgia, with Russian warships based at Sevastopol participating, showed again that the Russian navy must leave Crimea.
Ukrainian officials also have accused Moscow of stirring trouble with claims that the Crimea belongs to Russia and by allegedly giving Russian passports to thousands of Crimeans to stoke separatist sentiments.
Yushchenko, who has made NATO membership the central theme of his four-year presidency, promised that Ukraine would eventually join the Western alliance, and he vowed to overcome domestic resistance to NATO. Opinion polls show more than half of Ukrainians oppose membership, with opposition strongest in the Russian-speaking regions in the east and south, including Crimea.
Yushchenko, wearing a striped black suit and red tie, spoke and gestured confidently during the 30-minute interview. His face looked nearly healed of the pock-like scars caused by the dioxin poisoning that briefly knocked him out of the 2004 presidential election race. He has suggested the near-fatal poisoning was masterminded in Russia.
Yushchenko spoke hours after his coalition was declared dead, starting a 30-day countdown for lawmakers to either form a new alliance or call elections.
Yushchenko said the collapse did not threaten the country’s tumultuous democracy. He accused his coalition partner Yulia Tymoshenko — the prime minister who was his ally in the 2004 Orange Revolution — of betraying national interests and acting selfishly.
The alliance between the two leaders’ parties disintegrated amid infighting ahead of the 2010 presidential election, in which both expect to compete.
Yushchenko’s allies pulled out of the coalition after Tymoshenko sided with opposition lawmakers to curtail presidential powers. Yushchenko again accused Tymoshenko of acting on the Kremlin’s behalf by failing to condemn the war in Georgia and of seeking to retain power at all costs ahead of the vote.
Tymoshenko said in a statement before the interview that she hoped Parliament would find a way out of the crisis. Analysts believe that the next coalition may include the Russia-friendly Party of Regions and be more responsive to Moscow’s demands.  [Associated Press writer Olga Bondaruk contributed to this story from Kiev.]
[return to index] [Action Ukraine Report (AUR) Monitoring Service]
By Daryna Krasnolutska and Halia Pavliva, Bloomberg, Kiev, Ukraine, Tue, Sep 16, 2008
KIEV – Ukraine’s governing coalition collapsed as the parties of President Viktor Yushchenko and Prime Minister Yulia Timoshenko failed to resolve their differences, pushing the country toward early elections.
Yushchenko’s party, which wants to forge closer ties with the European Union and the North Atlantic Treaty Organization, quit the coalition on Sept. 3, after Timoshenko’s bloc teamed up with the pro-Russian opposition to strip the president of some powers. The parties had 10 days to re-unite.
“A pro-Kremlin parliamentary majority has been de facto formed by Timoshenko’s alliance and the Party of Regions” led by former Prime Minister Viktor Yanukovych, said Vyacheslav Kyrylenko, a member of Yushchenko’s Our Ukraine party. “Our Ukraine has no other choice but to officially announce it is now in opposition.”
Yushchenko and Timoshenko teamed up four years ago to win the 2004 election in the bloodless Orange Revolution on promises to steer the country toward the EU and NATO. After a split in 2005, the two parties reformed an alliance before last year’s elections. This time they clashed over policies such as ways of damping Europe’s fastest inflation and the sale of state assets.
The collapse of the coalition will probably delay Ukraine’s bid to join NATO and the EU, Oleksandr Lytvynenko, a political analyst at the Kiev-based Razumkov Center, said by phone today.
“The government will keep working, no matter what,” Timoshenko said. “These events in the parliament that happened today aren’t very pleasant, but, after all, it’s a storm in a teacup, no more than that.”
Yushchenko condemned Russian rolling over Georgia’s army and recognition of the two Georgian breakaway regions. His officials said Timoshenko did not back him because she is seeking Russian support in Ukraine’s presidential election, scheduled for 2010. Timoshenko rejected the accusation, saying she is for “Georgian territorial integrity.”
Ukraine’s aspiration to join the North Atlantic Treaty Organization and the EU has pit it against Russia since the Orange Revolution. Russia, which does not want its influence in the region to be eroded, threatened in February to aim missiles at Ukraine, a main conduit for Russian natural gas and crude oil exports to Europe, if it joins the military alliance.
U.S. Republican vice-presidential nominee Sarah Palin has said she favors NATO membership for Ukraine and Georgia, even though that might commit the U.S. to a war with Russia.
Timoshenko now has one month to form a new coalition, most likely with Yanukovych. The Communist Party and an anti-NATO group may also be included in the government. Yushchenko has twice threatened to dissolve parliament should the premier fail to win enough support.
“We will probably have early elections, I do not see any possibility for a new coalition,” said Lytvynenko. “There will not be a major winner from the elections, but Yanukovych and Timoshenko will probably have more benefits from them, while Yushchenko and his party will probably lose.”
The earliest possible date for an election would be December.
“Moscow will welcome political changes in Ukraine that weaken the pro-NATO and pro-Georgian Yushchenko,” Tanya Costello, the London-based director for Eurasia Group, said in an e-mailed note. “The perceived involvement of either Washington or Moscow in supporting one party over another would accentuate existing tensions over NATO enlargement into the former Soviet space.”
Ukraine wants to bring inflation below 10 percent to spur growth and raise living standards in the former Soviet republic, where around 8 percent of the population lives in poverty. Spending this year helped boost the inflation rate to a record 31.1 percent in May, prompting Standard & Poor’s to cut the country’s credit rating.
Inflation has been at 10 percent or above since 2003. Organizations including the International Monetary Fund have urged Ukraine to run a budget surplus to quell price growth.  Timoshenko said today at a Cabinet meeting that she would implement policies to cut the inflation rate to below 10 percent in 2009.
The yield on the 4.95 percent bond due October 2015 climbed 10 basis points to 10.69 percent, the most since it was sold in October 2005. The yield on the 6.875 percent bond due March 2011 jumped 23 basis points to 9.19 percent.
Stock trading was suspended more than once today, according to the Kiev bourse’s Web site. The benchmark PFTS Index dropped 14 percent, extending a 5.9 percent decline yesterday.
The hryvnia, which the central bank manages through sales and purchases on the foreign-exchange markets, fell for a second day, dropping to 4.8272 per dollar, from 4.7800 yesterday. [To contact the reporter on this story: Daryna Krasnolutska in Kiev at]
[return to index] [Action Ukraine Report (AUR) Monitoring Service]
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OP-ED: By Doug Bandow, Eureka Reporter, Eureka, CA Sunday, Sep 14 2008
The crisis over Georgia has abated, but its ramifications will only increase. What of Ukraine? The question worries people across Europe and especially those in Ukraine.
When the Soviet Union broke up, thousands of nuclear weapons remained in Ukraine, Kazakhstan and Belarus. One of America’s principal foreign policy goals became disarming these inadvertent nuclear weapons states.
The objective was valid, but there were countervailing foreign policy interests. As we have just seen with Georgia, the Soviet breakup, a sudden response to the USSR’s worsening internal political crisis, did not necessarily result in final boundaries. The events of 1989 sowed the seeds of future conflict.
The removal of nuclear weapons from Belarus and Kazakhstan proceeded with minimal controversy. More complicated was the case of Ukraine. The new nation had a population of 52 million and tore a huge hole in not just the Soviet Union, but also what had been imperial Russia. Although independence sentiment long permeated western Ukraine, ethnic Russians, who make up about 20 percent of the total population, predominated in the south and east.
Moreover, the Crimean Peninsula — in which 58 percent of the people are ethnic Russians, and many of whom retain Russian passports — only became part of Ukraine in 1954, a then-meaningless geopolitical gift from Ukrainian Nikita Khrushchev, who succeeded Joseph Stalin as the USSR’s Communist Party general secretary. When the Soviet Union broke up, Russians and many Crimeans believed that Crimea should revert to Russia.
Despite their general euphoria at escaping from Soviet control, some Ukrainians perceived clouds on the horizon. They believed that their unexpected nuclear force could act as a source of national pride and military security. The denuclearization process stretched out more than two years, as first Ukraine’s president temporized and then the parliament resisted.
There were dissident American voices also. For instance, John Mearsheimer of the University of Chicago argued: “It is imperative to maintain peace between Russia and Ukraine. That means ensuring that the Russians, who have a history of bad relations with Ukraine, do not move to reconquer it.
Ukraine cannot defend itself against a nuclear-armed Russia with conventional weapons, and no state, including the United States, is going to extend to it a meaningful security guarantee. Ukrainian nuclear weapons are the only reliable deterrent to Russian aggression.” All other things being equal, it was better that Ukraine not have an atomic capability, but all other things were not equal.
Today Ukraine faces a resurgent Russia and the bear is in an ugly mood. While an attempt at outright annexation seems unlikely, agitation by Russian nationalists about the Crimea grows louder as many ethnic Russians living in Crimea express their support for returning to Russia.
President Yushchenko warns that “What has happened [in Georgia] is a threat to everyone, not just for one country. Any nation could be next, any country.” Moreover, a split has developed between Yushchenko and Prime Minister Yulia Timoshenko, who appears to have become the government leader with whom Moscow can do business.
All of this would make for interesting political theater if the U.S. and Europe were not involved. But Washington has invested heavily in the Yushchenko government, just like Georgia’s Saakashvili government.
President Yushchenko offered to give the U.S. and Europe access to Ukraine’s missile warning systems. Most importantly, he supports Ukrainian NATO membership, which includes an American defense guarantee. That might be the best option for Ukraine, but it certainly isn’t a good policy for the U.S. or Europe. Going to war with Russia — which in this case means peering into the nuclear abyss — over Ukraine is little more palatable than doing so for Georgia.
For this reason NATO membership isn’t an effective guarantor for Kiev. Just joining the alliance won’t ensure that the other members will be prepared to confront Moscow militarily in a crisis. Imagine, however, if Ukraine had kept a few of its Soviet-era nuclear weapons and missiles. Talk of Russian pressure, let alone attack, would disappear.
Ukraine would be more secure, without having to hope for rescue from the West. The U.S. and Europeans would not find themselves pushed to defend a country with no intrinsic security value to them. They would not be contemplating a policy of confrontation with a nuclear-armed power.
There obviously would be downsides to Kiev’s possession of a nuclear arsenal, and the past cannot be reclaimed, but there is a lesson to be learned for the future: idealistic policies adopted in haste might actually make the world more dangerous. If America and Europe eventually find themselves at war in Ukraine, they are likely to rue the day the final Ukrainian nuclear warhead was sent back to Russia.
NOTE: Doug Bandow is the Robert A. Taft Fellow at the American Conservative Defense Alliance. He is a former special assistant to President Ronald Reagan and the author of several books, including “Foreign Follies: America’s New Global Empire.”
[return to index] [Action Ukraine Report (AUR) Monitoring Service]

ANALYSIS & COMMENTARY: Jonathan Russin, Leonid Sevastianov, Tom Thomson
Moscow Times, Moscow, Russia, Wednesday, September 17, 2008 

After U.S. elections, the new president’s tough rhetoric on Russia will most likely be exchanged for pragmatism to manage the common political and economic interests that bind the two countries together.

The five-day war between Georgia and Russia moved the foreign policy debate of the U.S. presidential campaign from theory to the frightening reality of an international crisis that might chill relations for some time.

The presidential candidates, Republican John McCain and Democrat Barack Obama, both condemned Russia’s actions, but their individual approaches to Russian ties are significantly different. Would their campaign statements on Russia be the same if they were the president?

Before the fighting began last month, McCain harshly criticized Moscow at every turn and singled out Prime Minister Vladimir Putin in particular. He suggested removing Russia from the Group of Eight and denying World Trade Organization membership as punishment for what he called its autocratic behavior, civil liberties violations and attempts to rebuild the Soviet empire.

Now, McCain says Russia’s invasion of Georgia confirms that its leaders, “rich with oil wells and corrupt with power, have rejected democratic ideals and the obligations of a responsible power.” But, he adds, “I’ll work to establish good relations with Russia so we need not fear a return to the Cold War.”

Obama, too, was critical of Russia’s record in democracy, human rights and aggressive behavior toward its neighbors before the war, and when fighting started he forcefully condemned the Kremlin for its policy toward Georgia.

But Obama urges restraint in the U.S. response and advocates a policy of constructive engagement on international terrorism, nuclear proliferation, energy security, Iran, North Korea and other vital common strategic interests.

Is McCain using sharp campaign rhetoric to build support among foreign policy hawks in the Republican Party and to attract like-minded voters in the Democratic Party and among independents? Or was he trying to articulate a “McCain Doctrine” on U.S. policy toward Russia?

Is Obama’s less confrontational approach toward Moscow, as well as the administration of President George W. Bush for being distracted by Iraq and not developing policies to deal with a resurgent Russia, a campaign ploy to gather votes from disaffected Republicans and to shore up his Democratic Party base? Or will a policy of firmness and engagement with the Kremlin be at the core of an Obama administration’s policies toward Russia?

U.S. history has repeatedly demonstrated that campaign positions on Russia do not necessarily become the basis for the president’s policy toward Moscow. The presidential candidate who was most critical of Russia has often become a strategic partner on controlling nuclear proliferation, fighting terrorism or improving trade.

During the Cold War, each Republican and Democratic presidential candidate took hard-line stances toward the Soviet Union. But even during the Cuban missile crisis, U.S. President John F. Kennedy and Soviet leader Nikita Khrushchev started secret negotiations and signed the Limited Test Ban Treaty in 1963.

Strained relations also failed to dissuade U.S. President Richard Nixon from making a bold diplomatic initiative to visit Moscow in 1972 to hold a summit with Soviet leader Leonid Brezhnev that reduced tensions and promoted greater cooperation. Nor did they give pause to U.S. President Ronald Reagan to work together with Soviet leader Mikhail Gorbachev to bring the Cold War to an end.

In the post-Soviet period, Russia’s political ideology changed, but the campaign rhetoric of the U.S. presidential candidates often mirrored the Cold War period. In the 2000 campaign, Bush said Russia was in danger of reverting back to the days of the Soviet Union under former KGB colonel Putin. But in his first meeting with Putin as president, Bush said he looked into Putin’s eyes and saw someone he could trust.

The personal chemistry between President Dmitry Medvedev and the next U.S. president also will determine largely whether Moscow and Washington have a foreign policy of cooperation and healthy competition or confrontation.

If modern history is any guide, the next U.S. president, despite the tone of his campaign rhetoric, will likely follow in the footsteps of predecessors such as George H.W. Bush vis-a-vis Gorbachev and Bill Clinton vis-a-vis President Boris Yeltsin.

But history and personal chemistry are by no means the only factors. McCain or Obama will inherit a policy framework of treaties and agreements that were initiated by prior U.S. presidents and played significant roles in defining the U.S.-Russian relationship, including WTO accession negotiations, the Nunn-Lugar programs to transform warheads into nuclear fuel and the International Space Station. A U.S.-Russia Strategic Framework Agreement signed in April was aimed to preserve a multibillion-dollar economic engagement between Russia and the United States.

Even at the lowest points of the heated debate between the United States and Russia about proposed U.S. missile-defense sites in Central Europe or NATO membership for Georgia and Ukraine, important policy initiatives remained intact.

Now, the policy framework is again being tested by the armed conflict in Georgia. Washington withdrew a joint civilian nuclear cooperation agreement from congressional consideration, and it will be less vocal in supporting Russia’s WTO accession. But both initiatives could be reinvigorated with gradual improvements in relations. Expect the U.S. business community to lobby the next White House for policies to expand commercial opportunities in Russia.

The U.S. policy debate on whether to engage or isolate Russia will intensify. It is, however, clear that relations must be pragmatic and recognize interdependencies in economic development, energy security, fighting terrorism and controlling nuclear proliferation.

The challenge for the next U.S. president in working with Medvedev and Putin will be to address such issues with sound judgment and an acute awareness of the consequences for failing to meet this responsibility.

NOTE: Jonathan Russin, Leonid Sevastianov and Tom Thomson are partners in RST International, a business and strategic communications consultancy based in Moscow and Washington.  LINK:

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ANALYSIS & COMMENTARY: By Chuck Spinney, Huffington Post, USA, Mon, Sep 15, 2008
Putin’s and Medvedev’s stroke in Georgia has placed the Bush Administration (not to mention the legacy of Clinton’s policy of militarizing humanitarian intervention) on the horns of dilemma that threatens to make both the Bush Administration’s policy of messianic unilateralism and the United States an international laughing stock.
On the one hand, under the Trojan Horse of promoting democracy with bombs and bullets or by using political fronts like the National Endowment for Democracy to meddle in or rig local elections, the Clinton and Bush Administrations created a situation where today the US reserves the right to intervene anywhere in the world, including the backyard of any regional power, like Russia.
Our own actions show that the goal of promoting democracy is a Trojan Horse, however. When a party we do not like — e.g., Hamas — wins a relatively fair election, Bush, like his predecessors, has worked to undo the result and promote a less democratic alternative.
Promoting democracy does not matter, because the game has degenerated into unlimited greed — i.e., grabbing or controlling energy sources and/or transfer routes and pumping ever-increasing gobs of money into the Military-Industrial-Congressional Complex or MICC, which in theory should have shrunk drastically, once its raison d’etre — the Cold War — disappeared.
On the other hand, Bush refuses to repudiate the Monroe Doctrine, which asserts that no European (or now Asiatic) power can be allowed to meddle or intervene in the Untied States’ backyard, and which we now define as the entire western hemisphere — even though that doctrine has been construed in the past to be consistent with the right of the United States to prop up vicious dictatorial governments (e.g., Samoza in Nicaragua), oppose legitimately elected governments (e.g., Allende in Chile), or annex land which was held by others before President Monroe proclaimed his doctrine (e.g, Mexico or Spain).
The message delivered by Russia’s lightning move into Georgia (which it should be remembered was triggered by Georgia’s invasion of South Ossetia, with the tacit, if not overt, encouragement of politicians in the United States) should be obvious: unlimited ambitions in someone else’s backyard can not be achieved with limited resources, and behavior that assumes otherwise makes one look like a fool. The Russian stroke showed everyone how the US Emperor had no clothes.
Nevertheless, the message seems to have been lost to the self-referencing leaders of Versailles on the Potomac. Notwithstanding the fact that Russia just demonstrated how a small military force could easily make a joke of Article 5 of the NATO treaty (which says an attack on one is an attack on all), Vice President Cheney subsequently visited Ukraine and Georgia to reassure the leaders in each country that it is in the undying strategic interest of United States to defend both countries by getting them into NATO as fast as possible.
The Europeans are justifiably getting nervous, as can be seen in Sarkozy’s rush to cut a cease fire deal between Russia and Georgia, as well as the EU’s tepid response to Russia’s stroke into Georgia.
European nervousness ought to be understandable. Unlike the United States, which experienced a relatively small loss of human life and almost no material damage to its civilian infrastructure in World Wars I and II or the Cold War (even at Pearl Harbor, the targets were largely military and any civilian damage was what the Pentagon would today call “collateral damage”), the Europeans — including, perhaps especially, the Russians — learned the hard way in the 20th Century that messianic unilateralism is a prescription for unending conflict and cultural collapse, not to mention mass material destruction, and huge losses of life.
After all, it was Michael Gorbachev’s Soviet Union that ended the Cold War, dissolved the Warsaw Pact, and peacefully withdrew from from Eastern Europe, and then dissolved itself, after being promised by President G.H.W. Bush that NATO would not expand into the void created by the dissolution of the Warsaw Pact — a promise subsequently broken by the Clinton Administration and then again by the current Bush Administration.
Nevertheless, Cheney’s strange gambit in Georgia and Ukraine still forces one to ask the question: Should these countries be put under the blanket protection of Article 5 of the NATO Treaty?
Sir Malcolm Rifkin, a former British foreign secretary, recently penned an excellent analysis explaining why it is a delusion to think that the members of the NATO Alliance can — or should — place Georgia and the Ukraine under the protection of Article 5.
[return to index] [Action Ukraine Report (AUR) Monitoring Service]
OP-ED: by Doug Bandow, National Interest, Washington, D.C., Tue, Sep 9, 2008

Washington has become an ugly place. Eight years of bitter Republican attacks on Bill and Hillary Clinton have been followed by eight years of bitter Democratic attacks on George W. Bush and Dick Cheney. But this venom cannot compare to the tidal wave of political hatred that has recently overwhelmed Ukraine’s capital of Kiev.

Four years ago the Bush administration actively intervened in a disputed presidential election between Viktor Yushchenko—aided by Yulia Timoshenko—and Viktor Yanukovich. Yushchenko sold himself as the pro-American candidate and charged Yanukovich with electoral fraud.
Yushchenko enjoyed manifold advantages in Washington: sympathy after his apparent poisoning by dioxin, the aid of his politically well-connected American wife, the fact he and many of his supporters spoke English and the aid of America’s Ukrainian diaspora, which, like him, largely hailed from nationalistic western Ukraine.
The United States and the European Union, aided by the NGO community, applied diplomatic pressure and spent freely to advance Yushchenko’s campaign.
Yet the issue was always more complicated than the good-versus-evil meme sold in the West by Yushchenko’s backers. In fact, both candidates were backed by oligarchs; Timoshenko herself had been charged with making money in the old-fashioned, corrupt way.
Both Yushchenko and Yanukovich wanted to exploit an economic opening to the West while preserving good relations with Russia—their differences were more in degree than in kind. While there was undoubtedly electoral cheating, it was not clear if enough votes had been stolen to change the result.
Yanukovich was far more popular than Washington wanted to acknowledge, reflected in the fact he currently heads the largest party in parliament.
Since then politics in Kiev has at times approached comic-opera status. Yushchenko and Timoshenko quickly fell out. Yushchenko dumped Timoshenko and made Yanukovich prime minister. After another election and divided outcome Yushchenko turned back to Timoshenko. They’ve since fallen out even more bitterly than before.
Yushchenko threatened to fire her once again; his aides accused her of treason for refusing to back his anti-Russian course. She threatened to impeach him and teamed up with Yanukovich to push legislation to curb Yushchenko’s power.
She and Yushchenko are expected to battle for the presidency in 2010, but rumors are floating in Kiev that Timoshenko and Yanukovich have cut a deal to create a new parliamentary coalition and for him to run for a weakened presidency while she remains prime minister. But Yanukovich’s party has fractured, with a faction backing Yushchenko. So it’s not clear that he could deliver enough votes for such a switch.
Now Yushchenko has moved to break the coalition. We have been left hanging, a bit like a season ending episode of a long-running TV series. Whether he and Timoshenko will heal their breach, Timoshenko and Yanukovich will form a new alliance, or Ukraine will go to the polls is all up in the air. The saga continues.
If it wasn’t apparent to Washington before, it should be now: politicians in Kiev are out for themselves, not for the United States. Washington is seen—especially by Yushchenko—as a valuable ally, but factional infighting takes precedence over philosophical principle and international friendship. Whoever ends up in control is likely to balance relations with Washington and Moscow.
While Yushchenko has tied himself more closely to America, he has proved to be the least competent and least popular of the big three Ukrainian politicians. It looked like a good bet in 2004, but it has not paid off. The game wasn’t worth playing.
There is an obvious lesson to take from Ukraine’s bizarre political maneuvering: absent unusual circumstances, the United States should stop trying to pick favorites in messy, unpredictable political systems.
[1] First, Washington rarely ‘gets it.’ The United States could have worked with any of the Big Three as president. Yushchenko might have been a bit better from America’s perspective, but his embrace of Washington in part reflects his increasing desperation as his political prospects have fallen. The potential benefit to America of favoring one political faction over another was always small.
[2] Second, there’s no guarantee of success. The United States ‘won’ in Ukraine, but has lost badly in Pakistan, where it was allied to president Pervez Musharraf. As his standing with the Pakistani public plummeted, so did Washington’s reputation.
Even after his party was brutalized in parliamentary elections earlier this year, the Bush administration continued to lecture Pakistanis about why they should leave Musharraf in power. This futile blustering only highlighted Washington’s loss of influence.
[3] Third, even Washington’s friends always will put their own political interests first. Prime Minister Nouri al-Maliki was supposed to be the Bush administration’s man in Baghdad. However, he torpedoed Washington’s grand plans for a permanent, or at least long-term, military presence in Iraq. America found that its puppet had become an independent nationalist looking to his political future in a country liberated by American arms.
[4] Fourth, intervening often triggers unexpected and costly consequences. Ostentatious U.S. backing for Yushchenko, as well as for Mikheil Saakashvili in Tbilisi, spurred Russian counter-efforts and increased Moscow’s suspicion of U.S. policy in the Caucasus, Baltic region and Eastern Europe.
Washington’s claim that NATO expansion had nothing to do with Russia was met with understandable incredulity in Moscow. American political intervention in Russia’s neighbors clearly contributed to Russia’s brutal response to Georgia’s attack on South Ossetia—Moscow was intent on teaching a lesson to the Bush administration as well as the Saakashvili government.
Obviously, Washington finds it difficult to resist the temptation to meddle in the affairs of other nations, even ones with minimal relevance to U.S. geopolitical interests. The cold war saw endless intervention, often with disastrous consequences: the Nicaraguan Sandinistas and Iran’s Islamic revolutionaries were but two ugly negatives of American policy. U.S. meddling today is usually less malign, but often no less misguided.
Nobody knows how Kiev’s political soap opera will end, but Washington should relax. Its influence over the outcome is limited and its interests are not likely to be dramatically affected irrespective of the results. It is time for America to learn from its past mistakes and make humility one of its chief watchwords in the future.

NOTE: Doug Bandow is the Robert A. Taft Fellow at the American Conservative Defense Alliance. He is a former Special Assistant to President Ronald Reagan and the author of several books, including Foreign Follies: America’s New Global Empire (Xulon).

[return to index] [Action Ukraine Report (AUR) Monitoring Service]
Tensions have risen since the war in Georgia and Kiev’s plans to join Nato
Luke Harding in Sevastopol, The Guardian, London, UK,  Tuesday September 16 2008 
SEVASTOPOL – From his giant monument overlooking Sevastopol, Vladimir Lenin gazes dreamily out towards the Black Sea. In the harbour, elderly ladies in floral swimming costumes bob in the warm lilac water. Shimmering in the distance is the grey Russian battleship Moskva, framed by steep chalky-coloured mountains.
The port of Sevastopol on Crimea’s rocky southern coast is the historic home of Russia’s Black Sea fleet. After the break-up of the Soviet Union, Ukraine allowed Russia to lease Sevastopol as a military base until 2017.
But after last month’s war in Georgia the peninsula is at the centre of growing speculation. The fear is that – like South Ossetia and Abkhazia, the breakaway regions of Georgia recognised by Moscow as independent – it could become the target of Russian ambitions.
Earlier this month Ukrainian officials accused Moscow of distributing passports to ethnic Russians in Crimea, who make up more than half of its two-million population. Kiev fears a row over the use of the base could be used to stir up separatist sentiments, with Crimea seceding from Ukraine in a referendum.
On the streets of Sevastopol, the mood is defiantly pro-Russian. It is also vehemently opposed to Ukraine’s President Viktor Yushchenko and his plans to join Nato. Last week, several hundred locals turned out to welcome the Moskva on its return from Georgia. They waved Russian flags and banners; one read: “We are proud of you.”
“The majority of the population here supports the presence of the Black Sea fleet,” said Anatoly Kalenko, chairman of Sevastopol’s veterans’ association, and a former nuclear submarine commander. According to Kalenko, locals would resist any attempt to turf out the Russian fleet, especially if Nato ships would occupy the base instead.
“We categorically don’t want other vessels here. Not the Americans, not the French and not the Turks,” he said. “Britain has a tradition of seafaring. We respect that; we remember Nelson. But frankly we don’t want you here either.’
His association did not believe in separatism, he explained, but was opposed to any attempt to remove the Soviet memorials that adorn the town’s hilly streets. Pinned to his wall was a map of the USSR; above the desk a portrait of Lenin. Popular feeling against Nato was running high, he said, since it was an “aggressive” military bloc.
Even before last month’s war, tensions were rising. In May – on the anniversary of Russia’s victory over Nazi Germany – Moscow’s mayor, Yuri Luzhkov, visited Sevastopol and said it “was, and should again be, a Russian city.” Ukraine’s furious government accused him of undermining its territorial integrity and banned him from returning.
There have been angry clashes in Sevastopol between Ukrainian nationalists and pro-Russian locals. In July, Ukraine’s defence minister unveiled a plaque to commemorate Ukraine’s brief declaration of independence in 1918. Someone removed it from the wharf, next to the statue of Russian war hero Admiral Nakhimov, and threw it into the sea.
Many of the peninsula’s politicians admit they would like Crimea to join the Russian Federation. “It’s a myth that Ukraine is not part of Russia. We don’t believe it,” Oleg Rodilov, a pro-Russian MP in Crimea’s autonomous parliament, based in the regional capital of Simferopol, said. It would be wrong to accuse him of “separatism”, he said.
“For you, Ukraine and Russia are a priori different states. For us they are a priori the same,” he said. The links of culture, language and Orthodox religion made Ukraine and Russia an indivisible entity, he said. Also, both countries were Slavic, he said. “We don’t believe there is any difference. We have been together for 350 years.”
Russian-speaking residents say the peninsula, a mass tourist destination in Soviet times, ended up in Ukraine by mistake. The Soviet leader Nikita Khrushchev transferred Crimea to the Ukrainian Soviet Republic in 1954. Russia affirmed the modern borders of Ukraine in a 1997 friendship treaty. Last April, however, Vladimir Putin, Russia’s prime minister, contemptuously described Ukraine as “not even a real state”.
Nationalist Crimean MPs now liken Crimea to Kosovo – the former Serbian province largely recognised as independent by the west this year. According to Leonid Grach, a pro-Russian communist MP, Crimea will declare itself independent should Yushchenko press ahead with his plans for Ukraine to join Nato.
“If Yushchenko declares that Russia is the enemy, Crimea won’t accept it,” Grach said. “It means that Ukraine will break up. In Crimea there will be a war – maybe even a world war.” Ukraine should renounce Nato, agree a friendship and cooperation treaty with Russia, and prolong the lease for Russia’s Black Sea fleet, Grach said.
Nobody doubts that staging a coup in Sevastopol would be easy. The Russian flag already flies above many of the town’s elegant and classical Stalin-era buildings belonging to the Black Sea fleet. Locals would merely need to tie up a few Ukrainian officials. Ukraine’s government would be reluctant to reclaim the town by force, fearful of provoking an all-out military conflict with Russia.
“I wouldn’t be too sad if Ukraine breaks apart. Everything would be in its right place again,” Raisa Teliatnikova said. Teliatnikova is head of Sevastopol’s Russian Community – one of several non-governmental organisations that promote Russian culture and language, and, its critics say, the views of Moscow.
Teliatnikova rejects the suggestion that her organisation is a Kremlin front.
“This is our land. My father and uncle fought for this territory during the Great Patriotic War [the second world war]. Why should we leave?” she said. “Nobody asked us whether we wanted to live in Ukraine. None of us are intending to go anywhere.”
There is no clear evidence to suggest that Russia has, as Kiev suggests, been doling out passports to ethnic Russians living in Crimea. But Moscow has been stepping up its influence: the flag of the pro-Kremlin United Russia party sits in Raisa’s office, situated above a dancing club and next to an acting school. Earlier this summer the party agreed to finance the Russian community’s newspaper – a small but insidious step.
Russian officials insisted yesterday that the number of Crimeans applying for Russian passports was “pretty much the same”. Vladimir Lysenko, of Russia’s consulate in Simferopol, said about 13,000 Russians lived and worked in the port. “Russia doesn’t lay any claims on Sevastopol. We don’t understand declarations from western politicians who say Ukraine ‘will be next’.”
Optimists believe talk of Russia wresting back Crimea from Ukraine is simply overblown. Crimea’s third ethnic group – the Tartars, descended from the peninsula’s Turkic inhabitants – are strongly pro-Ukrainian. Mustafa Djemilev, a pro-Yushchenko MP, believes Russia would not attempt a Georgian-style invasion in Crimea.
“The idea is nonsense. Ukraine is not Georgia or Chechnya – Ukraine is much more powerful,” he said.
Modern Crimea’s ethnic problems go back a long way. The peninsula – with its vineyards, mountains and deep natural bays – has long been attractive to invaders. These have included Scythians, Greeks, Ottoman Turks, Russians, and the British and the French, who bombarded Sevastopol during the 1854-55 Crimean war. The Nazis occupied Crimea, too, before the Red Army drove them out. But it is the Russian influence that has proved most enduring.
Catherine the Great annexed Crimea in 1783, after defeating the Ottoman Turks. Since then Sevastopol has been synonymous with Russian heroism. The local Black Sea fleet museum houses exhibits from the port’s tumultuous past, including a guitar played by a sailor who took part in the 1905 Sevastopol uprising on the battleship Potemkin.
[return to index] [Action Ukraine Report (AUR) Monitoring Service]

Analysis & Commentary: by Bernardo V. Lopez, Business World
New Manila, Quezon City, Philippines, Wednesday, September 17, 2008 

The Georgian conflict is but the tip of the iceberg. There are 144.2 million ethnic Russians in 14 former Russian republics across the vast Caucasus, posing a dilemma. Ukraine is the potential powder keg. Getting NATO membership may trigger a civil war.

Ukraine has the biggest ethnic Russian populace at 46 million. Although this comprises a mere 17.3%, they are concentrated in Crimea, where they are the majority at 58.0% of total population. Geopolitical observers now talk of a new Crimean war. The catalyst for conflict is not percentage but concentration. Putin threatened to “dismember” Ukraine if it gets NATO membership.
Russian occupation of northern Georgia sent fear across the pro-Western Ukrainian bureaucracy. Russian Bloc Party leader Gennady Basov says, “Ukraine is easy to split, it is two different countries.” The economy of the east depends on Russia, of the west on Europe. The language in the east is Russian, in the west Ukraine. The religion in the east is Orthodox, in the west Roman Catholic.
The ethnic Russian populations in Latvia and Estonia are small but comprise a huge 40% of total. Prominent ethnic Russian enclaves in the entire Caucasus include Abkhazia and Ossetia in Georgia, Crimea in Ukraine, Trans-Dniestria in Moldova, and Nagorno-Karabakh in Azerbaijan. Abkhazia and Ossetia are exceptionally concentrated and huge, which has triggered armed breakaway factions that have irritated the Georgians. This in turn triggered the shelling of Ossetia.
The Georgians first asked “approval” from their American brothers to ensure backup. However, the Georgians felt abandoned because the US military bluff did not work, and plans for economic sanctions are breaking down because of EU energy-related resistance. Meanwhile, an indefinite Russian presence (peace-keeping forces) in Ossetia is hinted by trenches now being dug in the outskirts of Gori.
The domino effect of the Georgian affair of breakaway enclaves launching separatist civil wars poses a dilemma for the entire Caucasus, but only for republics which, first, have a big ethnic Russian populace, and second, have become pro-Western.
The pro-Western republics include the so-called GUAM group of Georgia, Ukraine, Azerbaijan, and Moldova, plus Estonia, Latvia and Lithuania, which are mainly on the western border of Russia to Eastern Europe, the potential “conflict corridor” where US missiles in Poland and Czechoslovakia are just west of these republics.
Poland has been attending GUAM summit meetings. Uzbekistan changed its mind and fled the GUAM group. Pro-Russian republics include Kazakhstan, Kyrgyzstan, Tajikistan, Uzbekistan, Armenia, and Belarus, which are mainly on the south and southeastern border of Russia, which is not a potential conflict zone.
It is not important if a country is small. If it is near the Russian border, and allows deployment of US-NATO missiles or is provided military support or is simply pro-Western, there is a confrontation problem. If it has a large ethnic Russian populace, the ingredients for not only civil war but also invasion, as in Georgia, are there.
The candidates for this type of situation are Azerbaijan, Lithuania, Estonia and Latvia. The Lithuania-Estonia-Latvia triumvirate is a very dangerous flashpoint because these are now NATO members but have a high concentration of ethnic Russians and are very close to the Russian border.
The Georgian affair has splintered NATO because Germany and Italy are two of Russia’s largest gas customers. When Russia temporarily shut down one cold winter the gas pipelines to the EU passing through the Ukraine to pressure Ukraine to reduce its huge transit fee, Europe literally froze. The EU dilemma is that it is caught between US military pressures to sanction and contain Russia via NATO and its vital energy links.
US-NATO missiles in Poland and Czechoslovakia are viewed as a “security guarantee,” but this may ironically be a “security threat.” Once these are deployed, the specter of a nuclear first-strike looms, as Russia will not permit nukes in its backyards. Russian General Anatoly Nogovitsyn says “Poland, by deploying [the missiles], is exposing itself to a nuclear strike 100 percent.” It is the Cuban crisis in reverse.
The US thinks this is an empty threat. It has not learned a lesson in the Georgian conflict where the Russians called its bluff. Russia denies plans to deploy counter-missiles in its Baltic border, the conflict corridor. If they do, the missiles would probably be in the Russian border facing Estonia, Latvia, Lithuania, and Ukraine.
The US, through Western media articles, talk of “punishing” Russia for its Georgian caper, not realizing it is simply a reaction to NATO expansionism that the US started in the first place. It is the US which has to be punished for placing the entire Caucasus in a state of potential conflict because of its goal to control “energy corridors.”
The US reaction is understandable because its bluff did not work and it has lost credibility among its allies in the entire Caucasus as their protector and savior.  LINK:
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If you do not receive a copy of the AUR it is probably because of a SPAM OR BULK MAIL BLOCKER maintained by your server or by yourself on your computer. Spam and bulk mail blockers are set in very arbitrary and impersonal ways and block out e-mails because of words found in many news stories or the way the subject line is organized or the header or who know what.
Spam blockers also sometimes reject the AUR for other arbitrary reasons we have not been able to identify. If you do not receive some of the AUR numbers please let us know and we will send you the missing issues. Please make sure the spam blocker used by your server and also the one on your personal computer, if you use a spam blocker, is set properly to receive the Action Ukraine Report (AUR).

We are also having serious problems with hotmail and yahoo servers not delivering the AUR and other such newsletters. If you have an e-mail address other than hotmail or yahoo it is better to use that one for the AUR.
“Working to Secure & Enhance Ukraine’s Democratic Future”

1.  THE BLEYZER FOUNDATION, Dr. Edilberto Segura,
Chairman; Victor Gekker, Executive Director, Kyiv, Ukraine;
Additional supporting sponsors for the Action Ukraine Program are:
Vera M. Andryczyk, President; Huntingdon Valley, Pennsylvania
3. KIEV-ATLANTIC GROUP, David and Tamara Sweere, Daniel
Sweere, Kyiv and Myronivka, Ukraine,
4. RULG – UKRAINIAN LEGAL GROUP, Irina Paliashvili,
President; Kyiv and Washington,,
5. VOLIA SOFTWARE, Software to Fit Your Business, Source your
IT work in Ukraine. Contact: Yuriy Sivitsky, Vice President, Marketing,
Kyiv, Ukraine,; Volia Software website:
D.C., Promoting U.S.-Ukraine business investments since 1995. Join Now
Antony, South Bound Brook, New Jersey,
Ihor Gawdiak, President, Washington, D.C., New York, New York
9. U.S.-UKRAINE FOUNDATION (USUF), Nadia McConnell, President;
John Kun, Vice President/COO;
10. WJ GROUP of Ag Companies, Kyiv, Ukraine, David Holpert, Chief
Financial Officer, Chicago, IL;
11. EUGENIA SAKEVYCH DALLAS, Author, “One Woman, Five
Lives, Five Countries,” ‘Her life’s journey begins with the 1932-1933
genocidal famine in Ukraine.’ Hollywood, CA,
12. ALEX AND HELEN WOSKOB, College Station, Pennsylvania
13. SWIFT FOUNDATION, San Luis Obispo, California
14. DAAR FOUNDATION, Houston, Texas, Kyiv, Ukraine.
Mr. E. Morgan Williams, Director, Government Affairs
Washington Office, SigmaBleyzer, The Bleyzer Foundation
Emerging Markets Private Equity Investment Group;
President, U.S.-Ukraine Business Council (USUBC)
1701 K Street, NW, Suite 903, Washington, D.C. 20006
Tel: 202 437 4707; Fax 202 223 1224

Power Corrupts and Absolute Power Corrupts Absolutely.
return to index [Action Ukraine Report (AUR) Monitoring Service]

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