AUR#910 Sep 24 Ukraine Macroeconomic Update; Joint Stock Company Law; IBM Ukraine, Russian Passports

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

Ukrainian History, Culture, Arts, Business, Religion, Economics,
Sports, Government, and Politics, in Ukraine and Around the World       
 
NEW JOINT STOCK COMPANY LAW, MAJOR STEP FORWARD
“It is hard to overestimate the relevance and importance of this piece of legislation for
the improvement of the investment climate and the general economic situation in Ukraine. 
Adoption of this law is a significant step forward in bringing Ukraine to world standards
in the sphere of corporate governance and ownership issues.”
                     
ACTION UKRAINE REPORT – AUR – Number 910
Mr. Morgan Williams, Publisher and Editor, SigmaBleyzer
WASHINGTON, D.C., WEDNESDAY, SEPTEMBER 24, 2008
 
INDEX OF ARTICLES  ——
Clicking on the title of any article takes you directly to the article.               
Return to Index by clicking on Return to Index at the end of each article
Monthly Analytical Report: By Olga Pogarska, Edilberto L. Segura
SigmaBleyzer Emerging Markets Private Equity Investment Group, Kyiv
U.S.-Ukraine Business Council (USUBC), Washington, D.C., Wed, Sep 24, 2008
 
ANALYSIS: By Armen Khachaturya, Partner, Asters and Asters law firm legal team, Kyiv
U.S.-Ukraine Business Council (USUBC), Washington, D.C., Wed, Sep 24, 2008
 
Sokrat Daily, Sokrat Financial Company, Kyiv, Ukraine, Thursday, September 18, 2008
 
4NEW JOINT STOCK COMPANY LAW ADOPTED BY VERKHOVNA RADA OF UKRAINE 
“Hard to overestimate the relevance and importance of this piece of legislation.”
Analysis & Commentary: Arzinger & Partners Ukraine, Kyiv, Ukraine, Thu, Sep 18, 2008                                                                         
 
Adam Smith Conferences’, London, UK, Monday, September 22, 2008
 
International Investment Summit of Donetsk Region, Donetsk, Ukraine, Wed, Sep 24, 2008
 
Large international computer technology and consulting corporation is member ninety-two 
U.S-Ukraine Business Council (USUBC), Washington, D.C., Monday, September 22, 2008
 
8PROCREDIT RECEIVES US$20 MILLION LOAN AGREEMENT FROM INTERNATIONAL FINANCE CORPORATION (IFC)
International law firm Salans acts as legal advisor to IFC (International Finance Corporation)
U.S.-Ukraine Business Council (USUBC), Washington, D.C., Wednesday, September 17, 2008
 
Jackie Stewart, Viasat, Stockholm, Sweden, Tuesday, September 23, 2008
 
Too many indicators are deteriorating and too many warning lights flashing
LEX TEAM: Macroeconomics and Markets, Financial Times, London, UK, Sun, Sep 21 2008
 
11 UKRAINE AND GEORGIA IN NATO NOT SEEN TO BE IN U.S. INTEREST 
Former U.S. ambassador to Moscow Jack Matlock said on Tuesday 
By Susan Cornwell, Reuters, Washington, Tuesday, September 16, 2008 
Interfax, Moscow, Russia, Saturday, September 20, 2008 
 
Reuters, New York, New York, Monday, September 22, 2008 
BYuT’s priority is to re-establish the democratic coalition
BYuT Newsletter Inform, Issue 86, Kyiv, Ukraine, Monday, 22 September 2008
 
15 DON’T BE FOOLED AGAIN
Commentary: BYuT Newsletter Inform, Issue 86, Kyiv, Ukraine, Mon, 22 Sep 2008
 
Window On Eurasia: by Paul Goble, Vienna, Tuesday, September 9, 2008
 
17 RUSSIAN PASSPORTS AS MOSCOW’S GEOPOLITICAL TOOL
Kremlin uses handing out of Russian passports to destabilize Ukraine
Analysis & Commentary: By Taras Kuzio, Eurasia Daily Monitor, Volume 5, Issue 176
The Jamestown Foundation, Washington, D.C., Wednesday, September 15, 2008
Window on Eurasia: by Paul Goble, Vienna, Tuesday, September 23, 2008

 

Interfax Central Europe, Warsaw, Poland, Tuesday, September 23, 2008
20 THE HISTORY IS COMPLEX, BUT THERE’S NO DOUBT CRIMEA IS PART OF UKRAINE 
The border with Russia was agreed at the UN, and talk of moving it now is dangerous.
Letter-to-the-Editor: By Ihor Kharchenko, Ambassador of Ukraine to the United Kingdom
The Guardian, London, UK, Wednesday, September 24, 2008
 
Analysis & Commentary: by Mihai Hareshan
Nine o’Clock, Bucharest, Romania, Monday, September 22, 2008
 
Op-Ed: By Mikheil Saakashvili, President of Georgia, The Washington Post
Washington, D.C., Tuesday, September 23, 2008; Page A21
 
23FUTURE OF VIKTOR YUSHCHENKO AND POLITICAL CRISIS IN UKRAINE
Analysis & Commentary: by Vadim Karasyov, Vitaly Portnikov, Kyiv
Eurasian Home, Moscow, Russia, Tuesday, September 16, 2008
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1
 UKRAINE MACROECONOMIC SITUATION, SEPTEMBER 2008
 
Monthly Analytical Report: By Olga Pogarska, Edilberto L. Segura
SigmaBleyzer Emerging Markets Private Equity Investment Group, Kyiv
U.S.-Ukraine Business Council (USUBC), Washington, D.C., Wed, Sep 24, 2008
 
The entire Ukraine Macroeconomic Situation analytical report for September 2008, from SigmaBleyzer/The Bleyzer Foundation, a member of the U.S.-Ukraine Business Council (USUBC), www.usubc.org, is found below.  It is also found in the attachment to this e-mail in pdf format which includes seven detailed statistical charts in color.
 
SUMMARY
[1] In July, economic growth accelerated to 7.3% yoy due to a strong recovery in agriculture, bringing the cumulative growth back to 6.5% yoy. At the same time, continuing value added growth deceleration in other sectors gives reason to expect moderation of economic growth to about 6.3% yoy for 2008, despite a record high harvest.
[2] Thanks to above-target revenues and controlled expenditures, the consolidated budget balance was positive, reporting a 1.5% of GDP surplus in the first half of 2008. Despite good fiscal performance so far, the fiscal outlook for the rest of the year remains uncertain considering the sluggish privatization process, tighter borrowing conditions, increased expenditures related to unfavorable weather conditions and government plans to amend the 2008 budget raising further social liabilities.
 
[3] Inflationary pressures continued to soften as consumer prices fell by 0.5% month-overmonth in July. However, reducing annual inflation  below 20% may still be a challenging task for Ukrainian authorities.
 
[4] On the back of surging world commodity prices, Ukraine demonstrated record high export growth. However, the growth of imports  kept outpacing
exports, triggering further deterioration of foreign trade and, thus, current account balances.
 
[5] Though the economic links between Ukraine and Georgia are quite modest, the recent Russia-Georgia conflict may have far-reaching  consequences for the Ukrainian economy.
 
ECONOMIC GROWTH
 

Abrupt GDP growth deceleration in June was taken as a tentative sign of macroeconomic adjustment. However, GDP growth bounced back in July to 7.3% from a year earlier, bringing cumulative growth to 6.5% yoy.
 
The upsurge is mainly attributed to a recovery in agriculture, which more than offset weakening growth in industry and domestic trade, as well as a continuing slowdown in construction, education and healthcare.
Value added growth in agriculture reached 10.8% yoy for January-July backed by an outstanding harvest this year. As of August 1st, Ukraine had harvested 26.3 million tons of grain from about 60% of the total area under grain crops. Despite the recent floods that affected western Ukraine (which accounted for
about 15% of total grain production in 2007), the grain crop is expected to top 43 million tons, a 15-year record amount.
 
The increase in the overall harvest is attributed to good weather as well as an increase in planted area as the rise in food prices (both domestically and globally) was a strong incentive for agricultural producers.
The rich harvest this year will help to ease inflationary pressures in the country as soaring food prices were the main driver of consumer inflation since the second half of 2007. At the same time, while consumers take advantage of falling agricultural prices, producers (particularly small farm enterprises) may not fully reap the expected profits.
 
In July, the average price of wheat on the domestic market was UAH 807.5 ($166.5) per ton, representing a fall of almost 20% from June’s level and about 27% from March’s peak.
 
Given strong external demand, Ukraine’s grain exports may reach about 17.5 million tons (1), which would prevent a sharp fall in domestic prices, thus maintaining the financial stance of agricultural producers.
However, due to limited storage capacities and outdated and/or insufficient infrastructure, this potential may not be fully realized. Consequently, falling domestic prices on the back of rising production costs (due to more expensive fuel, fertilizers, freight, storage, etc.) may drag agricultural production down in the future. Indeed, despite possessing extensive black soil and having favorable climate conditions, Ukraine’s agricultural performance has been rather disappointing.
Insufficient investments, stemming from slow structural reforms, have turned Ukraine into a net importer of grain during 2000/2001 and 2003/2004. Over the last five years, the average crop yield was 45–50% lower than in the EU-27. (2) Supply side constraints and existing inefficiencies in the agricultural sector were among the main causes of recent spikes in food prices.
Timely and consistent implementation of comprehensive agricultural reform will help to expand crop production and other agricultural products, ensure a smooth food supply on the domestic market and build a competitive agricultural sector.
Over January-July, value added growth in the mining sector accelerated to 5.7% yoy. Faster growth in the sector was achieved thanks to an 8.2% yoy rise in output of non-energy minerals production and a 2.4% yoy increase in extraction of fossil fuels. Ukrainian producers and exporters of iron ore are taking advantage of booming iron ore prices, underpinned by strong demand for steel products in developing countries (particularly China, Russia and India).
 
High world energy prices (crude oil and natural gas) on the back of falling domestic production of these commodities stimulated extraction of thermal coal, which grew by 6.8% yoy in the first half of the year. Production of other fossil fuels, however, continued to decline.
 
Thanks to robust domestic and foreign trade, rising household disposable income (up by a real 14.7% yoy over the first half of 2008), value added in transportation and communication grew by 8.4% yoy, an unchanged rate compared to the first six months of the year.
Other sectors, however, demonstrated weaker growth. Industrial production continued to decelerate, demonstrating a 7.3% yoy increase in January-July compared to 7.5% yoy in 1H 2008. Growth in food processing slowed to 4.4% yoy, as a poor 2007 harvest continued to exact a toll on the industry. At
the same time, the outstanding harvest this year will help to improve industry performance in the second half of the year.
 
Despite soaring world steel and fertilizer prices, metallurgy and the chemical industry reported moderate 3.5% yoy and 5.2% yoy increases in production. Domestic shortages of coking coal, though partly compensated for by imports, and rallying iron ore prices continued to suppress metallurgical production. Rising production costs are the main reason for slower output growth in the chemical industry.
At the same time, the industry benefited from high world chemical prices, demonstrating growing export values and, consequently, profitability. According to State Statistics Committee of Ukraine, the share of profitable enterprises in the industry grew to 69.4% over the first five months of the year compared to 67.2% in the respective period last year, while the declared profits were 2.3 times higher in nominal terms.
 
Machine-building has remained the growth leader as its production grew by 28.7% yoy in January-July. At the same time, the growth was slightly weaker compared to 29.3% yoy demonstrated in 1H 2008, which may be attributed to weaker domestic demand for these products affected by slower credit
growth.
 
The coke- and oil-refining industry continued to be among the main contributors to a growth slowdown in the industrial sector as it reported a 21.4% yoy decline in output production, mainly on account of lower production of oil products.
Wholesale and retail trade performance continued to worsen as value added in the sector sharply decelerated to 11.8% yoy in January-July, down by 3 percentage points compared to 1H 2008. Deceleration in retail trade (turnover rose by 26.6% yoy in January-July vs. 29.8% yoy in January-June) may be attributed to slowing growth of real household disposable income as well as consumer credits.
 
However, as retail trade accounts for less than 30% of total domestic trade, (3) wholesale trade dynamics should be blamed for the sharp deceleration in
the sector. Despite buoyant foreign trade and improved agricultural performance, the sector’s performance may be attributed to a continuing decline in the construction sector (by almost 5% yoy in the first seven months of the year), decelerating industrial production, a high statistical base as well as changes in the administration of VAT.
 
Electronic administration of VAT, introduced in April this year, has impeded the functioning of company-mediators, artificially created to minimize VAT payments and/or receive fraudulent VAT refunds. The situation resembles that in 2005, when a drastic change in administration of taxes caused a sharp reduction in the number of mediators in the wholesale trade, thus leading to a notable decline in value added in the sector. (4)
 
As the new system of tax administration just recently started to function, it is expected that value added growth in domestic trade sector will continue to decelerate. In turn, this will negatively contribute to total GDP growth, as the sector accounts for almost 13%. Given also weaker growth of industrial production and continuing depression in construction, GDP growth may slow to 6.3% yoy for the whole year, regardless of the remarkable harvest this year.
 
FISCAL POLICY 
Over the first half of 2008, the consolidated budget posted a surplus of UAH 6.5 billion ($1.3 billion), which is equivalent to 1.5% of period GDP. The surplus was achieved thanks to over-fulfillment of consolidated budget revenues and below-target expenditures. Consolidated budget revenues were up by about 44% yoy in nominal terms, primarily on account of an almost 50% yoy rise in tax collections.
 
Proceeds from VAT rose by a nominal 60.4% yoy over the first half of 2008, reflecting robust economic growth, high inflation, buoyant imports, and improved tax administration.
 
Modernized customs procedures secured a 91% yoy increase in import duties, while strong growth in household income and improving profitability of
Ukrainian enterprises allowed for collection of 41% yoy and 53.3% yoy higher proceeds from personal income and corporate profit taxes respectively.
At the same time, the growth rate of tax collections in January-June was slightly lower than in the preceding period, which may be attributed to gradual cooling of the economy (in June, economic growth notably decelerated to 5.4% yoy versus 7.2% yoy in May).
Despite strong growth in fiscal revenues, the consolidated budget surplus shrunk almost in half in January-June compared to January-May, which may be attributed to better execution of budget expenditures as well as higher spending from the reserve fund.
 
In particular, expenditures from the general fund of the state budget were under-fulfilled by 5.5%. At the same time, the annual growth of consolidated budget expenditures slowed to a nominal 46.8% in January-June versus about 50% in the previous period.
 
The deceleration may be attributed to a high statistical base effect as the government started the second stage of implementing the Unified Tariff Scale for setting public sector employee salaries in June of last year, while realization of the next stage is planned for this fall. In contrast, the growth of capital expenditures notably accelerated in January-June 2008, picking up by almost 19% yoy in nominal terms compared to about 12% yoy growth in January-May.
 
Additional funds from the budget were allocated to finance infrastructure repair works following a storm that swept over western Ukraine in June of this year. Moreover, July’s severe flooding in western Ukraine may cause notable acceleration of budget expenditures in the coming months. At the end of July,
the parliament amended the budget, raising expenditures by UAH 5.8 billion ($1.2 billion), or by 2.5%, to liquidate in the aftermath of floods.
 
Though budget revenues were raised as well, leaving the targeted deficit unchanged, the likely revenue-expenditure execution mismatch will cause rapid deterioration in fiscal balance performance in the coming months.
Above-target revenues and under-fulfilled expenditures led to accumulation of substantial budget funds on the State Treasury accounts. By July 1st, the State Treasury had accumulated UAH 14.4 billion ($2.9 billion). This amount as well as continuing strong growth in budget revenues will be sufficient to meet increased government liabilities in the coming months. Moreover, the government still plans to amend the 2008 budget this fall, further raising social security payments.
 
The increase is substantiated by the need to adjust living standards with the inflation rate, which proved to be much higher than forecasted in the current budget law. At the same time, even if the budget is left unchanged, the outlook for the rest of the year looks quite uncertain. The government may fall short of the required funds to finance the targeted budget deficit due to the sluggish privatization process. Indeed, about 47% of the expected budget deficit is planned to be financed through privatization receipts.
 
However, as of August 1st only UAH 350 million ($71.5 million), or less than 4% of the targeted amount, was received into state coffers. Furthermore, it is planned that new domestic and external borrowing will constitute UAH 7.8 billion and UAH 8.1 billion respectively. For January-June, only 5.1% and 21% of the planned amounts respectively were received.
Moreover, due to tighter liquidity on both domestic and external markets, new borrowings might turn out to be a rather costly source of deficit financing. So far, the stock of public and publicly guaranteed debt grew by less than 1.0% year-to-date (ytd) to $17.7 billion at the end of June.
 
Due to hryvnia appreciation with respect to the US dollar and therefore other currencies, hryvnia denominated public and publicly guaranteed debt has declined by 3.2% since the beginning of the year and was less than 9% of projected full-year GDP.
 
MONETARY POLICY
 

The anti-inflationary program, which included stricter monetary policy, appreciation of the national currency and tight control over fiscal expenditures,
started to bear fruit amid an increasing supply of new harvest products. For the first time since April 2006, consumer prices fell by 0.5% month-over-month (mom) in July 2008. In annual terms, the disinflation trend strengthened as consumer price index growth declined to 26.8% in July, down from 29.3% in the previous month.
 
Deceleration of consumer price increases was attributed to a declining trend for foodstuff prices. Last year, unfavorable weather conditions, loose credit conditions as well as expansionary fiscal policy caused a sharp acceleration in food prices. Conversely, the good harvest this year coupled with NBU/government measures to curb inflation contributed to a 1.3% mom reduction in food prices, which brought annual growth down to 39% versus almost 44% yoy in June.
 
Fruits, vegetables and meat products respective price growth decelerated to 70.6% yoy, 3% yoy and 52.9% yoy in July versus 79.1% yoy, 33.1% yoy and 54.3% yoy in June. This was the most significant contributor to easing food inflation, offsetting the continuing increase in prices for bread, fish and fish products, sugar and confectionary. However, despite a positive trend, it is too early to see inflation relief.
 
[1] First, non-food and service tariffs inflation continued to pick up. In particular, growing utility tariffs (up by 12.3% yoy in July vs. 11.5% yoy in June), more expensive household appliances (up by 7.2% yoy in July), city transportation (up by 33.4% yoy), education and recreation services (up by 19.3% yoy and 15.4% yoy respectively) led to higher overall prices in the economy. Moreover, despite easing world crude oil prices, Ukraine’s retail fuel prices continued to pick up (by 47% yoy in July vs. 42.5% yoy a month before).
 
[2] Second, easing inflation provided some room for government authorities to allow a gradual pass-through of higher energy prices to consumers. Starting September 1st, tariffs for natural gas will be raised by about 13%-14% for households, the public sector and heating enterprises. The tariffs have remained unchanged since the end of 2006, although the price for imported natural gas (which accounts for almost ? of Ukraine’s total natural gas consumption) grew by about 38% at the beginning of 2008. (5)
 
[3] Third, producer price inflation continued to accelerate, reaching 46.3% yoy in July (up from 43.7% yoy a month ago).  Producers have been increasing their prices compensating for growing input costs, particularly surging raw materials prices and rising transportation costs. Strong external demand also contributed to a pick up in producer prices.
 
The divergence in the growth trajectories between producer and consumer prices may be explained by the existence of price regulations as well as the high share of exported goods. However, twice as high producer inflation creates significant pressures for consumer price growth in future periods.
 
[4] Fourth, monetary and exchange rate policies bore mixed results so far. The tightening of reserve and capital requirements, raising the NBU discount rate to 12%, sizable sterilization operations at the end of 2007/beginning of 2008 and appreciation of the national currency helped to subdue buoyant money supply and credit growth, thus contributing to easing inflation.
These measures, however, led to notable liquidity strains in the Ukrainian banking sector, requiring the NBU to support commercial banks with extra liquidity through its refinancing operations. During May-July, the NBU provided commercial banks with UAH 27.1 billion ($5.6 billion). Moreover, high domestic interest rates attracted robust foreign capital inflow to Ukraine.
 
To prevent a sharp national currency appreciation, the NBU had to intervene on the inter-bank forex market by buying out the surplus of foreign exchange. In July alone, net NBU purchases of foreign currency amounted to $2.5 billion and reached $4.5 billion for the last three months. Sizable forex interventions
spurred the National Bank to partially sterilize these amounts.
 
In July, it withdrew UAH 10.3 billion ($2.1 billion) from the market. The combined
result of these measures, however, was acceleration of monetary base growth to 41.6% yoy in July (up from almost 39% yoy in June).
 
At the same time, money supply (M3) growth decelerated to 47.5% yoy, down from 48.7% yoy in June, which was attributed to slower deposit growth. The latter, in turn, may be explained by a reduction of the hryvnia deposit rate amid improved banking sector liquidity.
 
At the same time, the importance of this source for banks’ credit creation may increase in the coming months as starting August 1st the NBU raised reserve requirements for commercial banks’ foreign funds attracted for less than 6 months to 20% (up from previous 4%).
 
So far, the growth of commercial banks credit portfolios slowed to 61.1% yoy in July. The NBU has been purposely cooling credit growth, in response to
growing concerns over banking sector vulnerability to various risks as well as the realization that the credit boom over the last several years notably contributed to inflationary pressures by driving consumption.
At the beginning of July, the government revised its year-end inflation forecast upwards to 15.9% yoy, up from the previous 15.3% yoy. However, given the above arguments, even the revised forecast looks overly optimistic, despite easing inflationary pressures in June-July. We forecast inflation to reach about 20% yoy this year.
INTERNATIONAL TRADE AND CAPITAL
 
Surging world commodity prices supported Ukraine’s strong export performance. In June, export of goods picked up by a record high 62.7% yoy, bringing the cumulative merchandise export growth to 40.7% yoy. By product breakdown, ferrous metals (up by 57% yoy over January-June), chemicals (up by 28.4% yoy), machinery and transport equipment (up by 44.3% yoy) were the main contributors to total export growth.
 
Following the enlargement of grain export quotas in April and their elimination at the end of May, export of agricultural products accelerated to 31.8% yoy in January-June, up from 27.8% yoy in the previous period.
In addition, growth of mineral products exports (mainly gasoline and coal) contributed strongly to the overall growth of merchandise exports, as their sales to foreign partners increased by 56.8% yoy in the first half of 2008, up from 27.3% yoy in January-April.
Despite remarkable export performance, Ukraine’s foreign trade balance continued to deteriorate as imports growth also sped up. On the back of high commodity prices and strong domestic consumption, imports of goods grew by 69.3% yoy in June, bringing cumulative growth to 55.3% yoy. Energy resources and machinery and transport equipment, the import values of which were up by 51% yoy and 60% yoy respectively, were the main contributors to total merchandise import growth.
 
As a result, the FOB/CIF merchandise trade deficit reached $9.8 billion, 2.3 times higher than in the first half of 2007. Considering merchandise trade performance, the current account gap this year may reach $14.4 billion. However, strong FDI inflow and still robust private sector borrowing from abroad will cover the forecasted CA gap.
OTHER DEVELOPMENTS AFFECTING INVESTMENT CLIMATE 
At the beginning of August, Moody’s Investors Service affirmed Ukraine’s long-term foreign and local currency ratings. The agency acknowledged declining external public debt, controllable fiscal situation and high international reserves. However, the rapidly widening current account gap amid volatile international financial markets was among the main reasons for keeping the rating unchanged.
 
According to agency estimates, FDI inflow will cover the CA deficit by 80% in 2008, increasing the country’s dependence on foreign financing in an uncertain environment.
The recent military confrontation between Georgia and Russia may have mixed but crucial consequences for Ukraine. Impact in the short-term on the Ukrainian economy is likely to be minimal as the economic links between Ukraine and Georgia are quite modest, but the conflict uncovered the latent flashpoints that could affect investor sentiments about Ukraine.
 
With a prolonged common history with Russia and a large ethnic Russian minority, Ukrainian society remains highly divided in choosing pro-Western or pro-Russian development.
 
Following Viktor Yushchenko’s victory in the 2004 presidential elections, the country declared its desire to join NATO and seek EU integration, a direction discordant with Russia’s efforts to retain its influence on former Soviet republics.
 
Moreover, according to the lease agreement signed in 1997, Russia’s Black Sea fleet, which was directly involved in the Russia-Georgia conflict, will be based in Crimea until 2017. Many political forces in Ukraine believe that this agreement should not be renewed, a position that would antagonize Russia.
 
Furthermore, the conflict may spur Ukraine’s aspirations to join NATO, which may further worsen Ukraine-Russia relations. Although it is very unlikely
that the “Georgian scenario” can play out in Ukraine, the rising geopolitical tensions in the region may adversely affect investor sentiment, which in turn may translate into lower FDI inflow and growing costs of borrowed resources for Ukraine.
 
Furthermore, Ukraine’s energy-extensive economy is almost entirely dependent on Russia’s energy imports. Deterioration of Ukraine-Russia relations in the aftermath of the Russia-Georgia conflict may result in a sharp increase in imported natural gas prices next year.
Though Ukraine demonstrated strong resilience to energy price shocks, a combination of higher energy prices, the coming presidential election and a fragile external environment caused by financial distress on international markets and a generally over-heated domestic economy may drag down economic growth in the coming year.
 
FOOTNOTES:
(1) An estimate of the Ukrainian Grain Association.
(2) Source: EC Memo/08/537 on Annual Crop Yield Forecast for 2008 as of August 7, 2008; State Statistics Committee of Ukraine, The Bleyzer Foundation estimate.
(3) Estimate based on wholesale and retail trade turnover data for 2007.
(4)  According to data released from the State Tax Administration of Ukraine at the beginning of July, thanks to the introduction of electronic administration of VAT, it identified about 170 companies that manipulated taxation in just one month.
(5) Natural gas tariffs for heating and power engineering enterprises remained unchanged since mid-2006.
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NOTE: To read the entire SigmaBleyzer/The Bleyzer Foundation Ukraine Macroeconomic Situation update report for September 2008 in a PDF format, including color charts and graphics click on the attachment to this e-mail or go to the following link, and click on Ukraine September 2008,
http://www.sigmableyzer.com/publications/monthly_reports
 
UKRAINE, BULGARIA, ROMANIA, & KAZAKHSTAN REPORTS
SigmaBleyzer/The Bleyzer Foundation also publishes monthly Macroeconomic Situation reports for Bulgaria, Romania and Kazakhstan. The present and past reports, including those for Ukraine can be found at http://www.sigmableyzer.com/en/page/532.
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[return to index] [Action Ukraine Report (AUR) Monitoring Service]
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2.  UKRAINE: MAJOR FEATURES OF THE NEW LAW ON JOINT STOCK COMPANIES

 
ANALYSIS: By Armen Khachaturya, Partner, Asters and Asters law firm legal team, Kyiv, Ukraine
U.S.-Ukraine Business Council (USUBC), Washington, D.C., Wednesday, September 24, 2008
 
KYIV – On 18 September 2008 Ukrainian Parliament, the Verkhovna Rada, adopted by 358 affirmative votes the long awaited Law on Joint Stock Companies (the “New Law”).
 
As this voting coincided with political crisis in Ukraine it is to be seen if and when the President of Ukraine and the Chairman of the Verkhovna Rada complete all post-voting procedures required for the Law to come into force.
 
The New Law shall become effective six months following its official publication, which is expected to occur within 15 days of its execution by the President of Ukraine who must formally receive it from the Verkhovna Rada’s Chairman for review.
 
FOLLOWING NEW FEATURES INTRODUCED INTO THE CURRENT REGULATION
The New Law introduces the following major novelties to the current regulation of joint stock companies, as provided in the Civil Code of Ukraine, the Commercial Code of Ukraine, and the Law of Ukraine on Business Associations (collectively, the “Current Law”):
 
(1)  Two types of joint stock companies, an open joint stock company and a closed joint stock company, are renamed in the New Law into a public joint stock company and a private joint stock company. The number of shareholders in a private joint stock company may not exceed 100.
 
(2)  The founders of a joint stock company will be required to pay the full value (not 50 percent, as provided by the Current Law) of initially issued shares before convocation of the founding meeting of a joint stock company.
 
(3)  The founding meeting of a joint stock company will need to be held not later than three months (not two months, as provided by the Current Law) after the founders pay for the first share issue in full.
 
(4)  There should be unanimous vote of all founders for adopting resolutions on establishment of a joint stock company (currently 3/4 of the founders’ votes is required), on appraisal of in-kind contribution to the capital fund (currently simple majority of the founders’ votes is required) and on approval of the joint stock company’s charter (currently 3/4 of the founders’ votes is required).
 
(5)  There is a long list of mandatory provisions in the charter of a joint stock company, such as the company’s name, the amount of its capital and the reserve fund, the general information regarding the company’s issued shares, the composition and competence of the company’s corporate governing bodies, etc.
 
(6)  The shareholder’s pre-emptive right to subscribe for newly issued shares is preserved only for shareholders of a private joint stock company (currently shareholders of both open and closed joint stock companies have pre-emptive rights to subscribe for newly issued shares).
 
(7)  The New Law expressly stipulates that shareholders of a private joint stock company do not have pre-emptive right to buy shares transferred to a heir-at-law or a legal successor of a current shareholder.
 
(8)  The joint stock company’s reserve fund shall not be less than 15 percent (currently 25 percent) of its capital fund.
 
(9)  Joint stock company’s shares shall be issued only in non-documentary form (this provision will take effect upon expiration of a two-year period after official publication of the New Law).
 
(10)  Joint stock company’s preferred shares may be now issued in one or several classes providing different rights to their owners.
 
(11)  A joint stock company is entitled to issue shares or bonds with the purpose to convert its obligations into securities.
 
(12)  A public joint stock company is obliged to list its shares and to be registered at least at one stock exchange. On the contrary, shares of a private joint stock company may not be listed.
 
(13)  Dividends may be paid to shareholders only in the monetary form (currently dividends may be paid either in the monetary form or in-kind).
 
(14)  The exclusive competence of a general meeting of shareholders will now include, inter alia, all questions regarding issue of shares and approval of the joint stock company’s internal regulations.
 
(15)  A written notice on convocation of the general meeting of shareholders shall be sent to the shareholders not later than 30 days (not 45 days, as currently required) before the planned date of the meeting.
 
(16)  The general meeting of shareholders shall be held in the city/town where a joint stock company is incorporated (while under unfair interpretation of the Current Law, shareholders of a company have an option to hold a general meeting of shareholders at any place in Ukraine), unless a joint stock company is a wholly owned subsidiary of a foreign parent, including an international organization or a stateless person.
 
(17)  Voting at the general meeting of shareholders of a joint stock company with more than 100 shareholders shall take place only by means of voting bulletins signed by a shareholder or shareholder’s proxy.
 
(18)  If there are not more than 25 shareholders in a joint stock company, they may adopt resolutions by polling in lieu of the general meeting of shareholders (the Current Law does not provide for such option).
 
(19) A supervisory council in a joint stock company is mandatory, if there are 10 or more (50 or more under the Current Law) shareholders.
 
(20) The supervisory council’s exclusive competence is significantly increased to include, inter alia, placement and buy out of the company’s securities other than shares, election and recall of the head and members of the executive and other corporate bodies of the company, and various issues regarding general meeting of shareholders.
 
(21)  The New Law introduces a position of the corporate secretary of a joint stock company who is elected by the supervisory council and is in charge of the company’s relations with shareholders and third parties..
 
(22)  The New Law introduces the notion of a “significant contract” of a joint stock company defined as its contract valued at more than 10 percent of the company’s assets, provided that conclusion of a significant contract with the value up to 25 percent of the company’s assets requires a preliminary approval of the supervisory council (if established), conclusion of a significant contract with the value from 25 to 50 percent of the company’s assets must be approved by a simple majority of the shareholders’ votes at a general meeting of shareholders, and a significant contract exceeding 50 percent of the company’s assets must be approved by 3/4 of the shareholders’ votes at a general meeting of shareholders.
 
(23)  An acquirer of 10 or more percent of the capital fund of a joint stock company shall notify a joint stock company and the State Commission on Securities and Stock Market of Ukraine at least 30 days prior to the anticipated acquisition.
 
(24)  An acquirer of 50 or more percent in the capital fund of a joint stock company shall (a) within 20 days from the acquisition date send to all other shareholders a public irrevocable offer to purchase their shares and (b) send an acquisition notification to the State Commission on Securities and Stock Market of Ukraine and the stock exchange where joint stock company’s shares are listed.
 
(25)  A shareholder may demand that a joint stock company buy out this shareholder’s shares, in case of a general meeting of shareholders’ decision on (a) the reorganization of a joint stock company, (b) the change of the capital fund, and (c) entering into a significant contract, provided that this shareholder voted against the respective decision.
 
(26)  Joint stock companies with up to 100 shareholders may elect a sole auditor, while in other cases election of an audit committee is mandatory.
 
(27) The New Law provides for certain simplified corporate procedures in joint stock companies with one shareholder, e.g., there is no necessity to execute the founders’ agreement or to comply with the general procedure on convocation and holding of the general meeting of shareholders.
 
Under the Law, charters and internal regulations of existing joint stock companies shall be made compliant with the new requirements within two years of its effective date.
 
FOOTNOTE:  Asters law firm is a member of the U.S.-Ukraine Business Council (USUBC), www.usubc.org.  Asters was established in Kyiv, Ukraine in 1995 by two partners – Igor Shevchenko and Oleksiy Didkovskiy – and bore their names for 12 years, Shevchenko Didkovskiy & Partners. Shevchenko Didkovskiy & Partners announced on February 21, 2008 that it changed its name to Asters. Today, with 9 partners, more than 70 lawyers and 110 employees, Asters is one of the largest Ukrainian law firms (www.asterslaw.com).

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3.  UKRAINE PARLIAMENT ACCEPTS JOINT STOCK COMPANY LAW 

 
Sokrat Daily, Sokrat Financial Company, Kyiv, Ukraine, Thursday, September 18, 2008

KYIV – On Wednesday, September 17, 2008 The Parliament accepted a law regulating the activity of joint stock companies. The law defines the order for the creation, activity and liquidation of JSCs, as well as their legal status, rights and responsibilities of the shareholders.
Specifically, the law especially protects the rights of minority shareholders and is aimed at JSC protection against raiders and more efficient decision-making.  The law requires any JSC with more than 100 shareholders to use signed ballots when voting at the GMs.
 
Additionally, shareholders’ meetings may be organized only at the JSC’s venues, thus reducing risks of raiders’ attacks. The meeting quorum is achieved whenever shareholders owning more than 50% of the voting rights participate. The law also describes a number of other JSC procedures regulating these companies.
Most parts of the law will come into force in six months, except of the part requiring stocks to exist in electronic form only, which will come into force in two years’ time instead of the initially proposed term of five years.
The law was supported by 358 parliamentarians out of 450.  This number is more than enough to bail the President’s veto out if it occurs. The Parliament has tried to accept the JSC law several times already since 1996, but it has been vetoed by both President Leonid Kuchma and, later, by President Viktor Yuschenko.
The lack of such a law has often been named as the main reason for the Ukrainian stock market’s underdevelopment and for the problem with raiders.  International financial organizations have stressed the necessity of such a law and argued that its absence impedes foreign investment in the Ukrainian market.
SOKRAT FINANCIAL COMPANY VIEW: We applaud the passing of the JSC law and anticipate that its acceptance will send a positive signal to foreign investors.  We also anticipate that the law’s passing will improve Ukraine’s sovereign ratings and will reduce domestic stock market risks.
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4.  NEW JOINT STOCK COMPANY LAW ADOPTED BY VERKHOVNA RADA OF UKRAINE 
Hard to overestimate the relevance and importance of this piece of legislation

ANALYSIS & COMMENTARY: Arzinger & Partners Ukraine, Kyiv, Ukraine, Thu, Sep 18, 2008                                                                         
 
KYIV – We are very pleased to announce that on September 17th the Verkhovna Rada of Ukraine has adopted The Joint Stock Company Law.
 
The law will come into force six (6) months from the moment it is officially published. Existing joint stock companies must bring their statute documents in compliance with the law within two years from the date the law comes into force. The joint stock companies that will be created after the law comes into force must be established in compliance thereof.
 
NEW LAW IS A SIGNIFICANT STEP FORWARD
It is hard to overestimate the relevance and importance of this piece of legislation for the improvement of the investment climate and the general economic situation in Ukraine.  Adoption of this law is a significant step forward in bringing Ukraine to world standards in the sphere of corporate governance and ownership issues.
 
The law removes many gaps in current legislation in the sphere of establishment, operating, governing and cessation of joint stock company activity. In particular according to the new legislation:
 
[1]
 Clearer and more comprehensible requirements concerning formation and activity of the management bodies such as the Supervisory Board and the
       Revision Commission of joint stock companies are envisaged;
[2] This will allow for the implementation of more flexible operative management procedures: the most important issues which concern shareholders’
       interests remain in the exceptional competence of General Meetings; many issues have been transferred to the competence of the Supervisory Board;
[3] The procedure for summoning and holding the General Shareholders’ Meeting is simplified;
[4] The procedure for managing the Company with one shareholder is implemented for the first time: the law envisages issuance of a written decision made
       by a shareholder.
 
Changes of legislation about joint stock companies will allow the implementation in Ukraine of modern principles of corporate governance. In particular, according to the new law, the importance of the Supervisory Board which will be elected by cumulative voting is significantly strengthened. The Supervisory Board will consist of individuals that will allow it to appoint unbiased non-executive directors.
 
The Law envisages the right of the Supervisory Board to organize committees and commissions and to elect a corporate secretary. One of the issues of the exceptional competence of the General Shareholders’ Meeting will be adopting The Code of corporate governance.
 
Adoption of the law significantly moves Ukraine forward towards the protection of interests of both minority shareholders and major investors restricting at the same time possibilities of usage of ‘raiding’ mechanisms. In particular the law implements:
 
[1] The transfer to non-documentary (electronic) circulation of shares that will take place within two years from the moment the Law is in force and is
       aimed at restricting the possibilities of manipulating the register of shareholders;
[2] The responsibilities of shareholders to inform about the intention to acquire shares and as a result of this acquisition they together with the affiliated
       persons will control more than 10% of shares of the company. And after the acquisition of the controlling stock, such a shareholder will be obliged to
       offer to the other shareholders the option to sell the shares they possess;
[3] The detailed mechanism of realization by the shareholders of the preemptive right for the acquisition of shares of the additional emission, which will
       provide protection of existing shareholders from ‘dilution’ of their shares;
[4] The definition of significant transactions, interested party transactions and the procedure for the approval of entering into such transaction;
[5] Additional in comparison to the current legislation guarantees for the shareholders for obtaining information concerning the company’s activity.
 
INCREASE INVESTMENT ATTRACTIVENESS

We are reckoned that the adoption of the law facilitates the increasing investment attractiveness of Ukraine due to the implementation of civilized mechanisms of protection of investors’ interests, increasing the positive image of Ukraine as a country with a market economy, growth of capitalization of joint stock companies and further adjustment of the legislation of Ukraine to that of the European community.
 
The Law company Arzinger & Partners provides the necessary advice and legal support to all interested parties in the process of adjusting the activity of already existing companies and newly established companies to the requirements of the new Joint Stock Companies Law which will allow them to take full advantage of the new possibilities of this important piece of legislation in corporate governance. 
 
NOTE: Arzinger & Partners Ukraine with offices in Kyiv and Lviv is a full service law firm with a professional staff of 70 specializing in all major areas of business law and serving large international, as well as domestic companies, in Ukraine and beyond.  [www.arzinger.ua]
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U.S.-Ukraine Business Council (USUBC): http://www.usubc.org
Promoting U.S.-Ukraine business relations & investment since 1995.
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5.  UKRAINIAN PHARMACEUTICAL FORUM IN KYIV, OCTOBER 14-15 
Pharmaceutical market grows rapidly in Ukraine
 
Adam Smith Conferences’, London, UK, Monday, September 22, 2008
 
KYIV – Today, the Ukrainian pharmaceutical market is in second place after the Russian Federation, according to the rating of pharmaceutical markets of post-Soviet countries, and is, without a doubt, the fastest growing and the most actively developing. Regular monitoring and analysis have convinced all sector participants, both domestic and international, of the existence of huge potential for pharmaceutical business in the region.

Various factors affect the development trends of the Ukrainian pharmaceutical market today: Ukraine’s WTO accession, compulsory implementation of GMP production standards from the 1st January 2009, plans to introduce obligatory medical insurance, and many more. Government regulation and the formation of a corresponding regulatory framework play the most significant role in determining the market’s direction.

 
UKRAINIAN PHARMACEUTICAL FORUM IN KYIV
The Ukrainian Pharmaceutical Forum will serve as a platform for networking, discussing existing opportunities and challenges facing the sector. Many leading company executives of the Ukrainian pharmaceutical sector have been invited to attend, as well as organisations interested in the sector’s development, for example: representative of government regulation bodies; Ukrainian and international company-producers, distributors and retail operators, active and potential investors, analysts, and many more.
The Ukrainian Pharmaceutical Forum is run in parallel with one of the biggest Adam Smith Institute Events – “The Pharmaceutical & Healthcare Sector in Russia” forum. After 13 years of success, each year attracting over 350 participants from all over the world, the forum has established itself as the most prestigious event for pharmaceutical professionals. The Forum will be held Tuesday and Wednesday, October 14th and 15th. 
 
This experience, together with numerous recommendations from sector representatives, has allowed to organise a timely and productive conference for all industry leaders, which will take place in October in Kiev.  Besides plenary sessions and presentations, the forum’s programme will include group discussions in various formats, which will, in turn, ensure that the forum is packed full of thought-provoking information.
MAIN TOPICS …
[1] Formulating an effective development strategy for the Ukrainian pharmaceutical market – what are the problems facing the industry today, what
      obstacles do companies perceive exist in the Ukrainian pharmaceutical market?
[2] How to choose the right strategy to ensure your position as industry leader
[3] How to significantly increase domestic production efficiency
[4] An overview of the development of the Ukrainian distribution market and retail sector
[5] Building an effective marketing structure – how to achieve optimal sales volumes and ensure a good turnover
[6] Product portfolio optimisation – how to create an optimal structure aimed at increasing profit
[7] “Personnel are the be all and end all” – Human resources; how to determine the right set of requirements; training and motivation … and many more.
 
If you have any questions please contact Lyudmyla Durneva on +44 207 0177339/7444 or write to Lyudmyla@adamsmithconferences.com
 
You can access the latest information about the Forum by visiting web-site http://www.adamsmithconferences.com/HU1DUS.  The U.S.-Ukraine Business Council (USUBC), www.usubc.org, Washington, D.C., is one of the promotional sponsors of the Ukrainian Pharmaceutical Forum.
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6.  UKRAINE: INTERNATIONAL INVESTMENT SUMMIT OF DONETSK REGION, OCT 29-31

 
International Investment Summit of Donetsk Region, Donetsk, Ukraine, Wed, Sep 24, 2008
DONETSK – The International Investment Summit of the Donetsk Region, “Donbass Investment Destination,” will take place on Wednesday through Friday the 29th -31st of October 2008 in Donetsk, Ukraine. The Presidents of Ukraine and Poland Viktor Yushchenko and Lech Kaczynski are expected to take part in the Summit. You are invited to attend.
 
The Investment Summit will be held on the initiative of Deloitte, Ernst & Young and Altera Finance companies, with participation of the leaders of Ukrainian business, System Capital Management and the Industrial Union of Donbass.  The Summit is supported by the Donetsk Region Council, Donetsk Region State Administration and Donetsk City Council.
 
PRESENT OPPORTUNITIES OF THE DONETSK REGION
The main goal of the Summit is to present the opportunities of the Donetsk Region, which is one of the most dynamically developing industrial regions of Ukraine, is to demonstrate the largest investment projects and discuss conditions and prospects for foreign companies’ activity in the Region. The participants will get acquainted with the opinions of the leading European experts about the prospects of the Region’s development and its investment opportunities.
 
DEDICATED TO THREE MAIN THEMES
Representatives of the government and key players in Ukrainian politics and business are expected to take part in the Summit’s work. The Summit will be dedicated to several themes: 
 
(1) International Conference “Real Estate & Infrastructure Euro-2012” by Deloitte
(2) International Conference “Investments into Real Estate Sector of Donbass” by Ernst & Young
(3) International Conference “Innovations and Energy-Saving Technologies” by Altera Finance
The biggest investment projects of the Region, such as the new micro district in Donetsk city, the airport in the regional town, recreational towns in Svyatogorsk and on the Sea of Azov coast, motorways, large brick and concrete works, and more than 100 projects, will be presented in the framework of the Conferences and the exhibitions accompanying the event.
 
The International Investment Summit of Donetsk Region is expected to host more than 300 participants from 20 countries and will become one of the most significant investor meeting in Ukraine over the next few years.
 
The technical organizer of the Summit, Conference House Company (www.ch.kiev.ua), is ready to provide you with more detailed information about the Summit Program and the terms of participation. We will help you organize your representatives’ participation in the event.
 
The Summit contact person is Alexi Mirontchouk mirontchouk@ch.kiev.ua, tel/fax+38 044 541 18 38. You will find more detailed information and participant registration form on the Summit web site www.investment.donetsk.ua.
 
We are looking forward to having you participate in the Summit and to you being in Donetsk, Ukraine, from the 29th to the 31st of October 2008.
 
On behalf of the Organizing Committee, General Director of Conference House Company, Igor Zavilinsky.
 
AUR FOOTNOTE:  Ernst & Young Ukraine is a member of the U.S.-Ukraine Business Council (USUBC). USUBC, www.usubc.org, is one of the promotional sponsors of the “Donbass Investment Destination,” Forum.
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7.  IBM UKRAINE JOINS U.S.-UKRAINE BUSINESS COUNCIL (USUBC)
Large international computer technology and consulting corporation is member ninety-two 

U.S-Ukraine Business Council (USUBC), Washington, D.C., Monday, September 22, 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 IBM Ukraine has been approved for USUBC membership.  IBM Ukraine is USUBC member ninety-two. 

IBM is a multinational computer technology and consulting corporation head-quartered in Armonk, New York, USA.  IBM manufactures and sells computer hardware and software, and offers infrastructure services, hosting services, and consulting services in areas ranging from mainframe computers to nanotechnology.

IBM has been known through most of its recent history as the world’s largest computer company; with over 388,000 employees worldwide, IBM is the largest information technology employer in the world.

 
A representative office of IBM’s Russian subsidiary was opened in the Ukraine in 1992 and then a separate IBM subsidiary was established in Kyiv in October of 2006. The Ukrainian IT market worth over 2 billion dollars and is growing at an average of close to 20% per year. Over two thousand Ukrainian companies have purchased IBM products or services over the years.

IGOR PASTUSHENKO HEADS IBM UKRAINE
USUBC has been working with Igor Pastushenko, Country General Manager for IBM for over a year.  Igor has attended a number of USUBC meetings in Kyiv.  Igor has developed a very solid business program for IBM in Ukraine, one that is growing rapidly.  IBM is well-known in Ukraine for the top professional services they provide to the business community. 

Christopher G. Caine, is Vice President, Governmental Programs, for the IMB office in Washington, D.C. Chris attended a recent luncheon USUBC sponsored in Washington with the U.S. Ambassador to Ukraine, William Taylor. USUBC has also been working closely with Luba M. Labunka, Senior Project Manager, Emerging Markets Financing, Global Finance Treasury, at the IBM headquarters in Armonk, New York.

IBM INNOVATION CENTERS FOR BUSINESS PARTNERS 
The IBM Innovation Center for Business Partners is “your” IBM in Ukraine. The Center advises and guides customers through the development process.
Through workshops clients can build skills and leverage IBM’s architecture consultations. IBM’s IT specialists help clients with proof-of-concept, integration, migration and testing needs. There is no charge for most of the offerings.

IBM Innovation Center assistance with: IBM Systems and software enablement. Products offered include: Hardware; IBM BladeCenter; IBM System i; IBM System p; IBM System x; IBM storage technologies Software; Information Management (DB2); Linux® (System p, x and z); Lotus; Tivoli; WebSphere.

IBM Innovation Center for Business Partners
IBM Ukraine, Artem Business Centre, 4 Hlybochytska Street,
Kyiv 04050 Ukraine, Telephone: +38 044 501 18 88; Fax: +38 044 501 18 89

E-mail: iic_kiev@ua.ibm.com; Hours of operation: 9 a.m. – 5 p.m.

Additional information about IBM can be found at: http://www-304.ibm.com:80/jct09002c/isv/spc/kiev.html and at www.ibm.com/ibm/gp.

“The U.S.-Ukraine Business Council (USUBC) is most pleased to have IBM Ukraine as a member.” said Morgan Williams, SigmaBleyzer,  who serves as President of USUBC. “USUBC has grown very rapidly during the past 19 months and now has a membership base which will allows USUBC to be a full-time operation with an expanded program of work.” 
 
USUBC MEMBERSHIP WILL TOP 100 IN 2008
IBM Ukraine is the 41st new member for 2008, and the 71st new member since January of 2007. USUBC membership has quadrupled in the past 21 months, going from 22 members in January of 2007 to 92 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, the Doheny Global Group, Foyil Securities, KPMG, Asters law firm, Solid Team LLC, R & J Trading International, Vasil Kisil & Partners law firm, AeroSvit Ukrainian Airlines, ContourGlobal, Winner Imports LLC (Ford, Jaguar, Land Rover, Volvo, Porsche), 3M, Edelman, CEC Government Relations and RZB Finance LLC (Raiffeisen). 

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

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8.  PROCREDIT RECEIVES US$20 MILLION LOAN AGREEMENT FROM
INTERNATIONAL FINANCE CORPORATION (IFC)
International law firm Salans acts as legal advisor to IFC (International Finance Corporation)

U.S.-Ukraine Business Council (USUBC), Washington, D.C., Wednesday, September 17, 2008

WASHINGTON, D.C. – The international law firm Salans acted as legal advisor in Ukraine to IFC, a member of the World Bank Group, in relation to a loan agreement with ProCredit Bank Ukraine (the Bank) for the amount of US$ 20 million.  This loan is intended to enable the Bank to extend financing for
energy efficiency improvements to micro, small, and medium-size enterprises and individuals.

IFC, a member of the World Bank Group, fosters sustainable economic growth in developing countries by financing private sector investment, mobilizing
private capital in local and international financial markets, and providing advisory and risk mitigation services to businesses and governments. IFC’s
vision is that people should have the opportunity to escape poverty and improve their lives.

In FY07, IFC committed $8.2 billion and mobilized an additional $3.9 billion through syndications and structured finance for 299 investments in 69
developing countries. IFC also provided advisory services in 97 countries.

Ukraine became a shareholder and a member of IFC in 1993. As of March 31, 2008, IFC had invested around $887 million in 38 projects in the country.
IFC’s investment program is expanding rapidly, with a focus on Ukraine’s financial, agribusiness, construction materials, retail trade and services, energy, and infrastructure sectors.
 
IFC also offers advisory programs in the country on leasing, agribusiness, mortgage finance, and on improving the business environment. For more information, visit  www.ifc.org/ukraine.
 
PROCREDIT BANK UKRAINE
Founded in early 2001, ProCredit Bank Ukraine is part of ProCredit Group. Its target market consists of micro-and SME customers and its core product
is lending.  The bank’s head office is located in Kyiv.  ProCredit Bank was ranked 39th in Ukraine by assets at end of September 2007.

The Bank has over 60 branches throughout the country and plans further expansion of the network.  Since its foundation, ProCredit Bank Ukraine has
grown rapidly in absolute terms and by number of customers.

 
SALANS LAW FIRM UKRAINE
Salans’ Banking and Finance Group of lawyers: Natalia Selyakova, Vladilsav Kysil, and Nikolay Zhovner acted as legal advisors to IFC on the loan
agreement with the ProCredit Bank Ukraine.

AUR FOOTNOTE:  Salans law firm is a member of the U.S.-Ukraine Business Council (USUBC), www.usubc.org. Salans has over 35 lawyers in Kyiv, assisting domestic and cross-border clients with their corporate, M&A, banking, tax and competition needs across a range of sectors including real estate, financial services, energy and natural resources as well as capital markets. With 37% growth in revenues globally for the 2007 financial year, Salans now has 176 partners worldwide as part of over 750 lawyers globally operating from 18 offices.  Salans has been active in Ukraine since 1988, and officially opened an office in Kyiv in 1992 (www.salans.com).
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9.  VIASAT UKRAINE NAMES NEW CEO, DIGITAL PREMIUM SATELLITE TV COMPANY

 
Jackie Stewart, Viasat, Stockholm, Sweden, Tuesday, September 23, 2008
STOCKHOLM – Oksana Ferchuk has been appointed as the new CEO of Viasat Ukraine.  Richard Caproni, who has been the CEO will assume the position of chief financial officer of the company.
 
Previously Ferchuk was the marketing and sales director of the national telecommunications systems provider PEOPLEnet in Ukraine, commercial director of MSG and its nationwide retail chains Astel & Mobilochka, and prior to that worked for more than six years in various positions within Ukrainian Mobile Connection. 
 
“Oksana Ferchuk has extensive experience from related business in telecom as well as from start ups, which we consider a perfect background for when Viasat Ukraine goes into the next, commercial phase,” said Ulrik Bengtsson, the CEO of Pay TV for emerging markets at MTG.

 
Caproni has been CEO of Viasat Ukraine since it was founded as Vision TV in 2006. “Aligned with the plans, Richard Caproni remains in the company in a position where we can continue to utilize his top expertise in finance and administration, ” said Bengtsson.
 
Viasat Ukraine, a joint venture between Modern Times Group (MTG) and Strong Media Group, was the first digital premium DTH satellite TV operator in Ukraine when it launched in April 2008.  LINK: http://www.worldscreen.com:80/newscurrent.php?filename=viasat092308.htm
AUR FOOTNOTE:  Vision TV is a member of the U.S.-Ukraine Business Council (USUBC), www.usubc.org.
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10.  NOT-SO-DYNAMO KIEV: BAD ECONOMIC INDICATORS FOR UKRAINE

Too many indicators are deteriorating and too many warning lights flashing
 
LEX TEAM: Macroeconomics and Markets, Financial Times, London, UK, Sun, Sep 21 2008
After all the mayhem, where is the world’s worst-performing market so far this year? Russia’s 43 per cent decline is beaten, among others, by Shanghai’s 66 per cent fall – but all are outstripped by the 70 per cent plunge of Russia’s neighbour, Ukraine.
 
At first blush, that looks odd. Ukraine’s growth, forecast at 6.5 per cent this year though slowing to 5 per cent next, remains among Europe’s best. The problem is, too many indicators are deteriorating and too many warning lights flashing – several connected with the lumbering bear on its borders.
Number one is falling prices of metals – which contribute one-quarter of gross domestic product and more than 40 per cent of exports. Meanwhile, the gas-guzzling metals industry, and other Ukrainian mainstays such as chemicals, have long enjoyed subsidised energy prices from Russia. Moscow has progressively cut subsidies – provoking the spat that notoriously saw Russia turn off the gas in January 2006.
 
Russia is threatening to double prices to western European levels next year; Moscow’s mood has not been improved by President Viktor Yushchenko’s vociferous support for Georgia. Ukraine’s smokestack industries have offset higher prices by raising woeful standards of energy efficiency, but scope for further improvement is limited.
 
Higher energy prices will complicate taming inflation, which peaked at 31.1 per cent, year on year, in May – fuelled by soaring government spending. They will also worsen the mushrooming current account deficit. Political instability has been a constant since the 2004 Orange Revolution, but the latest coalition’s recent collapse – in part because of squabbles over Russia policy – could provoke early elections.
 
And while conflict with Russia is unlikely, Moscow has scope for mischief-making through, for example, trade restrictions or fomenting unrest among ethnic Russians in Crimea. With the MSCI Ukraine index trading on about 6 times current earnings, Ukraine looks less oversold than Russia – only on 5.5 times even after Friday’s astonishing 30 per cent bounce in its market.
 
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Help promote U.S.-Ukraine business & investments and a strong Ukraine. 
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11.  UKRAINE AND GEORGIA IN NATO NOT SEEN TO BE IN U.S. INTEREST 
Former U.S. ambassador to Moscow Jack Matlock said on Tuesday 

 
By Susan Cornwell, Reuters, Washington, Tuesday, September 16, 2008 
 
WASHINGTON, D.C. – NATO membership for Georgia and Ukraine is not in Washington’s or the alliance’s interest, former U.S. ambassador to Moscow Jack Matlock said on Tuesday as he and other ex-U.S. envoys decried the poor state of ties with Russia.
 
At a gathering of five former U.S. and Russian ambassadors, Matlock, the last U.S. envoy to the Soviet Union, questioned a central tenet of Bush administration policy: its firm support for the NATO membership bids of both Georgia and Ukraine.
 
Some European countries have doubts about the policy, and some U.S. analysts have blamed it for helping provoke the brief war last month between Russia and Georgia over the breakaway region of South Ossetia.
 
Since Russian troops crushed Georgian forces in that conflict, U.S. ties with Moscow have plummeted. “To simply say every country should have the right to apply to any alliance it wants, that’s true. But an alliance and its members should also have the right to determine whether it’s in their interests to take in a member,” Matlock told the forum in Washington, sponsored by the Carnegie Endowment for International Peace.
 
“I’m saying it’s not in the United States’ interests, and it’s not in NATO’s interests,” said Matlock, who was ambassador to Moscow from 1987 to 1991 under former President George H.W. Bush, the current president’s father. Georgia had not settled territorial disputes with its neighbours, and appeared to want to use the NATO military alliance to help resolve them, Matlock said, in a reference to its conflict with Russia.
 
As for Ukraine, which like Georgia is a former Soviet republic, most of its population opposed membership and joining NATO would risk splitting the country, Matlock said. He added that genuine strategic cooperation with Moscow, which vehemently opposes NATO membership for the two former Soviet republics, would be nearly impossible “as long as we’re pushing this.”
 
In New York on Monday, U.S. Secretary of State Condoleezza Rice met Ukraine’s foreign minister and pledged Washington’s firm support for Ukraine’s bid to join NATO. But in Washington, Matlock and former U.S. envoys to Moscow James Collins and Arthur Hartman pointed to the consequences of ignoring Russia’s attitude on NATO expansion.
 
They shared a platform with two former Soviet ambassadors to Washington, Alexander Bessmertnykh and Yuri Dubinin, who denounced the NATO expansion policy as a major irritant in relations. “I personally believe that we need to go slow. … If we don’t, we will find that this is not something that stabilizes but rather divides,” Collins said.
 
Hartman said that at the time the Soviet Union was collapsing in the early 90s, it was a “great failure” that the West didn’t think creatively about a structure to replace NATO — because the main purpose of its existence, to defend against a Soviet threat, no longer existed.
 
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12.  RUSSIA’S FM SAYS WEST HAS TO MAKE STRATEGIC CHOICE IN RELATION TO UKRAINE

 
Interfax, Moscow, Russia, Saturday, September 20, 2008 
 
MOSCOW – The West will have to make a strategic choice in relation to Ukraine, bearing in mind that Ukraine’s possible accession to NATO would lead to a deep rift between Moscow and Kyiv and most negatively affect security of the whole of Europe, said Russian Foreign Minister Sergei Lavrov.

“Ukraine’s accession to NATO will lead to a grave crisis in Russian-Ukrainian relations. This crisis will have a most negative effect on the common European security. Thus, the West should make a choice, and this choice will be strategic,” Lavrov said in an article published in the Ukrainian weekly
2000.

“Assigning the role of a buffer between Europe and Russia to Ukraine is to belittle Ukraine itself,” Lavrov said. “It would be much more constructive to build relations with the surrounding world together,” he said.

Ukrainian Foreign Minister Volodymyr Ohryzko’s remarks in favor of Ukraine’s integration into NATO are “part of a common trend of shameless exploitation of the Caucasus crisis for unscrupulous political ends, primarily with the aim of dragging Ukraine into NATO against the will of an overwhelming majority of its population and in violation of the basic democratic procedures,” he said.

In particular, Lavrov pointed out that Ohryzko pushed ahead with the idea of “a NATO-centric system of European security,” while “it is exactly NATO-centrism that is splitting the Euro-Atlantic community and has proven to be absolutely flawed and unpromising,” Lavrov said.
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13.  U.S. SECRETARY OF STATE RICE GIVES STRONG BACKING FOR UKRAINE NATO BID 

 
Reuters, New York, New York, Monday, September 22, 2008 
 
NEW YORK – U.S. Secretary of State Condoleezza Rice on Monday pledged Washington’s firm support for Ukraine’s bid to join the NATO military alliance despite strong Russian opposition to the move.
In a meeting with Ukraine’s foreign minister on the sidelines of the U.N. General Assembly, Rice said the United States stood by a commitment made at a summit in Bucharest last April for Kiev to join NATO’s Membership Action Plan (MAP) — a first step toward membership of the military alliance.
“We, of course, are, have been and will continue to be supportive of Ukraine’s Transatlantic ambitions. And of course, the U.S. position on MAP was very clear,” said Rice, with Ukraine’s Foreign Minister Volodymyr Ohryzko at her side. “I should just say the Bucharest declaration is also very clear,” she added.
At the April summit, NATO leaders stopped short of putting Ukraine and Georgia immediately on the path to membership of the alliance, but pledged the two ex-Soviet states would one day become members.
Russia strongly opposes Ukraine’s proposed membership of NATO, as well as that of Georgia. Russia and Georgia fought a brief war last month after Tbilisi sent in troops to try to seize back the rebel region of South Ossetia, provoking massive retaliation by Moscow and a plummet in U.S.-Russia relations to their lowest level since the end of the Cold War.
While the United States has strongly backed both Georgia and Ukraine’s membership bids, allies including Germany, France and smaller NATO states have opposed it for fear of further provoking Russia.
The idea of membership has not been fully embraced in Ukraine either. Polls show a majority of Ukrainians oppose NATO membership and the leader of the country’s biggest parliamentary party has said the issue should be decided by the Ukrainian people. (Reporting by Sue Pleming; editing by Todd Eastham)
 
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14.  UKRAINE: DPM HRYHORIY NEMYRIA ON BBC TV’S HARD TALK

BYuT’s priority is to re-establish the democratic coalition
 
BYuT Newsletter Inform, Issue 86, Kyiv, Ukraine, Monday, 22 September 2008

KYIV – Hryhoriy Nemyria, Ukraine’s Deputy Prime Minister appeared on BBC TV’s Hard Talk last week. It was his second appearance this year on the programme that puts leading politicians at the mercy of a 30 minute grilling by Stephen Sackur – a seasoned interviewer famed for his “take no prisoners” approach.
  
The deputy premier responsible for European integration answered questions on the political crisis in Ukraine, driving home the message that his bloc’s priority was to re-establish the democratic coalition. “It was not the prime minister who pulled out of the coalition. We are persistent in our line that we would welcome back our partners in the coalition, and we are ready to negotiate a strategic compromise for the sake of Ukraine’s European future,” said Mr Nemyria.
  
The interview was highly topical given the collapse of the democratic coalition that day and the opening of a 30 day window to enable parliamentary factions to form a new coalition government. If no new government is formed in that time, the president has the right, if he decides to exercise it, to disband parliament and call a pre-term parliamentary election.

 
BYuT WISHES TO AVOID ANOTHER ELECTION
Mr Nemyria made it clear that BYuT wished to avoid another election and requested the democratic partners put aside their personal differences and unite. He also indicated that an outline agreement had already been reached with the centrist Lytvyn block to be part of a reconstituted democratic coalition.
  
When asked if BYuT would be prepared to join a coalition with the Party of Regions he answered, “We are still in the space where we haven’t exhausted all the possible ways for reaching a strategic compromise.” However, he doubted a coalition with the Party of Regions would occur, saying that, in any event, BYuT’s principles were non-negotiable.  
   
On the issue of the Georgia-Russia conflict he expressed concern that the security vacuum in the post-Soviet space had expanded and argued that Ukraine pursue a dual strategy. He suggested integration into the EU security and defence policy and said that the NATO Membership Action Plan remains an option, while stressing that any question of membership be subject to a national referendum.
  
RUSSIAN PASSPORTS
Quizzed over reports that Russian passports were being handed out in the Crimea, he told the BBC that the government had insisted on a full report from the Russian authorities. He noted that early indications reveal there was no spike in the rise of passports being made available.
  
Mr Nemyria was emphatic that Crimea will remain part of Ukraine. “We are against irresponsible statements of some odious Russian politicians that questioned Crimea’s future or Sevastopol’s future. We were very pleased when Prime Minister Putin clearly said that the Russian Federation does not question that Crimea belongs to Ukraine – this is a very important statement. The principle of territorial integrity should be respected by all players.”
 
NOTE: The BBC Hard Talk interview can be viewed at: http://www.bbc.co.uk/iplayer/episode/b00dnzh9
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15.  DON’T BE FOOLED AGAIN

Commentary: BYuT Newsletter Inform, Issue 86, Kyiv, Ukraine, Mon, 22 Sep 2008

KYIV – If you ask people in the West what the Orange Revolution was about, it is likely they will tell you it concerned a fraudulent election and the future orientation of Ukraine. Many still believe it was a tussle between East and West and the self-determination of the people to finally break free from Russia’s yoke. This of course was never true, but the line was often reported in the western media.
  
Central to the Orange Revolution was the simple demand for justice – ordinary people fed up with being deceived and standing up for democracy against autocracy. 
  
With the collapse of the democratic coalition, some headline writers are once again putting two and two together and coming up with six. Several headlines last week pinned the collapse of Ukraine’s governing coalition on the recent war in Georgia. What is disturbing is that the Bankova Street spin machine appears to be in overdrive, doing everything it can to propagate this curious positioning.
  
It is true that the coalition partners were not in full accord in their response to the Georgia-Russia conflict. Although analysis will reveal they agreed on many points of principle, Prime Minister Yulia Tymoshenko took a measured response, refraining from the tough-talking language adopted by President Viktor Yushchenko. Nevertheless she did condemn the unilateral actions and disproportionate use of force, calling for Russia to “respect the sovereignty of Georgia and its territorial integrity.” 
 
A major bone of contention was the president’s hard-line policy restricting the Russian Black Sea Fleet’s use of Sevastopol. Ms Tymoshenko believed that Ukraine should honour its contractual obligations – Russia has leased use of the port until 2017 – and cited that the president’s policy was unworkable as it lacked the necessary procedures to verify breaches of the new rules.
  
Not missing a trick, the presidential secretariat then accused Ms Tymoshenko of kowtowing to Russia in return for the Kremlin bank-rolling her future bid for the presidency. But this was bluster, an unsophisticated smokescreen aimed at de-positioning Ms Tymoshenko ahead of the 2010 presidential election. It belies the fact that the prime minister fully supports the EU position on the conflict – a position endorsed by the president.
  
So if the war was not the reason for the coalition’s collapse, what was?
 
THWARTING OF REFORMS  
The difference of opinion over the Georgia-Russia conflict was merely the most recent manifestation of a long-running feud between Ukraine’s two branches of executive power.
 
This feud is not based on policy differences. Indeed, Hryhoriy Nemyria, Deputy Prime Minister responsible for European integration said, “The policy differences between the two Orange partners are miniscule compared to the policy differences between the Christian Democrats and Social Democrats in Germany’s grand coalition government.”
 
 The nub of the issue is “constitutional.” Sadly Ukraine has not one government but three. There is the parliamentary government, the office of the president and the National Security and Defence Council (NSDC). The latter is headed by Raisa Bohatyryova (recently expelled from the Party of Regions), whose appointment was seen widely as a counterweight to the Tymoshenko government.
  
The NSDC is unashamedly a political tool of the president and has backed him in throwing up roadblocks that have brought the government’s reform agenda to a grinding halt. Privatisation plans, anti-inflation initiatives and anti-corruption measures have all been stopped in their tracks, paralysed by a flurry of presidential decrees and NSDC resolutions.
  
For months Ms Tymoshenko endured searing criticism and seeing her reforms vetoed. She eventually spoke out publicly against the president in May, by which time the attacks had become increasingly personal. The final straw was an accusation of “treason” – an allegation subsequently investigated and dismissed by the deputy prosecutor general.
  
Driving this criticism is the desire of the secretariat to turn public opinion against the premier so as to scupper any bid by her for the presidency in 2010. But most people view it as persecution and the strategy has backfired, serving only to depress further the president’s ratings.
 
CONSTITUTIONAL CHANGE: THE HEART OF THE MATTER   
The response by the Bloc of Yulia Tymoshenko (BYuT) to the paralysis of government was to side tactically with the Party of Regions to pass laws (on 2 September) that prevent the president and NSDC from overturning the lawful decisions of parliament. This, and the establishment of an unambiguous process for presidential impeachment, proved to be too much for the president.
  
Mr Nemyria explained why BYuT lawmakers voted for the new laws. “The decision was about a clear division of power. What we have had unfortunately is a phenomenon of parallel government, two or three at once, namely a National Security and Defence Council and a secretariat of the president trying to intervene in the competency of the government.” This uneasy division of power was key to the last political crisis nearly a year ago, which culminated in the dismissal of parliament and pre-term elections.
  
Clearly, this corrosive constitutional arrangement that pits president against parliament must be resolved. “Our position is clear,” said Ms Tymoshenko, “we have to amend the constitution and bring Ukraine to a type of parliamentary system enjoyed by most European democracies.  

 
Of course the subject of constitutional reform is far less glamorous to the media than a David and Goliath West vs. East tug-of-war. For a start, the issues are complex and require detailed explanation.
  
Yet we should not blame journalists. The president’s constant sabre rattling with Russia does nothing to dissuade those coming fresh to the story. Indeed, the president’s secretariat is content to propagate the myth that the collapse is owed purely to a West-East power struggle over the future direction of Ukraine.
  
But Ms Tymoshenko is in no doubt about Ukraine’s future direction. “We are totally committed to Ukraine’s European integration and we’ll do whatever we can to bring Ukraine closer to the EU,” she said.
 
Perhaps the few skewed headlines prove the old adage: never let the truth get in the way of a good story.
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16.  MOSCOW’S USE OF RUSSIAN PASSPORTS IN GEORGIA DISTURBS OTHER POST-SOVIET STATES

 
Window On Eurasia: by Paul Goble, Vienna, Tuesday, September 9, 2008
VIENNA – Even if Moscow does not employ again the strategy it used in Georgia of intervening militarily after extending dual citizenship and Russian passports to people in neighboring countries, that action has transformed the Russian passport into “something like a dangerous germ” whose spread can “lead to catastrophic consequences,” a Russian analyst says. 
“The first time” the Russian passport “unexpectedly” took this form, Anton Orekh’ writes in today’s “Yezhednevniy zhurnal,” was in Abkhazia and South Ossetia. Apparently “having landed there almost by chance, the passport began to multiply in these regions with such speed that it led to an epidemic or even pandemic” (www.ej.ru/?a=note&id=8381). 
After only a short time, he continues, “there did not remain in these places anyone who had not received this passport.  Then the war began.  And it turned out that the Russian passport [almost by itself and] in a surprising way made possible its development, escalation and intensification.”
Not surprisingly, many of the leaders of the countries neighboring Russia began to ask whether Moscow would use such a passport strategy against them.  The Ukrainian foreign ministry, for example, has regularly warned that “in Crimea a general Russian passportization is gaining ground.”
For the time being, Orekh’ argues, Kyiv’s fears are without any foundation.  The Kremlin has explicitly declared that it respects the territorial integrity of Ukraine, but especially given what has happened in Georgia and what has appeared in the Russian media, it is no surprise that officials there and elsewhere should be concerned.
After all, Russian President Dmitry Medvedev has said that Russia has a right and an obligation to protect its citizens wherever they live – a statement that Orekh’ implies should not be taken literally given the constraints Moscow is operating under.  And he adds that Russia would not attack Estonia because that would involve Russia in a war with NATO.
That of course is how all this looks from Moscow’s side, the Moscow writer says, but for those on whose territories Russian passports are spreading, “barricades are already being prepared” in response to what the Russian government is doing, something that heightens tensions and thus creates new dangers.
Both Russia’s use of passports in Georgia and Ukraine’s suggestions that Moscow is doing the same thing in Crimea have sparked a serious discussion not only about such passports themselves but about the implications of the dual citizenship for both the countries on which such people live and the countries to which they are thus linked.
In a commentary on the Babr.ru portal this week, Anna Mesherova considers the debate over whether “dual citizenship is a good thing or a bad one” and offers the perhaps unsatisfying conclusion that under some conditions, it is a good thing and draws nations together and under others, it pushes them apart
 
Dual citizenship is not a universal right. Rather it is in every case up to now the product of interstate agreements, with some states agreeing and others not. Nonetheless, she writes, it is not all that rate.  “What is rare is when the MAJORITY of citizens of a certain country or its region have the passport of a neighboring country.”
With Russia’s actions in Georgia, Moscow has invoked a principle which has not yet been accepted by the international community or even by the Russian government as a universal precedent has been created that suggests a country has the right to intervene in a territory on which “compactly live” its dual citizens.
Many countries, such as Ukraine, prohibit dual citizenship either in their constitutions or by law because their governments fear that the most dangerous situation would be to have a large number of people on their territories who sometimes could act as citizens of their country and sometimes as citizens of another.
And that danger only increases, Mesherova continues, when one country secretly or semi-secretly passes out passports as the Russians did in Abkhazia and South Ossetia and reportedly are doing so in Crimea as well despite the laws of the country in which Russian officials are acting in this way.
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17.  RUSSIAN PASSPORTS AS MOSCOW’S GEOPOLITICAL TOOL
Kremlin uses handing out of Russian passports to destabilize Ukraine
 
Analysis & Commentary: By Taras Kuzio, Eurasia Daily Monitor, Volume 5, Issue 176
The Jamestown Foundation, Washington, D.C., Wednesday, September 15, 2008
The official protest by the Russian Ministry of Foreign Affairs (MFA) on September 11 over the allegedly “unfriendly” attitudes of the Ukrainian authorities to Russia was met by a stern response on the same day by Ukraine’s Foreign Ministry (www.mfa.gov.ua).
 
Russia’s MFA protested about President Viktor Yushchenko’s support for Georgia, including supplying “heavy military hardware”; Ukraine’s drive to join NATO “against the will of the Ukrainian people”; “attempts by the Ukrainian authorities to reconsider our common history in an anti-Russian spirit”; and the standard complaint about official hostility to the Russian language.

Ukraine’s response pointed to Russia’s inability, despite nearly two decades of Ukrainian independence, to accept Ukraine as an “independent state.” Ukraine’s MFA also described Ukraine as “under no circumstances belonging to the so-called ‘privileged interests’ of any country.”

The Russian protest also complained about the “practice of banning Russian deputies and eminent politicians from entering Ukraine.” The following day Russian Duma deputy Viktor Vodolatsky was refused entry into Ukraine to attend a coordinating council meeting of Cossack Hetmans (leaders) from Ukraine, Russia, Belarus, and Moldova’s Trans-Dniestr region. The week before, Russian political technologist Sergei Markov was refused entry into Ukraine.

Russia has retaliated by creating a long list of Ukrainian politicians and businessmen banned from entering Russia. It includes the head of NUNS Vyacheslav Kyrylenko, Petro Yushchenko (the president’s brother and a NUNS deputy), the governors of Kyiv and Kharkiv, BYuT head of the parliamentary committeeon foreign affairs, heads of the armaments company Ukrspetsexport, and others (www.korrespondent.com.ua, September 15).

Ukraine’s MFA warned “that attempts by Russia to destabilize the situation in Ukraine through fifth columnists who for some reason position themselves as the ‘healthy political forces of the country’ have no prospects.” The accusations and the very tone of the exchange are at odds with Prime Minister Vladimir Putin’s assurances that “Crimea is not disputable territory” (German ARD television, August 29).

Leon Aron of the Washington-based American Enterprise Institute warned in The Wall Street Journal (September 10) that “Russia’s Next Target Could Be Ukraine.” The Moscow city council is providing $34 million in support of “compatriots” abroad.

Aron warns of a scenario in which Russia takes control over-night of the port of Sevastopol, which might be “impossible to reverse without a large-scale war.” The EU’s unwillingness to deal with Russia’s new assertiveness since August 8 has demonstrated the vacuous nature of its European Common Foreign and Security Policy. If the EU has permitted Russia to get away with de facto annexation of South Ossetia and Abkhazia, why would it react any differently to a Russian annexation of the Crimea?

The September 9 EU-Ukraine summit threw “away a golden opportunity to stabilize [Ukraine’s] eastern frontier and encourage political and economic reform in Kiev” (Financial Times, September 10). The EU “foolishly ducked a chance to throw the country a political and economic lifeline” (The Economist, September 11).

Two arguments why West European states, such as Germany, Italy, and France, have not supported NATO or EU enlargement to Ukraine and Georgia do not stand up.

 
[1] First, Germany, Italy, and France do not support either NATO or EU enlargement, although it is only the former that is usually considered likely to “antagonize” Russia.
 
[2] Second, energy links to Russia are not a factor in appeasing Russia. France, Italy, and Germany are only reliant for 26 percent, 30 percent, and 39 percent, respectively, of their gas imports from Russia. Poland, Lithuania, Bulgaria, and Slovakia, which support NATO and EU enlargement to Ukraine, import respectively 61 percent, 84 percent, 94 percent, and 100 percent of their gas from Russia.

Ukrainian authorities have become highly sensitive to the threat of a Russian policy of destabilization since the Kremlin invasion of Georgia. One particular area of concern is the issuing of Russian passports to Ukrainian citizens in the light of Russia’s pretext of coming to the “defense” of Russian citizens in the two frozen conflicts where Russia had illegally distributed passports.

Ukraine’s Minister of Foreign Affairs Volodymyr Ohryzko said that Ukraine’s repeated protests to the Russian consulate in Simferopol over its distributing of passports continue to be ignored. Ohryzko announced that the Security Service, prosecutor’s office, Interior Ministry, and MFA were now investigating the problem (www.mfa.gov.ua, September 6).

 
Ukraine’s Ambassador to Slovakia Inna Ohnivets, who previously worked on this issue, told of repeated Ukrainian demands to the Russian Consulate in the Crimea to halt the practice (www.bbc.co.uk/Ukrainian, August 28).

A week after Ohryzko’s comments, 34 inhabitants of Sevastopol who maintain dual citizenship had their Ukrainian citizenship withdrawn. Further investigations have located 1,595 inhabitants of Sevastopol, primarily serving on the Black Sea Fleet, who have dual citizenship, which is banned by Ukrainian law (www.pravda.com.ua, September 13).

Both political forces in the Orange coalition have raised the issue of the distribution of Russian passports as a threat to Ukrainian security. Our Ukraine-Self Defense deputy Volodymyr Stretovych warned that increasing the number of Russian citizens in the Crimea would give Russia, as in Georgia, a pretext to come to the “defense” of its citizens (www.nuns.com.ua, August 13, 15).

 
Deputy Nuns faction leader Borys Tarasiuk described the distribution of passports as Russia’s “secret aggression against Ukrainian citizens.” Yulia Tymoshenko Bloc deputies have drawn up a draft law making the obtaining of dual citizenship a criminal offence (www.pravda.com.ua, September 9).

The problem Ukrainian authorities are faced with is that they do not have concrete data on the number of Russian passports distributed in the Crimea. During Leonid Kuchma’s decade in office from 1994 to 2004 the Ukrainian authorities turned a blind eye to the illegal practice. Estimates of the number of Russian passport holders in the Crimea range from a low of 6,000 (Newsweek, August 23) to 100,000 (Los Angeles Times, August 25).

Consequently, the EU is ignoring the fact that the consequences for European security of Russian destabilization in the Crimea would be far more severe than that of Russia’s invasion of Georgia. [http://www.jamestown.org]

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18.  MOSCOW CAN  NOW OFFER RUSSIAN CITIZENSHIP TO EIGHT MILLION UKRAINIANS

 
Window on Eurasia: by Paul Goble, Vienna, Tuesday, September 23, 2008

 

VIENNA – Under the terms of new legislation nominally intended to promote the repatriation of “Russian compatriots” and thus help solve Russia’s demographic problems, Moscow can now offer Russian Federation citizenship to more than eight million Ukrainians, even though the Ukrainian constitution prohibits dual citizenship.     

 

Had Moscow taken this step six months ago, Verkhovna Rada deputy Kseniya Lyapina told Kyiv’s “Delo” yesterday, “it might have been possible to consider this as part of Russia’s domestic policy.” But after Moscow’s invocation of its right to protect Russian citizens in South Ossetia, these changes look like “preparation for aggressive actions” (delo.ua/news/87411/).

 

According to that newspaper, “those who want to receive a Russian passport do not need to live on the territory of the [Russian] Federation for five years, provide evidence of the source of their incomes or demonstrate a knowledge of Russian” if they are former citizens of the USSR and were born on the territory of Russia.

 

If Ukrainians were to give up their Ukrainian citizenship in order to take Russian citizenship and then move to the Russian Federation, as some demographers and political analysts have suggested is the reason behind the new rules, that would not necessarily create a problem for Kyiv, especially since the number of those likely to do so would not be large.

 

But if because of these simplified procedures, more Ukrainians take Russian citizenship without giving up their Ukrainian citizenship in violation of the Ukrainian constitution and then remain in Ukraine, Moscow would likely be able to exploit them in the same way it used the presence of dual citizens of Abkhazia and South Ossetia to justify military action.

 

Unfortunately, the comments of Russian officials in recent days suggest that there is little reason to put a positive interpretation on this new act. Indeed, in an article carried in Ukrainian papers over the weekend, Russian Foreign Minister Sergey Lavrov provides the basis for just the opposite reading (www.mid.ru/brp_4.nsf/0/5F3D95AD906E3A42C32574CA002A4FA2).

 

The Russian minister sharply criticized Kyiv for its failure to criticize Georgia and for its assumptions that what Moscow had done there was not “a response to aggression” but rather an indication of some kind of grand imperial design that gives Ukraine no choice but to seek protection from the West.

 

Not only is this insinuation entirely false, Lavrov said, but it is being made by those in Kyiv who want to push Ukraine into NATO “in spite of the opinion of the overwhelming majority of its population and elementary democratic procedures” but one that will divide Ukraine from its Russian neighbor.

 

And Russia has demonstrated, the minister argued, that it is interested only in protecting people as it did in Georgia and making sure that “Tbilisi will not use force again.” Moscow has no “hidden agenda,” something he said had been proved by President Dmitry Medvedev’s agreement with French President Nicholas Sarkozy.

 

But in words that many Ukrainians and others will see as an indication that Moscow does have a broader agenda if no longer a “hidden” one, the Russian foreign minister  said that “the entrance of Ukraine into NATO would bring its wake a deep crisis in Russian-Ukrainian relations” and have “the most negative” impact on European security more generally.

 

And then the minister added that Russia has some “serious concerns” about how Ukraine is acting domestically:

 

[1] First of all, he said, Moscow is very disturbed by “the discrimination and exclusion from all spheres of life of the Russian language,” which restrict “the rights of millions of Russian-language citizens of Ukraine.

 

[2] Second, he said, “we can hardly agree with the pseudo-historical treatment by Kyiv of the events connected with the famine of the 1930s in the USSR  as some kind of ‘genocide of the Ukrainian people’,” an approach which slanders the memories of “millions of famine victims of other nationalities.”

 

[3] And third, Lavrov concluded what many in Kyiv and elsewhere will see as a bill of indictment of the current Ukrainian government, the Russian government currently notes “with regret, “the growth of Russophobic and also anti-Semitic attitudes among the nationalistically inclined organizations of Ukraine.”

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19.  UKRAINIANS UNNERVED BY RUSSIAN MOVE TO EASE NATIONALITY RESTRICTIONS

 
Interfax Central Europe, Warsaw, Poland, Tuesday, September 23, 2008
WARSAW – Russian moves to ease passport restrictions for those of Russian heritage in Ukraine is seen as “a first  step  in  aggression” toward Ukraine, Ukrainian experts and politicians warn, as cited by the Tuesday edition of the Polish daily Gazeta Wyborcza.
“A fight over the Crimea would be a battle of crazy men,” said Ukrainian columnist  Vitali Portnikov, according to the paper. “However, we cannot
rule this out because there is no lack of crazy men in Russia.”
 
Ukrainian politicians in Kiev have called a move to allow those with Russian  background instant nationality and passports provocative – even though the  Kremlin insists that those wanting nationality must move to Russia to gain a passport,  according  to  Gazeta Wyborcza.
 
Ukrainian politicians have also warned that “half  of  Ukrainians” could theoretically apply for such a passport, with experts stating that Russia is  attractive for many because wages are twice as high as in Ukraine.
Ukrainians  have  also  made much of Russian President Dmitry Medvedev’s call to  defend  “Russian  brothers” in Georgia and see the instant
nationalization as a possible lead up to come to the defense of Russians living in Ukraine.
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20.  THE HISTORY IS COMPLEX, BUT THERE’S NO DOUBT CRIMEA IS PART OF UKRAINE 
The border with Russia was agreed at the UN, and talk of moving it now is dangerous.

 
Letter-to-the-Editor: By Ihor Kharchenko, Ambassador of Ukraine to the United Kingdom
The Guardian, London, UK, Wednesday, September 24, 2008
 
LONDON – Your report from Sevastopol, “the historic home of Russia’s Black Sea fleet”, gave the impression that Ukraine should be feeling guilty because the Crimean peninsula falls within its own territory (Divided peninsula plays host to Russian warships and Ukrainian pride, September 16).
“On the streets of Sevastopol, the mood is defiantly pro-Russian,” you report. “It is also vehemently opposed to Ukraine’s President Viktor Yushchenko and his plans to join Nato.” You then go on to quote several locals who claim that Crimea should be part of Russia, with no counterbalance. One of these, an MP in Crimea’s parliament, goes on to question the status of Ukraine itself. “It’s a myth that Ukraine is not part of Russia,” he says. “We don’t believe it.”
It is true, as you say, that the decision of the then Soviet authorities in 1954 to incorporate Crimea into the Ukrainian Soviet Socialist Republic is still is regarded as a mistake by some Russians as well as some Ukrainians. Moreover, in the list of historical “invaders” of Crimea one may find Scythians, Greeks, Ottoman Turks, Russians, even British and French, but no Ukrainian trace at all. So it may appear surprising that Crimea belongs to Ukraine.
However, the history is complex, and the fact is that the Crimean Autonomy is now a constituent part of Ukraine. Since 1954 this status has been reconfirmed twice – in the treaties between Russia and Ukraine of 1990 and 1997, stipulating the inviolability of existing frontiers. Probably that is why the Russian official you quote says firmly that Russia “doesn’t lay any claims on Sevastopol”.
Probably one other reason is the fact that, back in 1993, the Russian parliament tried to revisit the issue of Sevastopol’s affiliation and put the city, by means of parliamentary decree, back into Russian sovereignty.
The Ukrainian government sought advice from the UN security council, and I was a part of its delegation. On July 20 1993 the security council adopted a statement stressing that “in the treaty of 1990 Russia and Ukraine committed themselves to respect each other’s territorial integrity within their currently existing frontiers”, and adding that the Russian decree “is incompatible with this commitment as with the principles of the charter of the UN, and without effect”.
Given current events on Russia’s borders, it is surely ill-advised for you to speculate that “staging a coup in Sevastopol would be easy”.
Your report mentions “optimists” who “believe talk of Russia wrestling back Crimea from Ukraine is simply overblown”. It is said that pessimists in fact are well-informed optimists. Nevertheless, I remain optimistic and dare to believe that optimists on the issue are in the vast majority in both Ukraine and Russia.
In 1993 the UN security council’s note ended with a statement that “the security council will remain seized of the matter”. Irrespective of that, optimists hope that the security council won’t ever need to look into the matter again.
 
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21.  UKRAINE BETWEEN THE WEST AND THE EAST

 
ANALYSIS & COMMENTARY: by Mihai Hareshan
Nine o’Clock, Bucharest, Romania, Monday, September 22, 2008

The Georgian crisis, erupting on the international scene with the ‘five-day war’ between Russia and Georgia on August 7, 2008, has registered a new and one of the most significant episodes last week.

 
Yulia Timoshenko’s Government has been dismissed by President Viktor Yushchenko on September 16 on the backdrop of the latter’s accusations that the Prime Minister has an ambiguous – verging on treasonous – attitude towards the war that pitted Georgia against Russia last month, accusations amounting to no less than being in the pay of Moscow.
 
What is of course strange, to say the least, is the fact that Viktor Yushchenko and Timoshenko are the heroes of the 2003 ‘orange’ revolution in Ukraine, a revolution that led to the installation of a reformist power in Kiev, and that the current Government was formed in Parliament after the latest snap elections last year, through an agreement between the parties of the aforementioned politicians.

The crucial question in the case of the current Government crisis and that of the political crisis that subsequently erupted – the second crisis registered in the three years of the current Parliament, the previous one having to do with a conflict between them too and being resolved through snap elections – is the following: what is the main cause?

The answers that can be given to this question cannot rule out references to Russia, nor to the Ukrainian political system and to the conflict between the two politicians.

Could Russia be behind the current Government crisis? The answer is difficult. Moscow’s stance towards the complex problems of the former Soviet area is known. President Dmitry Medvedev has shown very clearly that Russia has special interests in this area and even beyond it and that his country will defend the dignity of Russians living in adjacent states (over 10 million of them in Ukraine).

 
Likewise, he reiterated Russia’s unyielding opposition to NATO’s expansion towards the Russian borders, and Moscow’s behaviour vis-à-vis Georgia emphasizes that when it comes to this issue, Russia is ready to go up to the final consequences.
 
As known, Ukraine is one of the countries that are due to undergo a NATO evaluation in December in order to receive the MAP statute that precedes the accession to the alliance. Moreover, port facilities for the Russian fleet in the Black Sea have been rented in Ukraine’s Crimea until 2017, and the fleet’s ships have been used in the war against Georgia.
 
In recent weeks embryos of separatist movement have made themselves felt in the Crimea – with most of the locals being ethnic Russian or Russophiles – and in Moscow one could hear voices asking for the reclaiming of the peninsula that Russia ceded to Ukraine as a ‘gift’ in 1954.

On the other hand, even President Viktor Yushcenko issues unveiled hints referring to Russia’s involvement in the current crisis. In a recent interview he did not exclude this possibility, pointing out that such a scenario certainly exists in Moscow. ‘Will they repeat the Georgian scenario?’ Yuschenko 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.’

Hence, a true and complex political background that presents Russia as the beneficiary of the political crisis in Kiev, now that Moscow has shown simultaneously with the recognition of South Ossetia’s and Abkhazia’s independence that the political rearrangement of the former Soviet area has begun.

 
The more the crisis is prolonged, the more the chances of Ukraine’s positive evaluation for a MAP in December drop, the more it splits the country in two antagonist parts – anti and pro Russian, the more the country’s destabilization deepens and the more Ukraine’s orientation towards Russia could gain consistency. And NATO would be unlikely to accept within its ranks o country that is in the midst of political crisis and that has tense relations with the Russian neighbour.

It’s just that standing to gain from it does not automatically mean you are the initiator of the crisis – whether through covert or a different kind of action – with Russia having the benefit of the doubt until proven otherwise. However one cannot ignore the accusations that President Viktor Yushcenko brought against the Prime Minister, accusations regarding the latter’s double dealing stance towards Russia, nor could one ignore Timoshenko’s statements.

 
Unlike Yushcenko, who openly condemned the Russian aggression and politically backed Georgia by restricting the movements of Russian ships from the Crimea, she said that although she does not support Moscow’s recognition of the separatist entities in Georgia, nevertheless she considers that Kiev needs good relations with its neighbour to the east.

Other recent developments come to give credence to the possible implications of the Russian action in escalating the crisis in Ukraine. Thus, Victor Yanukovich, the leader of the Party of Regions, Yushcenko’s former strong counter-candidate in the previous Presidential elections and the future candidate in the 2010 presidential elections and a politician known for his pro-Russian orientation, is considered to have chances of building a new Parliamentary majority along with Yulia Timoshenko.

 
When it comes to Russia, their stances are close to identical – the neighbor to the east should not be irked, there is a need of good relations with it – and their anti-Presidential position has recently become staunch. Recently he stated that ‘the Ukrainians feel no threat coming from Russia.
 
Speaking about such a threat, I think, are only those people that were cloned by the ‘orange’ revolution experiment. I don’t know how to call them – mutants, monsters. The rest normal people want to live in peace with their neighbours.’

If we refer to the servitudes of the Ukrainian political system and to the traits of the personalities involved in this crisis the picture is likewise complex. On the one hand, there is a strong current in support of amending the Constitution and limiting the President’s prerogatives was tried out (a move that has basically led to the current crisis, Timoshenko’s party voting alongside the opposition in support of limiting the Presidential prerogatives, in what Viktor Yushchenko called ‘a political coup’).

 
On the other hand, Yushchenko and Timoshenko are strong personalities whose will for exclusive power brings them into conflict. That is what happened almost a year ago when snap elections had to be called in order to end another political crisis. An official stated that: ‘It’s not about being pro-Western or pro-Russian. It’s about who gets to sit on the pipe,’ referring to the state’s large revenues obtained from the transit of fossil fuels.
 
‘Timoshenko is only interested in what serves her. She wants a monopoly on power. She was pro-Western when she needed the West’s support. Now she is trying to be pro-Russian.’ Both Yushchenko and Timoshenko are emerging as opponents in the Presidential elections of 2010, and the current crisis could be the beginning of their split for that competition.

According to the Constitution, by mid-October the Parliament has to come up with a new Government based on a new majority. If it fails then early elections will be next.

Irrespective of how it comes about, most of the political analysts foresee a prolonged crisis and a deepening instability in Ukraine in the near future, since Moscow revealed its intentions in the former Soviet area after the war in Georgia.

 
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[return to index] [Action Ukraine Report (AUR) Monitoring Service]
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22.  ANSWERING RUSSIAN AGGRESSION

 
OP-ED: By Mikheil Saakashvili, President of Georgia, The Washington Post
Washington, D.C., Tuesday, September 23, 2008; Page A21
 
TBILISI, Georgia — When tens of thousands of Russian troops and armored vehicles overwhelmed our country last month, the international community rallied to support us. Had Georgia been just another autocracy on Russia’s border, it is unlikely that so many world leaders would have traveled to Tbilisi to stand with the Georgian people.
This show of solidarity reinforced our belief that Georgia’s survival depends on becoming an ever more open and democratic society, firmly embedded in the community of free nations. How we respond is also pivotal to the future of the West.
Georgia was a corrupt, failing country that transformed itself into a liberal and promising nation in only a few years. To be sure, our democracy is still a work in progress. But it is a beacon in a difficult part of the world. And because Georgia lies at a crucial energy crossroads, an open, transparent government is even more vital.
Georgia also stands for the ability of the free world to respond with resolve to Moscow’s violent attempts to roll back democracy, reassert its empire and control European energy resources.

In hurrying to recognize the “independence” of our regions of South Ossetia and Abkhazia, Moscow erased universally recognized borders and challenged the system of sovereignty that underpins international law. It also concealed the ethnic cleansing that was undertaken by Russia and its proxies.

The West’s challenge now is to stand up to Russia without resorting to its brutal tactics. Our best protection lies in the ideas and values that guide our community of nations.
My government understands that how we conduct our affairs is a matter of consequence not only for us but also for our allies. We recognize that Russia’s insistence on using force has left it isolated politically and vulnerable economically.
Our belief in openness is not mere rhetoric. Despite the ruins created by the invasion — hundreds dead; nearly 200,000 displaced, according to the United Nations; our economy disabled — my government is putting our convictions into practice.
Transparency must begin with an understanding of how the war started. For years, Russia sought to slander Georgia and my government while also blocking any meaningful negotiations with the separatists. This was part of a campaign to weaken international support for Georgia and lay the groundwork for invasion. As has been reported, Russia began a sharp military buildup this spring in both conflict zones, leading to armed attacks this summer by its proxy militias.
 
Russia then started its land invasion in the early hours of Aug. 7, after days of heavy shelling that killed civilians and Georgian peacekeepers. At the time, Russia announced that 2,100 South Ossetian civilians had been killed by Georgians, thus forcing Moscow’s “humanitarian intervention.” This lie, subsequently debunked by Human Rights Watch (which estimated 44 dead) and others, was an attempt to conceal Moscow’s true motives.
On Aug. 17, standing next to German Chancellor Angela Merkel, I called for an international investigation into the origins of the war. My government is ready to share every piece of evidence and provide access to every witness sought by investigators. Is Russia willing to do the same?
Our second front in pursuing openness and transparency is at home. Last week, I announced a series of measures to strengthen Georgia’s democracy, giving opposition parties a central role in our reconstruction and defense planning.
 
We are working to foster pluralism in media and civil society, including giving opposition parties more funding and greater influence over public broadcasting. Initiatives also aim to make our judicial system more independent.
We are committed to transparency with our partners as well. My government has established rigorous mechanisms to ensure the accountable use of the aid that has been pledged so generously by, above all, the United States as well as by Europe, Japan, Canada, Australia and others.
But the West also must respond to Russia with conviction. We cannot allow Russia’s annexation of South Ossetia and Abkhazia to stand. Nor can Moscow be permitted to continuously flout the cease-fire to which it has repeatedly agreed.
My government welcomed the European Union’s decision to accelerate Georgia’s integration into European institutions. Last week, we were heartened by the first official visit to Georgia by the North Atlantic Council, and we hope that NATO will move forward with our membership application.
We Georgians will continue building our democratic future. We are focused on strengthening the community of democratic nations. The world must not permit Russia or others to assert spheres of influence and thus deny the right of free people to associate with like-minded nations.
 
LINK: http://www.washingtonpost.com/wp-dyn/content/article/2008/09/22/AR2008092202581.html
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23.  FUTURE OF VIKTOR YUSHCHENKO AND POLITICAL CRISIS IN UKRAINE

ANALYSIS AND COMMENTARY: By Vadim Karasyov, Vitaly Portnikov, Kyiv

Eurasian Home, Moscow, Russia, Tuesday, September 16, 2008

[1] By Vadim KARASYOV, Director of the Institute of Global Strategies, Kyiv

Among all Ukrainian top politicians only President Viktor Yushchenko regards the presidency as an opportunity to realize the nation-building project. For Yuliya Tymoshenko and Viktor Yanukovych, the presidency is the project of seizing supreme power. In other words, they see the presidency as a goal rather than a tool. Tymoshenko and Yanukovych are effective and popular policy-makers and party leaders. But unlike Viktor Yushchenko they are not statespersons.
What is the difference between a statesman and a politician? A statesman, even if he is not popular now, can gain wide popularity in the future, while a popular politician who has no national project can lose his or her rating quickly.
In Ukraine only Viktor Yushchenko demonstrates statesmanship and has a historical vision of presidency, but he is unpopular now, which is quite explainable. The idea of the Ukrainian nation is not consistent with the divided country (the same is true for Georgia). Ukraine is a country of minorities,
which are forced to create the parliamentary majority. This is the disadvantage that keeps causing the permanent political crisis in the country.
Before discussing the future of Viktor Yushchenko within the framework of the current political crisis in Ukraine, there is a need to say a couple of words about his presidency.
In 2004 Ukraine must have finished its post-Soviet development. Russia did that in 2000, when Vladimir Putin came to power.
Any president of Ukraine, who would have come to power in 2004, should have decided what policy the state would follow after the finishing of Ukraine’s post-Soviet development. A new leader should face new challenges. Viktor Yushchenko chose the nation building project. However, he had no enough powers to implement it. Since 2006 Viktor Yushchenko has had neither parliamentary majority nor loyal Cabinet of Ministers.
But I believe that Yushchenko’s situation is not hopeless. Everything will depend on how the election campaign will be conducted. If Yuliya Tymoshenko concludes an official coalition agreement with the Party of Regions, she may lose the support of the West Ukrainian electors who will vote for Yushchenko again.
 
If Tymoshenko does not conclude the agreement with Viktor Yanukovych and three major political forces take part in the elections, Yushchenko will have every chance of taking about 15 percent of the vote and then the main intrigue will take place in 2009-2010.
[2] By VITALY PORTNIKOV, “Svoboda” broadcasting station’s observer, Kyiv
Viktor Yushchenko’s high popularity rating in 2004 was neither based on the nation building project, nor on the study of the Cucuteni archeological culture, from which the Ukrainian people is said to descend, nor on the condemnation of the Great Famine (Holodomor) in Ukraine.
 
During his premiership in 1999-2001 he was the first Prime Minister in the independent Ukraine who paid off arrears of wages and pensions. So, he was the first social Premier who in 2004 was expected to become the first social President.
 
What did he promise when running for President in 2004? He promised the people wellbeing and prosperity. He also promised to fight against corruption, to create favorable conditions for the development of small business and many other things that were supposed to improve the ordinary people’s living. Viktor Yushchenko’s high rating was based on the broad social programmes of his election campaign. The voters regarded him as, above all, a successful economist and banker. 
Did he position himself as an anti-Russian presidential candidate? No, he didn’t, except in the propaganda of his political opponents and the Russian mass media maybe. Yushchenko himself tried his best to show that he wanted good relations with Russia. As the Prime Minister of Ukraine, he made such unprecedented concessions to maintain friendly relations with Russia that no Ukraine’s Premier had ever made.
Yushchenko’s opponents said: “He is against Russia. He hates Russia. He wants Ukraine to join NATO to defend it from Russia”. Viktor Yushchenko and his adherents denied those accusations. But Yushchenko’s position during the recent Russian-Georgian conflict indicates that all his previous projects, which were aimed at improving relations with Russia, are fading. Now Yushchenko is associated only with his anti-Russian project, while Yuliya Tymoshenko has become the social leader of Ukraine instead of him.
As a matter of fact, her position is the same as Yushchenko made public in 2004. She is a European-oriented politician and opposes the confrontation with Russia. Apart from that, she advocates improving the wellbeing of the people, fighting corruption, in a word all those things Yushchenko supported in 2004.
 
Currently there are a few people in Ukraine backing Viktor Yushchenko’s nation building and cultural project, and the votes at the early elections if they were called could be distributed, in the main, between the Party of Regions and Yuliya Tymoshenko Bloc.
I am not sure that the early parliamentary elections will take place in Ukraine. I concede that the Party of Regions and Yuliya Tymoshenko Bloc can come to an agreement with each other in the Parliament and form a coalition that will exist till the next elections. It can be called “the coalition of national reconciliation” or “the stability coalition”.
 
Those politicians will decide that the general presidential elections divide the country and they will not be held any more. Then Viktor Yanukovych will be nominated Ukraine’s President, Yuliya Tymoshenko will become Prime Minister and Viktor Yushchenko will be sidelined.
But Yushchenko can avert that, calling the presidential elections. Undoubtedly, he will lose them. In that case, Tymoshenko will be elected as President, and Yanukovych will become Prime Minister. This makes almost no difference.
Does Viktor Yushchenko have any allies in this struggle? Yes, he does. Surprisingly, the two previous Presidents of Ukraine Leonid Kravchuk and Leonid Kuchma won the presidential elections thanks to the East Ukrainian voters and, later on, they gained the Western Ukraine’s support. On the contrary, Viktor Yushchenko was elected by the Western and Central Ukraine and he won the Eastern electorate’s favour without changing ideologically.
 
In terms of ideology, he continues to be the President of the Central and Western Ukraine, but he has got support from the businessmen from the Southeast of Ukraine, first and foremost, from Rinat Akhmetov and Boris Kolesnikov, Ukrainian tycoons who are the sponsors of Viktor Yanukovych’s Party of Regions.
 
Yushchenko has come to realize that he should be the President of only the rich Ukrainians, which helped him to remain in power. But it is worse to be the President of the rich Ukrainians than the President of all the Ukrainians, since, unlike the rich Ukrainians, the ordinary Ukrainians do not dupe you. And rich people, when seeing that Yushchenko is unable to preserve their capital, seek to find a replacement for him.
For all that, Yushchenko’s future positive role is that he can prevent the state from becoming authoritarian. The coalition of Yuliya Tymoshenko Bloc and the Party of Regions would be an ideal pattern existing in Russia: effective Prime Minister (in Russia – Vladimir Putin, in Ukraine – Yuliya Tymoshenko), respected President (in Russia – Dmitry Medvedev, in Ukraine – Viktor Yanukovych) and security of the financial and industrial groups that came to terms with those political forces.
NOTE: The material is based on the experts’ addresses to Moscow-Kyiv television bridge “The future of Viktor Yushchenko and political crisis in Ukraine” organized by the Russian Agency of International Information RIA Novosti on September 10.
 
LINK: http://www.eurasianhome.org/xml/t/expert.xml?lang=en&nic=expert&pid=1729
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