Monthly Archives: October 2008

AUR#914 Oct 31 Vote to Secure IMF Loan Put Off Again; Currency Battered; Kyiv’s Crackup

 
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       
                     
ACTION UKRAINE REPORT – AUR – Number 914
Mr. Morgan Williams, Publisher and Editor, SigmaBleyzer
WASHINGTON, D.C., FRIDAY, OCTOBER 31, 2008
 
INDEX OF ARTICLES  ——
Clicking on the title of any article takes you directly to the article.               
Return to Index by clicking on Return to Index at the end of each article
1.  UKRAINE’S PARLIAMENT PUTS OFF VOTE TO SECURE IMF LOAN AGAIN
Reuters, Kiev, Ukraine, Thursday, October 30, 2008
 
By Maria Danilova, Associated Press, Kiev, Ukraine, Thursday, October 30, 2008  
UNIAN news agency, Kiev, in Ukrainian 1513 gmt 30 Oct 08 
BBC Monitoring Service, UK, in English, Thursday, October 30, 2008 

4UKRAINE CAN MEET ECONOMIC CHALLENGES, IMF MISSION SAYS 

Interfax Ukraine, Kyiv,  Ukraine, Thursday, October 30, 2008

5UKRAINE MAY DEFAULT WITHOUT IMF LOAN SAYS HEAD OF CENTRAL BANK
By Daryna Krasnolutska & Kateryna Choursina, Bloomberg News, NY, NY, Wed, Oct 29, 2008

 
Newspaper looks at conditions of IMF loan for Ukraine
Kommersant-Ukraina, Kiev, Ukraine, in Russian 30 Oct 08 p 1
BBC Monitoring Service, UK, in English, Thursday, October 30, 2008
 
Interfax Ukraine Economic, Kyiv, Ukraine, Thursday, October 30, 2008
 
Interfax Ukraine Economic, Kyiv, Ukraine, Thursday, October 30, 2008
 
Interfax Ukraine Economic, Kyiv, Ukraine, Thursday, October 30, 2008

10SETTLING OF PROMINVESTBANK’S PROBLEM IS PRELIMINARY MEASURE FOR RECEIVING IMF CREDIT

Interfax Ukraine Economic, Kyiv, Ukraine, Thursday, October 30, 2008
 
11 KIEV’S CRACKUP
Personality politics means a repeat of Ukraine’s troubles.
Opinion: by Adrian Karatnycky, The Wall Street Journal Europe
New York, New York, Wednesday, October 29, 2008
 
Mark Rachkevych, Editor, Kyiv Post, Kyiv, Ukraine, Thursday, October 30, 2008
 
By Maggie Urry and Rebecca Bream, Financial Times, London, UK, Wed, Oct 29 2008
14UKRAINE’S EMBARRASSING SHOW
Editorial, Kyiv Post, Kyiv, Ukraine, Thursday, October 30, 2008
 
15 KYIV LEADERS LOCKED IN TRASH-TALKING AS ECONOMY UNRAVELS 
Ukraine’s political leaders seem oblivious to the global financial crisis and the worldwide media exposure that depicts them as unstable
Op-Ed: By Adrian Karatnycky, Kyiv Post, Kyiv, Ukraine, Thursday, 23 October, 2008 
 
BYuT Newsletter, Issue 91, Kyiv, Ukraine, Monday, October 27, 2008

17.  UKRAINE POLL SUGGESTS SUPPORT FOR PRESIDENT MINIMAL 

Running behind Communist Party and Lytvyn Bloc
Interfax, Kyiv, Ukraine, Tuesday, October 28, 2008

18USA TRYING TO SET UKRAINE, RUSSIA AGAINST EACH OTHER WITH

Itar-Tass, Moscow, Russia, Tuesday, October 28, 2008
 
Agence France Presse (AFP) Strasbourg, France, Thursday, October 23, 2008
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1
 UKRAINE’S PARLIAMENT PUTS OFF VOTE TO SECURE IMF LOAN AGAIN

Reuters, Kiev, Ukraine, Thursday, October 30, 2008

KIEV – Ukraine’s parliament on Thursday put off final approval of financial legislation needed to secure a $16.5 billion IMF loan, pending further
consultations. Chairman Arseniy Yatsenyuk told deputies when the chamber began deliberations in the morning that committees hoped to produce a single
draft of the legislation later in the day.

He later acknowledged that disagreements had persisted and debate on the package to stabilise Ukraine’s financial position and banking system was
postponed until Friday. “The three committees have yet to reach a final agreement on the text,” he said.

“It is proposed … that two additional committees examine this and that we return to the draft tomorrow morning to ensure against a hasty, foolish decision that would fail to win the required number of votes.” There was no fresh attempt to blockade proceedings as had occurred for more than a week in a row over an early election.

The chamber gave initial backing to the package on its first reading on Wednesday, urged on by leaders saying the credits depended on quick approval
of measures required by the IMF.

Ukraine’s hryvnia currency, which lost nearly 15 percent of its value on Wednesday, bounced back from historic lows on Wednesday to trade at 5.9-6.07
to the dollar after the central bank offered to intervene with no limits on the currency volume.

IMF demands include helping banks to recapitalise, working to lower inflation and balancing the budget next year, according to the respected Ukrainska Pravda Web site, which published what is said was a memorandum of the IMF-Ukraine agreement.

The accord also called for the central bank to abolish a corridor for the hryvnia to trade against the dollar, a demand met by the bank this week, and
establishment of an official rate varying no more than 2 percent from the daily market rate.

Battered by a gaping current account deficit, the hryvnia plunged to a record low of 7.2 to the dollar on Wednesday, despite central bank intervention that has sapped 10 percent of its reserves. (Writing by Ron Popeski; Editing by Ruth Pitchford)
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2.  UKRAINE CURRENCY STRENGTHENS ON HOPES OF SECURING IMF LOAN 
 
By Maria Danilova, Associated Press, Kiev, Ukraine, Thursday, October 30, 2008  
KIEV, Ukraine – Ukraine’s battered currency rose Thursday for the first time in days, partly on hopes the country could secure a hefty International Monetary Fund loan to overcome a severe financial crisis.
The hryvna closed at 6.15-6.25 to the U.S. dollar on the foreign currency exchange, according to the Inter Business Consulting agency, after reaching a record low of 7.2 to the dollar the day before. The currency has lost about a quarter of its value since the beginning of the year.
The market responded to Parliament’s approval Wednesday of a series of stabilization bills, required by the IMF to receive the $16.5 billion loan.
Currency traders also reacted to the National Bank’s offer to sell dollars to all players at close to the market rate. That, combined with a more transparent policy on the foreign currency market, had been a key demand of the IMF.
“This is a very positive dynamic,” said Iryna Piontkivska, an analyst with Troika Dialog Ukraine. “The market has to believe that the National Bank is really doing this.”
Parliament must still approve the bills in a final reading Friday, after which the IMF would have to approve the aid package.
The Ukrainian economy, which grew strongly over the past four years, has been one of hardest-hit by the global crisis among emerging markets, and experts predict a recession next year. A 30 percent fall in demand for its key export, steel, has caused the hryvna to plunge, despite National Bank spending of nearly $5 billion this month alone to support the currency.
The global credit crunch, coupled with problems at a key bank prompted a run on banks that cleared the system of $3.4 billion this month.
Metal plants across the country were either slowing or halting production and thousands of workers faced layoffs. Volodymyr Boiko, the head of one of the country’s main steel plans, Ilyich Iron and Steel Works of Mariupol, said earlier this week that the company might rack up $42 million in losses by the end of the month and was ready to be nationalized.
The Ukrainian stock market, which has shed over 75 percent of its value this year, closed with a 9.64 percent gain following global markets and in reaction to the positive news at home.
Also, the European Bank for Reconstruction and Development announced Thursday that it was boosting its investment in Ukraine by 40 percent from the previous year to 1 billion euros ($1.3 billion). The cash is to fund energy and railway modernization programs.
“Without a doubt we believe that in the long term this crisis will be overcome,” said EBRD spokesman Anton Usov. “In any case, Ukraine remains a very interesting and attractive country for investors.”
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3.  MP SAYS UKRAINIAN ANTICRISIS BILL READY FOR FINAL APPROVAL ON FRIDAY 
 
UNIAN news agency, Kiev, in Ukrainian 1513 gmt 30 Oct 08 
BBC Monitoring Service, UK, in English, Thursday, October 30, 2008 

KIEV – The parliamentary committee for tax and customs policy has completed the finalization of the anticrisis draft law [that parliament needs to pass to get a large stabilization loan from the IMF] and the document is about to be handed out to members of parliament, the committee head, Serhiy Teryokhin, has told journalists.

“The document that I have right here has already been registered. It will now be handed out to people’s deputies, and theoretically it could be considered [today], but the fact that the document contains 146 corrections and 63 pages of tables of comparison, and the reluctance of people’s deputies to work in the evening – all this has prompted our speaker to postpone the consideration of the issue till tomorrow,” Teryokhin said.
As already reported by UNIAN, Supreme Council [parliament] speaker Arseniy Yatsenyuk proposed holding the second reading of the draft law “On urgent steps to deal with the negative consequences of the financial crisis and on amendments to some legislative acts of Ukraine” at a parliamentary meeting tomorrow morning on 31 October.
The speaker said at the parliament meeting that the Supreme Council did not yet have an agreed version of the anticrisis draft law for consideration in the second reading.  Yatsenyuk proposed considering it tomorrow “in order for all proposals to be included, so we do not act in a rush now and fail to get the requisite number of votes”.
[Ukraine’s STB television reported at 1600 gmt that speaker Yatsenyuk had closed the parliament meeting on the evening of 30 October and that parliament would consider the anticrisis law on the morning of 31 October.]
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4.  UKRAINE CAN MEET ECONOMIC CHALLENGES, IMF MISSION SAYS 
 
Interfax Ukraine, Kyiv,  Ukraine, Thursday, October 30, 2008
 
KYIV – Ukraine can meet with the current economic challenges and the credit support by the International Monetary Fund will facilitate this, IMF Mission Head Ceyla Pazarbasioglu said at a press conference in Kyiv on Wednesday. “The challenges facing Ukraine are large and serious ones, but they can be met. Instead of the scenario of a hard landing [for the economy], we are drawing up a scenario of soft, normal, controlled landing,” she said.
She assessed the list of anti-crisis measures drafted by the Ukrainian authorities as “very powerful.” “That is why the IMF is prepared to react so swiftly to this with its support,” she said.She said the IMF had not set any particular terms for decisions to fight the crisis, as the quality of the decisions is the most important thing.
“The Board of Directors [of the IMF] will convene for a meeting after these discussions [in the Verkhovna Rada] are over. In a week or two weeks – this will depend on the decisions Ukraine endorses,” she said.
“I have had meetings with a number of representatives of the parliament and leaders of political factions and I have arrived at the conclusion that all of them understand the problems facing us in future and the need for action,” she said.
She refused to comment on specific parameters of the stand-by program for Ukraine, saying only that standard terms for credits from the IMF envisaged a two- or three-year adaptation period [without redemption of the principle of the credit].
Head of the National Bank Volodymyr Stelmakh noted that the reason for the problems in the country are, in particular, the worsening of the external economic situation on the international markets for steel and chemicals, and also difficulties in accessing foreign credits: Ukrainian companies are losing out to their Russian and Chinese rivals, he said. At the same time he added, that the situation is worsened by the poor credit conditions for Ukrainian companies.
And according to Stelmakh, there are unsold steel and chemical products worth in $800 million in storage, while imports of goods to Ukraine continue to rise. That situation causes a mismatch between demand and supply on the currency market: the average day supply of currency has fallen almost to $100 million.
The situation on the forex market in October was affected, according to Stelmakh, by the higher demand for foreign currency on the cash market, as the panicked population tries to protect its savings by buying foreign currency.  Other factors are the speculative operations of financial institutions and the purchase of foreign currency by banks and business.
According to Stelmakh, the loan from the IMF will give an opportunity to the NBU to boost interventions on the interbank forex market and stabilize the situation. He said, however, that the problems with foreign currency earnings would remain in 2009 in the light of the world economic recession.  ommenting on the structure of the foreign reserves of the NBU, Stelmakh said the US dollar accounted for 43% of the reserves.
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5.  UKRAINE MAY DEFAULT WITHOUT IMF LOAN SAYS HEAD OF CENTRAL BANK

By Daryna Krasnolutska & Kateryna Choursina, Bloomberg News, NY, NY, Wed, Oct 29, 2008

KIEV – Ukraine may be forced to default on billions of dollars of debt should it fail to secure a promised $16.5 billion loan from the International Monetary Fund, central bank Governor Volodymyr Stelmakh said.

The Oct. 26 agreement on a 24-month IMF loan to help support the nation’s financial system needs approval by the country’s Parliament, which has put off a vote on the aid four times, and the Washington-based lender’s executive board.

Without the loan package, “we will not be able to show our creditors that we have a reliable mechanism to repay our debts,” said Stelmakh today at a
joint press conference with the IMF mission in Kiev, Ukraine. “We will discredit ourselves and thus we may have to announce a default.”

Ukraine, like Belarus, Hungary, and Pakistan, is seeking IMF funds to support its national currency and keep banks from running out of cash as emerging market economies feel the pinch of the global economic crisis. Lawmakers have yet to cast a vote on legal changes needed to accept the money as the nation’s top leaders squabble over early elections, probably to be held in December, and the agenda for the next parliamentary session.

Ukraine has $100 billion in total debts, 80 percent of which is corporate debt, President Viktor Yushchenko said on Oct. 23.

The hryvnia plunged 12 percent against the dollar, the most in 10 years, to a record-low 7.1250 per dollar as of 1:18 p.m. in Kiev, from 6.3500 yesterday. It was the biggest intraday decline since September 1998. The currency slid to the lowest level since it was introduced in 1996.

BAD CREDIT
The state, sandwiched between Russia and the European Union, has the worst creditworthiness of Europe’s emerging markets, based on the cost of
credit-default swaps, which protect bondholders against default. Its credit rating was cut by international agencies, including Fitch, Standard &
Poor’s, Moody’s this month, which allows creditors to demand Ukrainian companies and the government to repay their debts ahead of schedule.

The IMF executive board’s final decision cannot be made until the eastern European country’s legislature completes its tasks. When that is done,
“Ukraine will get its first component,” said Ceyla Pazarbasioglu, the head of the IMF mission to Ukraine.

Among the new laws needed, pushing “strong bank recapitalization is key for the IMF loan,” said Pazarbasioglu. The IMF also wants to see a “strong
monetary and exchange rate policy, prudent fiscal policy, strong financial policy and reforms to improve investment climate.”

MELTDOWN RISK
Prime Minister Yulia Timoshenko, whose allies physically blocked Parliament last week, told lawmakers today that Ukraine is seeking to lock in an
interest rate of 4 percent for the loan.

Ukraine faces an economic meltdown as prices for Ukraine’s main exports, including steel, drop and a weakening currency makes imports more costly.
The inflation rate almost tripled in a year to a record 31.1 percent in May before easing back to 24.6 percent in September. If Ukraine fails to get the
IMF loan, inflation will also surge, said Stelmakh.

The current-account deficit widened to $8.4 billion, or 5.8 percent of gross domestic product, in the first nine months of the year, according to the central bank’s Web site. The current- account gap will probably total $15 billion this year, said Stelmakh earlier this month.
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6.  TO BE BORROWED

Newspaper looks at conditions of IMF loan for Ukraine
 
Kommersant-Ukraina, Kiev, Ukraine, in Russian 30 Oct 08 p 1
BBC Monitoring Service, UK, in English, Thursday, October 30, 2008

A Ukrainian newspaper details the conditions on which Ukraine can obtain the IMF’s loan, following as a package of anti-crisis laws has passed the first reading in the Ukrainian parliament. The IMF’s terms are: freezing wages and benefits paid in the public sector, reducing taxes and allowing the agricultural land to be sold, the paper says.

 
The following is the text of an unattributed article entitled “To be borrowed” and published in the Ukrainian edition of the Russian business daily newspaper Kommersant on 30 October:
The Cabinet of Ministers, the National Bank of Ukraine [NBU] and the International Monetary Fund [IMF] have reached an agreement on the terms of Ukraine receiving a 16.5bn-dollar loan.
 
To obtain this loan, Ukraine has promised not to increase social standards for two years, to begin selling agricultural land, to increase gas prices for the public, to reduce taxes and to reduce support for the [national currency] hryvnya. Experts suppose that acting upon the IMF’s recommendations will become “shock therapy” for the Ukrainian economy, but they doubt that Ukraine will completely give up a socially oriented budget policy.
The head of the IMF’s mission, Ceyla Pazarbasioglu, yesterday [29 October] assured the NBU’s representatives that the IMF is ready to open a two-year credit line worth 16.5bn dollars through a stand-by programme in order to tackle the impact of the financial crisis on Ukraine’s balance of payment.
 
“The loan is worth 11bn SDRs, which is an equivalent of 800 per cent of Ukraine’s quota in the IMF. We are satisfied with the initiatives put forward by the government and we will be waiting for them to be approved in parliament,” Pazarbasioglu said.
 
She also specified that the IMF’s board of directors will make the decision as soon as the law “On urgent measures to prevent negative consequences of the financial crisis and amending some legal acts” is approved. Yesterday parliament approved the law in the first reading by 248 votes, and the draft law could be passed today.
IMF’s loan is of vital necessity to Ukraine, the governor of the National Bank of Ukraine, Volodymyr Stelmakh, said. Otherwise, he said, along with the acceleration of inflation Ukraine may face a technical default “and suffer a damage to our reputation connected with that”.
“The loan will allow Ukraine to escape a slump in the economy, it will make it smoother,” Pazarbasiouglu agreed. Even if economic reforms are implemented and funds from the private sector and international organizations are attracted, Ukraine’s will still need some 17bn dollars while the IMF’s programme is being carried out, the IMF calculated.
The IMF and the NBU did not disclose the conditions for obtaining the loan and promised to detail them after the loan is ratified by the IMF’s board of directors. Pazarbasiouglu only said that the loan will be disbursed in tranches. Ukraine will receive the first one, consisting of the largest portion of the whole loan, immediately after the loan ratification, the next one in six months.
 
When asked about the loan’s interest rate, Pazarbasiouglu said that it will be determined by the board of directors and added that the IMF’s standard interest rate is 3.7 per cent. Parliament deputy speaker Mykola Tomenko said yesterday that the IMF’s loan is given for 15 years at a 4-per-cent interest rate.
According to the memorandum on the economy and financial policy which was put forward by the Cabinet of Ministers and the NBU together with the IMF (Kommersant has a copy available), Ukraine will be under the IMF’s influence for almost three years, having committed itself to conduct reforms proposed by the IMF.
 
The document says that “the deepening of the global financial turbulence and a decline in raw material’s prices have undermined trust and called for more rapid economic reforms then it was planned.” As for the NBU, it promises to let the national currency free-float and to step up the banking monitoring during the crisis and the record devaluation of the hryvnya.
The NBU’s main objective will be to keep inflation in Ukraine in 2009 at the 17-per-cent level while this year the IMF is expecting a 25.5-per-cent growth in consumer prices. In order to pull “liquidity” out of the economy the NBU intends to raise the interest rate on its certificates of deposits in 2009.
 
The growth of monetary base will be kept at the 11-per-cent level, “in the light of our expectations that the nominal growth of the economy will not exceed 12 per cent.” Taking into account high inflation, the NBU and the government actually admitted that Ukraine is in for a recession next year.
 
It was discussed on Tuesday [28 October] at the presidential secretariat, they expect the GDP’s plunge of 2 per cent. As a participant in talks with the IMF told Kommersant, the IMF’s representatives expected the Ukrainian economy to fall by 4 per cent while the Foreign Ministry argued that the GDP would grow by 2 per cent.
Under these conditions, the Finance Ministry promises to keep the 2008 budget deficit at 1 per cent of the GDP (0.3 per cent – financing of the relief-efforts of the flooding in western Ukraine and 0.7 per cent – coverage of the tax revenue shortfall in the fourth quarter) and to adopt a zero deficit budget in 2009 (taking into account the bank recapitalization operations). On the whole, the government expects “a more severe fiscal situation” compared with the previous years due to the “economic slowdown”.
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7.  RESERVE REQUIREMENTS TO UKRAINIAN BANKS TO BE TOUGHENED, SAYS MEMO WITH IMF

 
Interfax Ukraine Economic, Kyiv, Ukraine, Thursday, October 30, 2008

KYIV – The National Bank of Ukraine (NBU) will increase interests on deposits and reserve requirements to banks to fight inflation in 2009. The commitment is stipulated in a memo agreed by the government and the National Bank of Ukraine with the International Monetary Fund (IMF).

“According to the goal, but only to overcome stresses on the financial market, we’ll have to low the liquidity. Partially this will be done due to the resumption of previous rules on reserve requirements, although in addition, we’ll increase interest on deposits in the NBU to cut their gap with the discount rate,” reads the memo, which was also sent to Interfax-Ukraine.
According to the document, the NBU should counteract inflation through bringing the size of monetary base to a certain indicator in the light of expected demand on money. According to the memo, a list of acceptable guarantees for credits will be revised. “We’ll also direct our activities to improve the quality of the NBU balance through revising a list of acceptable guarantees, in particular, granting a quick cut in the share of banking shares in the list,” reads the document.
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8.  NBU COUNCIL’S POWERS MAY BE RESTRICTED, SAYS MEMO WITH IMF
 
Interfax Ukraine Economic, Kyiv, Ukraine, Thursday, October 30, 2008
KYIV – The Council of the National Bank of Ukraine (NBU) may become a body with a narrower specialization. The goal is stipulated in a memo agreed by the government and the National Bank of Ukraine with the International Monetary Fund (IMF).
 
“We’ll conduct reform of the NBU Council, turning it to the body with narrower technical specialization, according to optimal practice,” reads the memo, which was also sent to Interfax-Ukraine. According to the document, the step is needed to increase the NBU’s level of independence.
In addition, amendments to existing law to prolong the term for which the NBU Council is elected are foreseen. According to the document, the
government’s debt to the NBU will be registered with securities, and a primary dealer system will be created on the state securities market.
As for the financial sector, it is necessary to issue funds to commercial banks by the NBU with the toughening of their checks. In addition, the memo
foresees a rise in the ceiling size of deposit guarantee sum to UAH 100,000. “After the outflow of deposits, we’ll cancel administrative restrictions on
early withdrawals from fixed deposits,” reads the document.
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9.  UKRAINE’S AUTHORITIES TO CREATE SPECIAL BODY FOR
MONITORING FOREIGN DEBT, SAYS MEMO WITH IMF
 
Interfax Ukraine Economic, Kyiv, Ukraine, Thursday, October 30, 2008

KYIV – Ukraine’s authorities plans to form a body to monitor the state foreign debt, according to a memo agreed by the government and the National Bank of Ukraine with the International Monetary Fund (IMF).

“[The body is to be formed] …in order for persons responsible for the formation of policy to react to the risky formation of peak burdens in servicing of the foreign debt at early stages,” reads the memo, which was issued to MPs on Wednesday and was also sent to Interfax-Ukraine.
Ukraine said in the document that the state is deeply analyzing the consequences, which may have various economic forecasts and scenarios for the development of the economic situation, regarding risks of default in the private sector.
“We’re also thoroughly analyzing laws on bankruptcy to determine the necessity to make amendments to optimize processes and liquidation of delays with simultaneous observation of required procedures,” reads the document.
According to the NBU, Ukraine’s gross foreign debt in Q2 2008 grew by $7.53 billion, or 8.1%, and as of July 1, 2008 reached $100.06 billion, including $14.87 billion of the state sector debt and $38.45 billion of the banks debt. Last week, Ukrainian President Viktor Yuschenko said that sort-term corporate debts, to mature in one year, are worth $28.2 billion.
Over the past two months, due to the negative impact of the international financial crisis and the fall in the prices on commodity markets, which have upset Ukraine’s balance of payments, the hryvnia exchange rate on interbank has weakened by over 40%. The NBU partially supports the national currency, which caused a cut in its forex reserves over the first ten days and second ten days of October of 7.7%, or $2.9 billion, to $34.6 billion.
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10.  SETTLING OF PROMINVESTBANK’S PROBLEM IS PRELIMINARY
MEASURE FOR RECEIVING IMF CREDIT
 
Interfax Ukraine Economic, Kyiv, Ukraine, Thursday, October 30, 2008

KYIV – The International Monetary Fund (IMF) is ready to issue a stand-by stabilization credit if the problem with Kyiv-based Prominvestbank is settled.
This is stipulated in a memo agreed by the government and the National Bank of Ukraine with the IMF, where the settling of the problem with Prominvestbank was indicated as a preliminary measure.

“We’ll settle the Prominvestbank’s problem very quickly,” reads a document spread among MPs on Wednesday, which was also sent to Interfax-Ukraine.
Presidential Secretariat First Deputy Head Oleksandr Shlapak said while introducing the draft law of the president on anti-crisis measures in the Verkhovna Rada on Wednesday that UAH 1 billion will be allocated from the national budget to increase the statutory capital of Ukreximbank, which will use the fund to buy shares of an additional issue of Prominvestbank and receives over 80% in its statutory capital. Additional revenues will be received from over-target payments from VAT on imports.
According to Ukrainian law, this variant of buying banks by the state would require a voluntary refusal of the present bank shareholders from buying shares of the additional issue. Taking into account the present size of the bank’s statutory capital (UAH 200.175 million), the shares will be bought at their face value. In this case, Ukreximbank may buy 83.32% in the bank’s statutory capital.
 
CJSC Prominvestbank was founded in 1992. According to the NBU, the bank ranked 6th among 178 operating banks in Ukraine by July 1, 2008, in terms of overall assets, estimated at UAH 27.539 billion, which accounted for 3.94% of the overall assets of the Ukrainian banking system.
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11.  KIEV’S CRACKUP
Personality politics means a repeat of Ukraine’s troubles.

OPINION: By Adrian Karatnycky, The Wall Street Journal Europe
New York, New York, Wednesday, October 29, 2008

Once again, Ukraine’s fractious and confusing politics are on display. Early elections have been called — but one major party has been blocking the
parliamentary tribunal, stuffing paper and chewing gum wrappers into voting machines, and using the courts to keep the poll from going forward.

The IMF may be stepping into the financial breach with a $16.5 billion loan — but not as long as the aid package and comprehensive legislation to
deal with the crisis remain hostage to the personal ambitions of Ukraine’s leading politicians.

This is nothing new. Partisan bickering and electoral rivalries have long trumped political compromise and stalled reforms, earning Ukraine an image
as a country beset by crisis and instability.

Ukraine’s politics shattered anew on Oct. 8, as the year-old government headed by Yulia Tymoshenko fell after being abandoned by President Viktor
Yushchenko’s Our Ukraine coalition. Rather than reconfigure a fragile pro-Western coalition stymied by endless rivalries, President Yushchenko instead called new elections in the hope they will strengthen his hand in shaping the country’s domestic and international policy and improve his chances for re-election.

This was the second collapse of a governing coalition headed by parties and leaders that worked together in the democratic Orange Revolution of 2004. In
2005, the first collapse of an “Orange” government led to elections in which the pro-Russia Party of the Regions gained power.

That President Yushchenko has now opted to risk a similar outcome amid a global economic crisis, at a time when Russia is behaving belligerently, and
as Ukraine is under review for a closer relationship with NATO, shows just how toxic are relations between the president and prime minister. It also
shows how little trust Mr. Yushchenko and sections of Ukraine’s elite have in Ms. Tymoshenko’s stewardship of Ukraine’s government and economy.

So bitter are relations among the country’s political elite, in fact, that they cannot set a date for elections. The poll originally was slated for Dec. 7, but that date has been put in doubt by a combination of court challenges by the Tymoshenko bloc, the necessary “freezing” of the decree dismissing parliament so that lawmakers can tackle emergency financial legislation, and growing anxiety in the president’s camp over very poor showings in recent public opinion polls.

But the collapse of the Tymoshenko government is more than a parting of ways among intense rivals for the presidential election of 2010. The Tymoshenko
government was the victim of aftershocks from two international crises: Russia’s invasion of Georgia and the global financial crisis. These crises have further fragmented an already messy political scene, creating new cleavages among Ukraine’s “Orange” politicians and within the major opposition Party of the Regions.

The war in Georgia split the Orange coalition. The hawks, represented by President Yushchenko and Our Ukraine, sought to speed up Ukraine’s entry into NATO and forthrightly condemned Russia’s aggression. The doves, meaning Ms. Tymoshenko and her bloc, gingerly skirt the issue of NATO membership,
which only three in 10 Ukrainians support, and have criticized both Russia (mildly) and Georgian President Mikheil Saakashvili (severely).

The war also fragmented the opposition Party of the Regions into a firmly pro-Russia camp headed by former Prime Minister Viktor Yanukovych, who
endorsed Russia’s invasion of Georgia, and the business wing, which made clear that Russia violated international law.

The global financial crisis, too, exacerbated internal differences among the major political players. President Yushchenko’s interest in removing Ms.
Tymoshenko as prime minister was reinforced by nervous business interests who mistrust her populist inclinations, and thus her stewardship of the
economy at a time of crisis.

But business groups also appear to mistrust Mr. Yanukovych, who as prime minister from August 2006 to December 2007 showed a predisposition to
accumulate unchecked power and used the state’s power to advance the economic interests of his closest backers.

As a result, business would prefer to see a solution that leads to a depoliticized government of competent technocrats who can steer the country in economically challenging times.

Ideally, in a time of crisis, such a government would be based on an agreement among the three major political forces. But given the bitter relations between Ms. Tymoshenko — whose competent economic team has restrained her innate populism and has been saying and doing the right things in recent days — and President Yushchenko, such a government is more likely to be built around a tacit “national unity” coalition between Mr. Yushchenko’s political forces and the Party of the Regions.

But such a coalition would be possible only after new elections and could be headed by an economically competent leader such as the current parliamentary speaker, Arseniy Yatseniuk, or the former prime minister and current Defense Minister Yuri Yekhanurov.

For Ukraine, whose state independence was one of the most important geopolitical outcomes of the collapse of communism in 1989-91, this means further uncertainty. Uncertainty means no progress on NATO integration, and little predictability for global investors.

At the same time, the current political turmoil masks the realities of the country: dramatic improvements in living standards over the last five years; an electorate that rejects the far left and far right; growing national pride; deepening democratic pluralism; and significant influence of entrepreneurs and business leaders on the major political parties.

Given the toxic personal relations and climate of mistrust among Ukraine’s key leaders, political stability will come only with the emergence of new voices and new parties. And given the fact that polls indicate that the majority of Ukraine’s citizens are unhappy with the political choices on offer, this perhaps is Ukraine’s best hope for long-term success.

In the meantime, we can count on more of the same Ukraine: radical rhetoric and Byzantine political jockeying that concludes in a centrist compromise
and just averts the country’s collapse.

NOTE: Mr. Karatnycky is senior scholar at the Atlantic Council of the U.S.
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12.  UKRAINE FINDS ITSELF FINANCIALLY SQUEEZED FROM ALL DIRECTIONS

 
Mark Rachkevych, Editor, Kyiv Post, Kyiv, Ukraine, Thursday, October 30, 2008

Ukrainians are bracing for an extended rough patch as global financial turmoil gives way to global economic recession. The purchasing power of the country’s most vulnerable citizens is being mightily reduced.

A consumer lending boom, which in recent years fueled purchases of cars, apartments and appliances, has come to an abrupt end.
The country’s banks are wobbly.
Declining exports and rising imports have worsened the nation’s current account deficit, putting pressure on the country’s currency, which is already at an historic abyss.
To make matters worse, the pockets of Ukrainians are being squeezed by Europe’s highest inflation rate.
There is no end in sight.
As global demand falls, the country’s export-oriented steel industry is grinding to a halt. Factories which employ hundreds of thousands warn they could be forced to lay off workers soon.
These symptoms alone are enough to put the country into the emergency room, awaiting surgery.
What has the doctor prescribed to stabilize the situation?
An emergency loan, effectively a $16.5 billion injection of fresh cash to boost liquidity and keep the national currency stable, is expected soon from the International Monetary Fund. But it will come along with painful conditions.
While the IMF’s conditions had not been spelled out publicly, sources say they will require the government to cut expenditures and impose a two-year freeze on social expenditures.
In other words, as expenses go up, more than 14 million pensioners, teachers and other budget-funded citizens should not expect their incomes to increase.
With the option of default not acceptable, economists say Ukraine has little choice but to accept this painful dose of help.
The central bank in October injected more than $3 billion onto the currency market from what was $38 billion in reserves to stabilize the hryvnia. Yet the slide continued.
The currency has, since summer, depreciated from a rate of below Hr 5 to the U.S. dollar, reaching Hr 6.6 to the dollar at street exchanges this week.
“We can expect further depreciation of about 10 percent next year as export prices continue to fall,” said Oleksandr Zholud, an economist with the International Center for Policy Studies.
The rate of inflation has cooled a bit recently since spiraling early this year. Nonetheless it is expected to finish the year at 20 percent or higher.
The cost of certain every-day items has surged.
The government has accused pharmaceutical retailers of trying to unfairly capitalize on the financial crisis. Allegedly, they conspired in October to artificially boost prices by 70 percent. Prices for dairy, meat and fruits increased 5 percent to 25 percent in October, according to Delo newspaper.
“Senior citizens are affected psychologically and materially because of rising inflation,” said Volodymyr Dzyobak, head of the All-Ukrainian Association of Pensioners of Ukraine.
“Psychologically this manifests into poorer health. They are stocking up on food to hedge against further inflation. Their savings deposits are frozen [by recent anti-crisis measures adopted by the central bank],” he added.
Wholesalers and supermarkets, including Germany’s Metro Cash & Carry have begun slashing prices for their goods by 10 percent on average, and up to 40 percent for some product. Fozzy Group, owner of several supermarket chains, also reduced prices, while cutting back 16 planned store openings in the near term.
Tariffs for utilities – such as water, electricity and gas – are expected to rise. Regulators have already announced that heating bills will be spiked up 35 percent as of Dec. 1. “Ukrainian homeowners can expect their natural gas bills to at least double next year,” Zholud added. He said painful adjustments for average Ukrainians are ahead.
Russia, Ukraine’s main fuel supplier, will next year sharply raise the price for blue fuel imports for the fourth time in as many years. This will put pressure on the government, which continues to bailout the state energy holding Naftogaz Ukrainy, to weed out subsidies by raising prices on households toward market levels.
“Industrial gas consumers have already been paying gas prices similar to those in Europe. In contrast, residential consumers have been subsidized, charged rates even below the $179.50 per thousand cubic meter price [Ukraine pays for imports this year.] In Western Europe, residential consumers actually pay more than industry for gas, due to the costs of maintaining residential gas delivery networks,” Zholud added.
An average consumer’s spending has already been slashed due to higher credit interest rates and higher hurdles to qualify for credit, according to Jathan Tucker, a trader with Galt & Taggart Securities Ukraine.
As the domestic currency slides, Ukrainians will find every-day imported goods more expensive.
Mass layoffs are under way in the backbone of Ukraine’s blue-collar economy, the country’s heavy industry sector.
Layoffs were detected in the troubled metallurgical sector as well as in light industry, and the food business, said Yuriy Kuzov, department head of the Federation of Employers of Ukraine. Kuzov forecasted that by years’ end there will be six applicants for every job vacancy or 500,000 people. That means that some 15 percent of Ukraine’s industrial workforce will be looking for work.
Tucker said “the ultimate impact” is hard to predict. It depends much on global commodity demand and prices. He said “inventories are fluctuating by the week.” “But ultimately, unless global demand [for steel and other exports] picks up, further layoffs can be expected,” Tucker added.
Altogether, experts forecast at least 6-8 percent unemployment for 2009. Official figures show that unemployment in the country stood at just over 2 percent early in 2008.
Several factories have in recent days warned they were close to halting production. The most recent is Nikopol Ferroalloy, Ukraine’s top ferroalloy factory. It plans to freeze production on Nov. 1.
Outside of steel mills, coal mines and other factories, Ukraine’s highly-populated eastern regions offer few employment alternatives. The mining-metallurgy sector alone employs about 1 million.
Tatiana Kolombet, commercial director at Kyiv-based recruitment agency Brain Source International, said companies across the board are in the process of laying off 20-30 percent of their employees.
Finding a new job will be tough.
The majority of current job applicants, Kolombet added, come from the financial and investment sector as well as from construction and development firms.
“The graduating class of 2009 will have as tough of a time finding a job as everybody else because the job market has gotten more competitive,” said Kolombet. Companies are adjusting to keep sales up in these cash-crunch days.
New car prices have fallen as dealerships strive to keep buyers interested. Kia Motors Ukraine offered certain buyers $2,000 discounts. Ford Motors offered $5,000 discounts, according to Delo newspaper.
Tourism is expecting a downturn, according to Serhiy Pidmohylniy, director of Terra Incognita travel agency.
Last year, New Year vacation packages were booking early in autumn. This year, travelers appear hesitant, Pidmohylniy said. [Stephen Bandera contributed to this report]
 
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13.  UKRAINE’S FERREXPO ISSUES PROFITS WARNING 

By Maggie Urry and Rebecca Bream, Financial Times, London, UK, Wed, Oct 29 2008
Cutbacks in the steel industry caused Ferrexpo, the Ukrainian iron ore miner, to issue a profits warning and announce the surprise resignation of its chief executive, a move that sent its shares down 25 per cent.
 
The news provided more evidence of how the widening recession is hitting formerly strongly growing economies in eastern and central Europe. Ferrexpo sells most of its iron ore to steelmakers in the region and the group said a number of its customers had deferred orders in the past two weeks.
Ferrexpo said this would cause “materially reduced demand” for its iron ore pellets for the rest of 2008 and meant full-year sales would be 5 to 10 per cent lower than expected.
Shares in the group tumbled more than 25 per cent, falling 13 1/2p to 39 1/2p. The shares were floated in London in June 2007 at 140p and reached a peak of 484 1/2 this June, when Ferrexpo briefly entered the blue-chip FTSE 100 index.
Ferrexpo said it would freeze its expansion plans and focus on existing operations. “These decisions have been made to enable the group to avoid incurring significant capital expenditure at a time of market uncertainty,” it said.
The strategy shift led to the resignations of Mike Oppenheimer, chief executive, and Dennis McShane, business development director, who said that their roles had been changed. Kostyantin Zhevago, the 33-year-old Ukrainian billionaire businessman and politician who owns 51 per cent of Ferrexpo, is taking over as chief executive.
 
Earlier this month, Mr Zhevago was forced to cut his stake in Ferrexpo from 72.5 per cent to 51 per cent after the fall in its share price prompted bankers JPMorgan Chase to recall a loan. To raise the necessary cash, Mr Zhevago sold shares in Ferrexpo to RPG Industries, the parent of Czech coal miner New World Resources, for 83p each.
RPG has nominated Miklos Salamon, executive chairman of NWR, and Marek Jelinek, finance director of NWR, to be non-executive directors of Ferrexpo. A person close to the deal said that, having nearly lost control of his company, Mr Zhevago wanted to exert more control over the running of Ferrexpo, leaving no room for Mr Oppenheimer.
Ferrexpo had been in talks with several mining and steel companies, understood to include US Steel and Arcelor Mittal, about joining forces to build two new mines, Yeristovskoye and Belanovskoye, to exploit the northern end of the Poltava iron ore deposit in Ukraine. But interest in such expansion projects has waned in the past month, and Ferrexpo has had to put the plan on hold.
 
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14.  UKRAINE’S EMBARRASSING SHOW

Editorial, Kyiv Post, Kyiv, Ukraine, Thursday, October 30, 2008

Ukrainian politicians seem clueless about how national leaders should behave.

Considering the selfish and childish behavior of Ukraine’s political leaders, it is a constant wonder why anyone would take this nation seriously – let alone lend it $16.5 billion, as the International Monetary Fund is prepared to do.

The latest juvenile antics took place in the Verkhovna Rada. That’s where members of Prime Minister Yulia Tymoshenko’s bloc seem to have acted as
not-so-petty vandals on Oct. 24 by stuffing rubbish into the slots of the electronic voting system to break it. Tymoshenko’s camp denies involvement.  But it looks like only the latest shenanigan in a bitter and paralyzing rivalry between Ukraine’s leaders.

 
Yushchenko and Tymoshenko have long forgotten that the 2004 democratic Orange Revolution was not about them. People took to the streets to stand up
for Ukraine — and the principles of justice and democratic elections. Instead, the two heroes of the revolution have been degrading themselves in their pathetic attempts to cling to power at all costs. Turning to ex-Prime Minister Victor Yanukovych, whose rigged election triggered the 2004 revolt, is not the solution.

Even with an IMF bailout, the nation faces a rough road ahead. The loan will be needed to stabilize the sliding hryvnia, which is trading at all-time lows. Passing a no-deficit budget will mean lean times for millions of people dependent on state benefits. Likely borrowers will face higher interest rates in a further drag to the economy.

The nation may be forced to sell its remaining prized assets, such as telecoms giant Ukretelecom, at unattractive prices. But the most complicated task is building an economy that will reverse the huge imbalance between the nation’s increasing imports and dwindling exports, particularly of steel and other commodities.

The current leadership has proved itself too inept – and too subservient to the interests of the nation’s oligarchs – to inspire much hope. But out of crises, new leaders sometimes emerge to take charge with courage, imagination and determination. Let’s hope that happens in Ukraine.

LINK: http://www.kyivpost.com/opinion/editorial/30682

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15.  KYIV LEADERS LOCKED IN TRASH-TALKING AS ECONOMY UNRAVELS 
Ukraine’s political leaders seem oblivious to the global financial crisis and the worldwide media exposure that depicts them as unstable

OP-ED: By Adrian Karatnycky, Kyiv Post, Kyiv, Ukraine, Thursday, 23 October, 2008 

There is an air of bravado among Ukraine’s elite.

President Victor Yushchenko’s decision to dismantle parliament and to call new elections – as well as his recent reaffirmation of this step – means Ukraine will have a weak interim government for at least the next three months.

Whatever the intrinsic merits of the president’s determination to break the policy deadlock, the decision shows scant regard for the scale of the international financial crisis that has rapidly brought growth to a screeching halt in the richest economies, led to huge job losses and obliterated financial institutions that were once “worth” hundreds of billions of dollars.

As recently as two weeks ago, Prime Minister Yulia Tymoshenko was taking an equally bold position, declaring that the country was immune to serious consequences from the international downturn as it was not fully integrated into the global economic community. And statistics on the country’s gross domestic product growth seemed to bear her out. The most recent data from Ukraine showed growth continued smartly upward through the end of September at an annual rate of 7.1 percent.

Only Victor Yanukovych – a man with a Ph.D. as legitimate as the court ruling that annulled his criminal convictions – emphasizes the economic threat to Ukraine. But he does so because he is in opposition, not because he understands the issues.

Nor do Ukraine’s leaders seem to understand that they live in a global media environment. Accusations by the president that his rival, the premier, is a “traitor,” or her Oct. 21 blocking of the parliament, are shrugged off as “business as usual.”  But to the international community, they are dire signals that the country is unstable.

Despite the political “trash talking” and “theatrics” of Ukraine’s leaders, with the global financial crisis having accelerated, there will be no escaping it. The hryvnia, Ukraine’s currency, is already in a steep slide, with citizens rapidly converting significant portions of the 200 billion in hryvnias held in banks into safer dollars and euros.

 
As a result, Ukraine’s central bank will be in a tough position to meet all the demand for hard currency that Ukraine’s banks (which need sources of liquidity) and citizens (who want the euro and dollar) will generate in the coming months.

Construction is in steep decline, too. And with steel prices plummeting globally, Ukraine’s former growth engines – its steel conglomerates – could lay off workers in an effort to adjust to the tougher times.

All this has already had a massive toll on the value of equities on the PFTS, Ukraine’s leading stock exchange. Inflows in foreign direct investment are also likely to be significantly affected, reducing available capital for growth, modernization and expansion.

Nor does the global slowdown necessarily mean that Russia’s price for natural gas will decline with the overall global decline in commodities. Not a chance. The bad news is that it usually takes about a year for gas prices to catch up with the price of oil. So there will be no real relief to Ukraine’s natural gas price tag come new year.

Given the domestic political chaos, it is small wonder that Western investors worry that, in the wake of the failure of Prominvestbank, the country’s sixth largest, there will be further financial tremors. As a result, rightly or wrongly, given the current political and policy turmoil, Ukraine is now viewed by many Western investors as the next potential Iceland, a country in the throes of bankruptcy.

All this does not mean the sky is falling. But it does mean that Ukraine’s leaders would be well-advised to drop some of their false confidence and insouciance. The coming months will need rapid and resolute actions. And there are questions whether the growing political rivalries at the top will allow for the rapid implementation of sensible policy.

Luckily, Ukraine’s increasingly sophisticated and enterprising business elite is sensitive to the challenges and threats posed by the global slowdown. Through their powerful influence on the three major political groupings, business is likely to press politicians to responsible action.

As importantly, there is a strong group of excellent professionals at the helm of Ukraine’s central bank. The government economic team of Victor Pynzenyk and Bohdan Danylyshyn is well-regarded and seen as highly competent by the international business community.
 
As significantly, there are signs that pragmatic, growth-oriented and economically literate younger politicians, including Parliamentary Speaker Arseniy Yatsenyuk, are chafing at the bit as politicians continue to squabble. Their discontent with the range of political options now offered to voters may be the basis for well-funded new parties that will help break the deadlocked mold of Ukrainian politics.

All these are important reason for long-term optimism. In the mid-term, too, there may be good auguries for Ukraine.

The International Monetary Fund and World Bank project that, as a result of the global financial crisis, Europe and the United States will have something approaching zero growth in the coming year. Emerging markets are believed to be on the path of growth of between 3 and 7 percent in 2009, with Ukraine at the lower part of the range.

This should make Ukraine an attractive place to invest, if the country’s currency and financial system is not in a free fall. And that means the politicians must do their job and ensure that all sources of standby financing, including a loan package from the International Monetary Fund, is pre-negotiated and in place in case there is a need.

 
They should also move forward with stalled privatizations. Parliament will need to act quickly to approve any package that is negotiated as well as other needed emergency measures.

If Ukraine’s leaders understand that they personally will be blamed by the public for any serious economic setbacks, there are strong prospects Ukraine can ride out the current global financial crisis. That is certainly what President Yushchenko, with support for re-election in early 2010 at single digits, must hope for. Otherwise, he would be far better served to allow Yulia Tymoshenko to continue serving as premier and to bear the brunt of public anger at steep economic decline.

Of course, it would be best if Ukraine’s leaders agreed to a short-term compromise and created a government of national unity that could cope with the economic crisis. But given the worry of Yushchenko and the business elite about Tymoshenko’s populist proclivities, and their lack of confidence in her stewardship of the economy, such an outcome appears unlikely.

Still, the odds are that, even without a global political compromise, Ukraine’s leaders will find a way of cobbling together and implementing policies to prevent an economic meltdown. That, alas, has been the standard operating procedure of Ukraine’s elite for most of the 18 years of independence.

NOTE: Adrian Karatnycky is senior scholar with the Atlantic Council of the United States and managing director of the Myrmidon Group LLC, a small New York-based consultancy that works with investors and corporations seeking entry into the emerging markets of Ukraine and Eastern Europe.

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16.  YUSHCHENKO’S ALLIES DESERT HIM

 
BYuT Newsletter, Issue 91, Kyiv, Ukraine, Monday, October 27, 2008
 
The Popular Movement for Restructuring (commonly known by its Ukrainian abbreviation as “Movement” [Rukh]) has broken ranks with President Viktor Yushchenko’s political force, Our Ukraine-People’s Self-Defence (OU-PSD). This is the latest in a long line of senior personalities and political parties to have broken with the president, after standing shoulder to shoulder with him during the Orange Revolution.
  
The list of those deserting the president lengthens each month. Notable names include: Oleksandr Zinchenko, the head of Mr Yushchenko’s 2004 campaign; Petro Poroshenko (Chairman of the National Bank of Ukraine) and Davyd Zhvannia, both financiers of the election campaign and godfathers to Mr Yushchenko’s children; Party of Industrialists and Entrepreneurs leader Anatoliy Kinakh; Party of Reforms and Order leaders Taras Stetskiv, Mykola Tomenko and Viktor Pynzenyk; the head of the People’s Self-Defence bloc, Yuriy Lutsenko; long time business and political ally Oleh Rybachuk and the head of Mr Yushchenko’s 2004 campaign analysis and research; and former Defence Minister Anatoliy Hrytsenko.
 
A CASE OF DEJA VU 
One of the last to break with Mr Yushchenko is former Foreign Minister and head of Rukh, Borys Tarasiuk. In an open letter addressed to Rukh members, dated 13 October, Mr Tarasiuk tells of the déjà vu he feels today. He recalls the intense pressure (from Leonid Kuchma in the late 1990s and Mr Yushchenko today) applied to make Rukh conform, with failure to do so backed up by threats to artificially split the party.
  
As in the past, the presidential apparatus is threatening to split Rukh if it does not obey orders. Today, three Galician branches of Rukh support the president’s desire for pre-term elections rather than joining an enlarged orange coalition.
  
The president’s demand is for Rukh to merge with his People’s Union-Our Ukraine party into a new pro-Yushchenko party. A refusal to take this step, Mr Tarasiuk told his members, will lead to the presidential apparatus attempting to ensure that Rukh does not enter the next parliament.
 
GRAND COALITION 
Furthermore, Mr Tarasiuk predicted that there will be a grand coalition of the Party of Regions with the remnants of the OU-PSD bloc in the newly elected parliament. In this eventuality, Rukh would go into opposition with the Bloc of Yulia Tymoshenko (BYuT).
   
In conclusion Mr Tarasiuk warns, “Rukh could not be destroyed by the former anti-people’s authorities and it cannot be destroyed by “our” authorities for which we struggled so long!”
  
Rukh has had a presence in the Ukrainian parliament ever since the March 1990 elections and was led by the legendary former dissident Vyacheslav Chornovil until March 1999. Later that month Mr Chornovil died in a suspicious car crash still under investigation.
 
LIMITED OPTIONS 
Mr Tarasiuk does not mention in his open letter with which political force Rukh would enter the new parliament? If Rukh refuses to accept disbanding and fusing with the People’s Union-Our Ukraine, as Mr Tarasiuk has stated, then Rukh has only two options.
 
Firstly, to campaign alone or with other disaffected parties from the nine parties in OU-PSD. This though is doubtful as it is unlikely such a bloc would win sufficient votes to enter parliament. Yuriy Lutsenko, leader of the People’s Self-Defence bloc, has already expressed his intention to campaign on a single list with BYuT.
  
The second option is to campaign with BYuT as its fourth political party (BYuT is composed of Ms Tymoshenko’s Fatherland party, the Reforms and Order party and the Social Democratic party). Negotiations towards an enlarged BYuT coalition with Rukh have reportedly been on-going during the last month.
  
Since its formation in 1987-1988, the biggest electoral victory for Rukh came as a member of the Our Ukraine bloc in the 2002 elections, when the pro-presidential bloc came first. The Communist Party was pushed into second place for the first time and then into fifth and fourth place in the 2006 and 2007 elections.
 
DECLINING FORTUNES 
Unexpectedly, Our Ukraine’s unification of centre-right parties unravelled in the Yushchenko era. Our Ukraine and OU-PSD received a 13.95 percent and 14.15 percent share of the vote respectively in the 2006 and 2007 parliamentary elections, compared with 23.57 percent in 2002. This was largely attributable to disillusionment and disappointment with the president over backtracking on implementing pledges made during the Orange Revolution. 
 
Since the 2007 elections, support for OU-PSD has declined even further to 5 percent. As in the case of Mr Tarasiuk, Mr Yushchenko has broken with all of his leading allies from 2002 (when Our Ukraine was established) and the 2004 elections that sparked the Orange Revolution.
  
With such a narrow support base, fewer political allies and depressingly low opinion poll ratings, the president’s strategy of fighting an election is tantamount to political suicide. It is likely the People’s Union-Our Ukraine party will fight the next elections renamed “Our Ukraine Yushchenko bloc,” to recall the success of Our Ukraine in 2002. The first five on the list will be Mr Yushchenko, Vyacheslav Kyrylenko, Arseniy Yatsenyuk, Yuriy Yekhanurov and Yuriy Kostenko.
 
FLAWED STRATEGY
But the president’s strategy ignores a major difference between today and six years ago; namely, that nearly all of the political parties in Our Ukraine (2002-2006) and OU-PSD (2007) have broken with Mr Yushchenko. One wing of the former Rukh (led by Mr Kostenko) will be a member of the Yushchenko bloc in the forthcoming pre-term elections while another wing (led by Mr Tarasiuk) will campaign in the forthcoming elections, hopefully with BYuT.
  
The Yushchenko bloc is expected to go into the next elections comprising only two parties: the People’s  Union-Our Ukraine and the People’s Party. This means it will fight for the same votes as the other former parties that made up its ranks. However it will be disadvantaged by a narrower support base that translates into a narrower voter catchment. Ironically, its disintegration contrasts with the Party of Regions, which has been busy enlarging its base by absorbing former Kuchma parties.
  
Low support for the Yushchenko bloc will ruin the president’s already weak chances of re-election – a situation made worse by putting his name behind pre-term elections that are deeply unpopular with a public that has grown increasingly tired of politicians. [Email us at nlysova@beauty.net.ua]
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17.  UKRAINE POLL SUGGESTS SUPPORT FOR PRESIDENT MINIMAL 

Running behind Communist Party and Lytvyn Bloc
 
Interfax, Kyiv, Ukraine, Tuesday, October 28, 2008

KYIV – Five parties would win seats in Ukraine’s parliament if elections were held today, and the Party of Regions would receive the largest single proportion of seats in the legislature, an opinion studies group said on Tuesday, citing an opinion poll.

The returns of the survey, carried out by the Razumkov Center and announced at a news conference in Kyiv, suggest that 28.3% of Ukrainians would vote for the Party of Regions, while the Yulia Tymoshenko Bloc would receive 27.5%, the Communist Party 7.8%, the Lytvyn Bloc 6.9%, and a hypothetical party supporting President Viktor Yushchenko 5.7% of the vote.

Each of the other groups would be unable to achieve the 3% mark needed to win representation in parliament, while 5.5% of the population would vote against all the parties and 6.8% are undecided.

Asked whether they would go to the polls if the next parliamentary elections were held next Sunday, 35.9% of respondents answered they most likely would, 28.8% said they definitely would, 14.6% said they had not yet made up their mind, 9.5% said they would definitely not go, 5.3% said they would be unlikely to go, and 3.3% were undecided.

The Razumkov Center also said 81.8% of those questioned in the same poll said Ukraine is in general moving in the wrong direction, 5.3% expressed the opposite view, and 12.9% were undecided on the issue. The Center questioned 10,865 people in all regions of the country in the survey, conducted on October 7-19. The returns were said to have a 1% margin of error.

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18.  USA TRYING TO SET UKRAINE, RUSSIA AGAINST EACH OTHER WITH

THE GREAT FAMINE ISSUE SAYS RUSSIA’S UN REPRESENTATIVE
 
Itar-Tass, Moscow, Russia, Tuesday, October 28, 2008
UNITED NATIONS – The United States is trying to set people of Ukraine and Russia against each other with the Great Famine issue, Russian Permanent Representative to the United Nations Vitaly Churkin said on Tuesday.

He said the United States was thus “resolving the hard task of pushing Ukraine into NATO while 80% of Ukrainian citizens objected to the Ukrainian
drawing into the North Atlantic alliance.”

The U.S. and British delegations were rude and kept interrupting the chair of the UN General Assembly’s General Committee, which was considering the Assembly agenda, Churkin said. The General Committee discussed the possible attachment of the Ukrainian draft resolution on the Great Famine to the agenda.

“The Great Famine and Ukrainian genocide claims create a certain background for another mainstream ideological action of the Ukrainian administration, i.e. glorification of Ukrainian accomplices of the Nazi,” he said. “The most illustrative example of this glorification is the Hero of Ukraine title posthumously awarded by the Ukrainian president to one of the most notorious leaders of Ukrainian Nazis, Shukevich, in 2007.”

“The Babiy Yar tragedy is the most vivid symbol of Holocaust,” Churkin said. “Plenty of those who killed Jews in Babiy Yar were Ukrainian accomplices of the Nazi.”

All that “is totally discordant with the United Nations Organization, which was established amid the victory of the anti-Hitler coalition, and principles of this organization,” he said.

 
“Russia has been fighting against the phenomenon for more than three years. Each year it offers a resolution that condemns the appearance of new forms of racism and glorification of nazism, and each year the resolution gains support of the UN General Assembly. We hope that the resolution will enjoy broader support this year than in 2007 when it was approved by 130 states.”

“European nations regularly abstain in the vote on the draft Russian resolution that condemns glorification of the Nazi. Maybe, the United States, which has taken up history and has become hyperactive in the Great Famine issue, will finally support the resolution. So far, only two states ­ the U.S. and the Marshall Islands ­voted against our resolution last year for reasons I would call inexplicable,” Churkin said.

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19. THIS IS WHAT YOU GET FOR USING THE WRONG APPROACH ON THE UKRAINIAN

GENOCIDE EUROPEAN PARLIAMENT RECOGNISES UKRAINIAN FAMINE OF 1930’s
 
Sent: Thursday, October 23, 2008 8:46 AM
UNIAN, Kyiv, Ukraine, Thursday, October 23, 2008

The European Parliament has recognised the Ukrainian famine of 1930s as crime against humanity, according to the EP official web-site.

In a resolution on the commemoration of the Holodomor, the artificial famine in Ukraine in 1932-1933, MEPs describe it as “an appalling crime against the Ukrainian people, and against humanity”.

According to the resolution, the Holodomor famine of 1932-1933, which caused the deaths of millions of Ukrainians, “was cynically and cruelly planned by Stalin`s regime in order to force through the Soviet Union`s policy of collectivisation of agriculture against the will of the rural population in Ukraine”.

[WRONG, WRONG, WRONG! LEMKIN HAD THE RIGHT REASON: “… The Soviet plan was aimed at the farmers, the large mass of independent peasants who are the repository of the tradition, folklore and music, the national language and literature, the national spirit of Ukraine”.

& the Communist activist Prokopenko was exact when he admitted: “Starvation in Ukraine was brought about in order to reduce the number of Ukrainians, resettle in their place people from another par of the USSR, and in this way kill all thought of independence.” Roman Serbyn]

MEPs believe that “recalling crimes against humanity in European history should help to prevent similar crimes in the future” and they stress that “European integration has been based on a readiness to come to terms with the 20th century`s tragic history and that this reconciliation with a difficult history does not denote any sense of collective guilt, but forms a stable basis for the construction of a common European future founded on common values”.

 The resolution therefore makes a “declaration to the people of Ukraine and in particular to the remaining survivors of the Holodomor and the families and relatives of the victims”.

 It “recognises the Holodomor (the artificial famine of 1932-1933 in Ukraine) as an appalling crime against the Ukrainian people, and against humanity”.

 The text then “strongly condemns these acts, directed against the Ukrainian peasantry, and marked by mass annihilation and violations of human rights and freedoms”.

 It also “expresses its sympathy with the Ukrainian people, which suffered this tragedy, and pays its respects to those who died as a consequence of the artificial famine of 1932-1933”.

 Lastly, the resolution “calls on the countries which emerged following the break-up of the Soviet Union to open up their archives on the Holodomor in Ukraine of 1932-1933 to comprehensive scrutiny so that all the causes and consequences can be revealed and fully investigated”.

 
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20.  EU PARLIAMENT SAYS UKRAINIAN 1930S FAMINE WAS SOVIET “CRIME” 

 
Agence France Presse (AFP) Strasbourg, France, Thursday, October 23, 2008

STRASBOURG – The “artificial” famine that killed millions in Soviet-era Ukraine in 1932-33 was “cynically and cruelly planned” by Moscow, a European Parliament resolution said Thursday.

The European Union’s parliament stopped short of labeling the regional outcome of the communist policy of collectivization of agriculture “genocide,” the term used by a 2006 Ukrainian parliament law.
However, its resolution said the deaths of between 4 and 10 million people, according to census and statistical estimates, were “an appalling crime against the Ukrainian people, and against humanity.”
The stance is likely to trigger deep irritation in Moscow, which has argued that drought was a pivotal factor. The text “strongly condemns these acts, directed against the Ukrainian peasantry, and marked by mass violations of human rights and freedoms.”
Lawmakers also called on former Soviet states to open up their archives so that “all the causes and consequences” can be studied. Other areas and their ethnic groupings, including Kazakhstan, were also badly affected by the famine.
The Holodomor – understood as “murder by hunger” in Ukrainian – has been recognized as genocide by a small number of governments around the world, with Kiev campaigning for years to have the U.N. apply the strict legal definition.
Pro-Russian Ukrainians say it resulted from ideological error, with historians divided as to all the circumstances behind it and the 2006 law in Kiev passed by only a slim majority.
The program of forced collectivization saw the produce of Ukrainian farmers confiscated with the Soviet authorities also blocking food supplies into Ukraine in what some historians have argued was an attempt to crush a drive for independence. Ukraine gained its independence with the collapse of the Soviet Union in 1991.
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AUR#913 Oct 22 Why Ukraine Needs IMF Funding Now; Currency Weakened; Orange to Red; Chicago Exhibition "Our Daily Bread"

 
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       
                     
ACTION UKRAINE REPORT – AUR – Number 913
Mr. Morgan Williams, Publisher and Editor, SigmaBleyzer
WASHINGTON, D.C., WEDNESDAY, OCTOBER 22, 2008
 
INDEX OF ARTICLES  ——
Clicking on the title of any article takes you directly to the article.               
Return to Index by clicking on Return to Index at the end of each article
Analysis and Comment: By Anders Åslund,
Senior Fellow, Peterson Institute for International Economics
U.S.-Ukraine Business Council (USUBC), Wash, D.C., Tue, Oct 21, 2008
 
Reuters, Kiev, Ukraine, Tuesday, October 21, 2008 
 
By Damien McElroy, Foreign Affairs Correspondent, Telegraph, London, UK, Tue 21 Oct 2008
 
4UKRAINE’S CURRENCY WEAKENED FOR A FIFTH STRAIGHT DAY  
Fitch Ratings extended its cut of Ukraine’s credit rating to 10 of the former Soviet republic’s banks.
By Emma O’Brien, Bloomberg, New York, NY, Tuesday, October 21, 2008  
 
Reuters, Kiev, Ukraine, Tuesday, October 21, 2008
 
Interfax Ukraine, Kyiv, Ukraine, Tuesday October 21, 2008

7UKRAINE: KEY FACTS ON FINANCES AND POLITICS

Reuters, Kiev, Ukraine, Monday, October 20, 2008 
 
By Jan Cienski in Prague, Financial Times, London, UK, Tuesday, October 21 2008
 
9OLIGARCH LOVE: SYNERGIES BETWEEN COAL AND IRON ORE
By Emiliya Mychasuk & Emiko Terazono, Financial Times, London, UK, Tue, Oct 21 2008
 
By Lyubov Sorokina, Reuters, Lviv, Ukraine, Mon Oct 20, 2008 
 
A Ukrainian agricultural supply company, USUBC member 95
U.S.-Ukraine Business Council, Washington, D.C., Wednesday, October 22, 2008
Tony Halpin in Moscow, The Times, London, UK, Tuesday, October 21, 2008
 
Commentary: by Anne Penketh, The Independent, London, UK, Tuesday, 21 October 2008 
By Askold Krushelnycky in Kiev, The Independent, London, UK, Tue, 21 Oct 2008 
 
By R M Cutler, Canadian international affairs specialist, Montreal
Asia Times Online, Hong Kong, Wednesday, October 22, 2008
 
16.  THE ICELAND SYNDROME 
Anne Applebaum, Columnist, The Washington Post, Tue, Oct 21, 2008; Page A17
Comment & Analysis: By David Rothkopf, Financial Times, London, UK, Tue, Oct 21 2008
By Tony Barber in Brussels, Financial Times, London, UK, Tue, Oct 21 2008
 
19UKRAINE STRUGGLES AMID CRISIS
By Daryna Krasnolutska, Bloomberg, Kiev, Ukraine, Mon, Oct 20, 2008

20 UKRAINE: TEETERING ON THE BRINK
President Rescinds Decree Cancelling 7 December Election
BYuT Inform newsletter, Issue 90, Kyiv, Ukraine, Tuesday, October 21, 2008

 
21.  CENTRAL EUROPEAN MEDIA ENTERPRISES COMPLETES BUY OUT OF MINORITY PARTNERS IN STUDIO 1 + 1 IN UKRAINE
Central European Media Enterprises, By PR Newswire, Tuesday, October 21, 2008
 
Commentary: By John R. Bolton, The Washington Post, Washington, D.C., Mon, Oct 20, 2008; Page A15
 
23A NATO PATH FOR UKRAINE AND GEORGIA
Letter-to-the-Editor, by Robert McConnell, The Washington Post
Washington, D.C., Tuesday, October 21, 2008; Page A16
 
While the Georgia-Russia conflict has played a role in dashing Ukraine’s
hopes for NATO membership, so has very dramatic domestic political turmoil
By Jeremy Druker for ISN Security Watch, International Relations & Security Network (ISN)
Zurich, Switzerland, Monday, October 20, 2008
 
Exhibition to feature fifty-four Holodomor artworks by Ukrainian artists
Ukrainian National Museum, Chicago, Illinois, Wednesday, October 15, 2008
 
Ukrinform, Kyiv, Ukraine, Friday, October 17, 2008 
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1
 WHY UKRAINE NEEDS IMF FUNDING 

 
Analysis and Comment: By Anders Åslund
Senior Fellow, Peterson Institute for International Economics
U.S.-Ukraine Business Council (USUBC), Wash, D.C., Tue, Oct 21, 2008
 
Kiev has an eerie feeling. The many construction projects have come to a sudden halt. A couple of weeks ago, cranes were turning all over the skyline of Ukraine’s capital, but now they stand abandoned, as credit has dried up.
The International Monetary Fund (IMF) is close to giving Ukraine a fast and large credit to salvage its economy. It is badly needed. The banking crisis in the West might have been mitigated with enormous financial injections. Now the emerging markets call for their salvation.
Like many other emerging economies, Ukraine has delivered to its people a magnificent average growth rate of 7.6 percent for eight straight years. The government has been fiscally conservative. The budget has been close to balance for the last three years.
 
The public debt is tiny at 10 percent of GDP. With international currency reserves of $37 billion last week, Ukraine is by no means bankrupt. The moderate current account deficit of 4.2 percent of GDP last year was more than financed by foreign direct investment.
Even so, the yields on Ukraine’s Eurobonds have shot up to 20 percent a year, a level characteristic of countries in external default, as the global financial crisis has also hit Ukraine. While interbank markets have seized up in the West, many Western financial institutions are abandoning emerging markets.
 
Regardless of its performance, a Ukrainian company can no longer refinance a foreign loan and is forced to close down when a large loan falls due.
Since July, the prices of many commodities have fallen by half, as is the case with steel, Ukraine’s main export. The steel companies cut production drastically, by 30 percent last month, and are laying off workers. Falling steel exports are aggravating Ukraine’s trade deficit.
But most of the economy can be saved from financial collapse. Ukraine’s exclusion from international finance is a market failure that only the state can resolve, and in this international context, the IMF represents the state.
The Ukrainian government has faced up to the situation and asked for emergency credits from the IMF, and the IMF management has responded swiftly and positively.
 
The Ukrainian ministry of finance and central bank are working around the clock with the IMF mission in Kiev to conclude a program. This crisis is reminiscent of the Asian financial crisis of 1997–98, and the IMF has opened speedy emergency funding established then.
The IMF needs to do two things.
 
[1] First, it must check that Ukraine’s economic policies are solid and issue its approval. Late Saturday night, I met Minister of Finance Viktor Pynzenyk in his office in Kiev, after his latest IMF negotiations, who made clear that an agreement is within reach.
[2] Second, the IMF needs to open a large credit line of some $20 billion to restore confidence in Ukraine’s financial well-being, just as wealthy Western governments have intervened at home.
Speed is vital. Every day, Ukrainian companies fall off the financial cliff for no good reason. Their only fault is that they have taken a foreign loan.
 
The slightest delay in an IMF agreement can lead to a run on the Ukrainian currency, the collapse of the Ukrainian bank system, mass bankruptcies, a double-digit fall in output, mass unemployment, and undoubtedly political unrest. But none of this is necessary. It can and should be avoided.
Ukraine’s quarrelsome politicians seem to realize that their nation is in danger and to be ready to swallow the bitter pill of an IMF emergency program. They also need to take this opportunity to promote long-delayed reforms, because Ukraine will suffer badly in any case.
Several other emerging markets, such as Pakistan and Hungary, are in a similar situation and also need IMF support. What is true for Ukraine is also true for them. Many other countries should come to the fore and receive financial support on due conditions in time.
Fortunately, most emerging economies have entered this crisis with strong state finances and sound macroeconomic policies, rendering fast assistance feasible. Remember, an IMF loan is not a gift, but it is paid back within several years. Like the East Asians, the current IMF clients will be able to pay back.
After a long rest, the IMF is badly needed. Today, its challenge is to act fast enough and to make sufficient funds available for emerging economies in danger.
 
FOOTNOTE: Mr. Åslund returned from a visit to Ukraine on Sunday, October 19. He is a Senior Fellow at the Peterson Institute for International Economics in Washington and is the author of the forthcoming book “How Ukraine Became a Market Economy and Democracy.”  Mr. Aslund has served for several years as a Senior Advisor to the U.S.-Ukraine Business Council (USUBC) in Washington.
 
LINK: http://www.petersoninstitute.org/issues/020.htm
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2.  UKRAINE CLOSE TO IMF DEAL AS PARLIAMENT STUTTERS
 
Reuters, Kiev, Ukraine, Tuesday, October 21, 2008 
  
KIEV – Ukraine is on the verge of gaining a loan from the International Monetary Fund, its prime minister said on Tuesday, but the ex-Soviet state’s fractious parliament failed to debate measures needed to secure the deal.

Ukrainian officials have said that the IMF could lend as much as $14 billion, although the Fund has not commented so far on its week-old mission to Kiev.
“At the moment we have practically concluded our negotiations with the IMF,” Tymoshenko told a meeting of economists. “We have 90 percent agreed on a package of measures which are necessary.”

“We have started talks with the IMF so that the government could … receive financial aid literally within two weeks which could stabilise all the (financial) processes.”
A presidential aide said some of the conditions set by the Fund included reducing social spending and balancing the budget — measures which parliament had been due to discuss.
President Viktor Yushchenko dissolved parliament this month and called a December election after his coalition with Tymoshenko collapsed after months of rows that have stalled economic reform.
Late on Monday, he issued a decree allowing the chamber to resume work for “a few days” to pass anti-crisis measures, as well as approve funding for the election. But the session fell into disarray.
POLITICIANS STALL
Tymoshenko’s supporters, opposed to the election and any notion of funding it, blocked the speaker’s rostrum and the sitting was declared closed.
It also appeared that the measures to be put to parliament had been proposed by Tymoshenko’s government, as opposed to a rival package fronted by the president a day earlier.
Analysts are worried whether the government, firms and banks are capable of refinancing their debt as global lending grinds to a halt. The government has been unable to go ahead with a sale of Eurobonds, despite conducting a road show in June.
The hryvnia currency hit an all-time low this month at 5.9 to the dollar, undermined by a gaping current account deficit. The central bank has a difficult balancing act between spending billions of its reserves propping it up or letting it weaken.
Tymoshenko later told a briefing that some of the loan now under discussion could go towards bolstering those reserves. The rest would prop up the banking system.
Ukraine exhibited the first symptom of a crisis when its sixth largest bank, Prominvest, was placed in receivership on Oct. 8. But authorities stress that a run on the bank was caused by rumours of a murky takeover, not foreign investor sentiment.
Although political crisis has gripped Ukraine almost without pause since the 2004 “Orange Revolution” which swept Yushchenko to power, the economy has still recorded annual growth of around 7 percent on average.
The IMF, however, says growth will likely slow drastically to 2.5 percent next year from 6.4 percent this year. (Reporting by Natalya Zinets; writing by Sabina Zawadzki; editing by Patrick Graham)
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3.  UKRAINE SEALS IMF BAILOUT WITH RUSSIAN BACKING

 
By Damien McElroy, Foreign Affairs Correspondent, Telegraph, London, UK, Tue 21 Oct 2008
 
LONDON – Ukraine was poised to complete an International Monetary Fund rescue package for its banks but at the cost of securing Russian backing for the 8 billion pound infusion. The breakthrough came after the country’s feuding political leaders postponed a December election to ensure passage of financial reforms demanded by the institution.
Ukraine has boomed in recent years on the back of higher commodity prices and a liberalisation of its property and financial sector. But the country’s current account deficit has ballooned in recent months, exposing its currency and financial institutions to a loss of investor confidence.
The National Bank of Ukraine has poured hundreds of millions of dollars into struggling banks but without extra cash from the IMF its reserves are dangerously depleted. The country’s currency, the hryvnia, dropped to an all-time low against the dollar before progress was reported.
Prime Minister Julia Timoshenko said an agreement on a $15 billion IMF loan was 90 per cent complete. Parliament will meet next week to approve the package. “The talks are almost finished with the IMF and we’ve almost agreed on what necessary changes to laws we have to make to get the loan,” she said.
But the populist leader, who is locked in a bitter power struggle with former ally, President Victor Yushchenko, warned that the country would have to make painful adjustments. “Ukraine will have to tame its social appetites,” she said. “We will have to cut spending that Ukraine cannot now afford.”
The announcement of progress in the IMF talks came hours after Russian Finance Minister Alexei Kudrin signalled its support for a bail out. The Kremlin’s efforts to restore its influence in Ukraine has become the dividing line of domestic politics in the former Soviet state.
Despite the gravity of the crisis the country’s parliament saw scenes of disarray as supporters of Miss Timoshenko used chairs to jam shut the door of the chamber.
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4.  UKRAINE’S CURRENCY WEAKENED FOR A FIFTH STRAIGHT DAY  
Fitch Ratings extended its cut of Ukraine’s credit rating to 10 of the former Soviet republic’s banks.

By Emma O’Brien, Bloomberg, New York, NY, Tuesday, October 21, 2008  
MOSCOW – Ukraine’s hryvnia weakened for a fifth straight day against the dollar after the country delayed elections and Fitch Ratings extended its cut of Ukraine’s credit rating to 10 of the former Soviet republic’s banks.
The currency dropped 0.4 percent to 5.5200 per dollar by 11:18 a.m. in Kiev, from 5.4975 late yesterday. It earlier fell to 5.5500, the lowest level against the dollar since Oct. 9.
President Viktor Yushchenko yesterday postponed parliamentary elections called after the collapse of the governing coalition by a week to Dec. 14. Fitch, which cut Ukraine’s rating to B+ from BB- and left its “negative” outlook intact Oct. 17, downgraded banks including Privatbank, the nation’s biggest bank by assets, yesterday. Moody’s Investors Service cut Ukraine’s outlook to “stable” yesterday. (To contact the reporter on this story: Emma O’Brien in Moscow at eobrien6@bloomberg.net)
 
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U.S.-Ukraine Business Council (USUBC): http://www.usubc.org
Promoting U.S.-Ukraine business relations & investment since 1995.
==============================================================
5.  UKRAINE PARLIAMENT FAILS TO DEBATE KEY MEASURES
 
Reuters, Kiev, Ukraine, Tuesday, October 21, 2008
 
KIEV: Opponents of Ukraine’s president prevented parliament from voting on a bill to finance an early election yesterday, the latest setback for him in a power struggle with his prime minister.
President Viktor Yushchenko had asked parliament to vote on the election bill and measures to counter a global financial crisis. Prime Minister Yulia Tymoshenko says Ukraine cannot afford a parliamentary poll and has done all she can to stop it.
Allies of Tymoshenko resumed their tactic of massing around the chairman’s rostrum and the parliamentary session was declared closed. “We insist that the country first get stabilising measures,” said Ivan Kyrylenko, head of Tymoshenko’s bloc in parliament. “Then we can examine bills dealing with the election.”
Yushchenko dissolved parliament this month and called an early election after accusing Tymoshenko, an estranged ally, of destroying a governing team linked to the 2004 “Orange Revolution”.
On Monday, he suspended that decree to enable parliament to work for a “few days” to pass anti-crisis measures and finance the election, while postponing the poll a week until December 14.
The National Security Council, made up of the president, prime minister and top officials, approved anti-crisis measures on Monday. Details of the Council’s plan, beyond calling for a balanced budget and cuts in the civil service, remain sketchy.
Chairman Arseniy Yatsenyuk vowed to call the chamber into session again only once members reached agreement on an agenda. Analysts said paralysis in parliament could hinder the president’s plan to proceed with the election.
 
“Tymoshenko is clearly ready to use any means to keep the president from holding the election at a time to his advantage,” said Oleksander Lytvynenko of the Razumkov think tank. “She outsmarted the president. This is probably not the last postponement.”
Tymoshenko says an election is “reckless” as Ukraine’s leaders negotiate with the International Monetary Fund on extending credits of up to $14bn.
The effect of the global crisis has been limited on Ukraine, though its hryvnia currency has weakened and the central bank has provided an increasing amount of refinancing for banks.
Tymoshenko called on all forces in parliament last weekend to form a coalition of unity to tackle the crisis, but major party leaders ignored her.
Political turmoil, constant since Yushchenko swept to power on mass “Orange” rallies, hit a new peak when his Our Ukraine party quit its alliance with Tymoshenko’s bloc last month. Joining the president in backing the early election is opposition leader and ex-prime minister Viktor Yanukovich, whose Regions Party is parliament’s biggest group.
A poll published yesterday showed an election unlikely to produce much change in the chamber. Tymoshenko’s bloc led with 20.7%, followed by the Regions Party with 19.5% and Our Ukraine far behind with 7.3%.
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6.  MOODY’S LOWERS RATINGS FOR 12 UKRAINIAN BANKS

Interfax Ukraine, Kyiv, Ukraine, Tuesday October 21, 2008

KYIV – International rating agency Moody’s has downgraded the global local currency (GLC) deposit ratings and the National Scale Ratings (NSRs) of 12 Ukrainian banks. Moody’s said in a press release that it had “also changed the outlook to stable from positive on the B2 long-term global foreign currency (GFC) deposit ratings of 21 Ukrainian banks.”

The press release said: “”Today’s rating action has been triggered by (i) the downgrade of Ukraine’s local currency bank deposit ceiling to Ba1/Not Prime from Baa1/Prime-2, and by (ii) the change of the outlook on Ukraine’s B2 foreign currency bank deposit ceiling to stable from positive.”
The press release said these changes were made owing to the global liquidity crisis along with Ukraine’s own macroeconomic, financial and political problems.
Moody’s lowered the global local currency (GLC) and NSRs of the following deposit ratings of Ukrainian banks:
– Bank Nadra: GLC deposit rating to B1 from Ba3, NSR to Aa2.ua from Aa1.ua – Calyon Bank Ukraine: GLC deposit rating to Ba1/NP from Baa1/P-2,   
   NSR to Aa1.ua from Aaa.ua
– Index-Bank: GLC deposit rating to Ba1/NP from Baa3/P-3, NSR to Aa1.ua from Aaa.ua
– ING Bank Ukraine: GLC deposit rating to Ba1/NP from Baa1/P-2, NSR to Aa1.ua from Aaa.ua
– OTP Bank Ukraine: GLC deposit rating to Ba1/NP from Baa2/P-2, NSR to Aa1.ua from Aaa.ua
– Pivdenny Bank: GLC deposit rating to B2 from B1, NSR to A1.ua from Aa3.ua
– PrivatBank: GLC deposit rating to Ba1/NP from Baa3/P-3, NSR to Aa1.ua from Aaa.ua
– Raiffeisen Bank Aval: GLC deposit rating to Ba1/NP from Baa1/P-2, NSR to Aa1.ua from Aaa.ua
– Savings Bank of Ukraine: GLC deposit rating to Ba1/NP from Baa2/P-2, NSR to Aa1.ua from Aaa.ua
– Ukreximbank: GLC deposit rating to Ba1/NP from Baa2/P-2
– UkrSibbank: GLC deposit rating to Ba1/NP from Baa2/P-2, NSR to Aa1.ua from Aaa.ua
– Ukrsotsbank: GLC deposit rating to Ba1/NP from Baa2/P-2, NSR to Aa1.ua from Aaa.ua
Moody’s changed the outlook on the global foreign currency (GFC) long-term deposit ratings of the following Ukrainian banks to stable from positive, following the change in outlook on the sovereign ceiling for such deposits: – Alfa Bank Ukraine, Bank Finance and Credit, Bank Nadra, Bank NRB, Calyon Bank Ukraine, First Ukrainian International Bank, Forum Bank, Index-Bank, ING Bank Ukraine, Kreditprombank, OTP Bank Ukraine, Pivdenny Bank, Pravex-Bank, PrivatBank Commercial Bank, Raiffeisen Bank Aval, Savings Bank of Ukraine, Swedbank Invest, OJSC Swedbank, Ukreximbank, UkrSibbank and Ukrsotsbank.
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7.  UKRAINE: KEY FACTS ON FINANCES AND POLITICS

 
Reuters, Kiev, Ukraine, Monday, October 20, 2008 
 
KIEV – Prime Minister Yulia Tymoshenko expressed confidence on Monday that talks with the International Monetary Fund would prove successful and that Ukraine would secure “substantial” financial assistance. [UA-M] Officials have suggested the IMF could lend Ukraine a sum ranging from $10-14 billion.
Following are key facts about why Ukraine is vulnerable to heightened risk aversion among international investors.

POLITICS —–
(1)  Ukraine has been plagued by political turbulence since “Orange Revolution” protests in 2004 brought to power President Viktor Yushchenko and a team committed to moving closer to the West and joining NATO and the European Union.

Rows pitting Yushchenko against his former ally Yulia Tymoshenko, who twice served as his prime minister, undermined the “Orange” camp and brought down governments. The president dissolved parliament this month and called a December parliamentary election, the third in as many years.
(2)  Upheaval — and trouble forming a stable ruling coalition — reflect Ukraine’s longstanding division into the nationalist west and centre, which looks to the EU and United States, and the Russian-speaking east and south, friendlier towards Moscow.
(3)  Relations with Russia, bumpy throughout the post-Soviet period, have sunk to unprecedented lows over Yushchenko’s denunciation of Moscow’s military intervention in Georgia. Ukraine depends heavily on Moscow for energy supplies.

CURRENCY POLICY —–
(1)  The hryvnia currency hit an all-time low of 5.9/$ on Oct. 8, weakened by growing global risk aversion and regional tensions after Russia’s conflict with Georgia.

(2)  In mid-2008 the hryvnia had strengthened as far 4.5/$, after the central bank abandoned a policy of keeping it in a corridor of 5.00-5.06 per dollar within a 4.95-5.25 band.
(3) The central bank’s council and executive board have sent mixed messages about future actions and clashed in May over revaluing the hryvnia’s official rate. The board appears to take less notice of the currency band, set by the council.

FINANCES —–
(1)  The central bank has said foreign exchange reserves as of the end of September at $37.5 billion covered 3.7 months of imports.

(2)  The current account deficit was running at 7.9 percent of GDP in the first half of this year, up from 4.2 percent in 2007.
(3)  Analysts based outside Ukraine forecast its current account deficit at $21-25 billion, or 10-12 percent of gross domestic product, by year-end; Ukraine-based analysts give lower forecasts of about 6 percent of GDP.
 
(4)  Prices for Ukraine’s steel exports are forecast to drop, while Russia’s Gazprom has suggested next year’s price for gas imports could soar to $400 per 1,000 cubic metres from $179.50 now.

CURRENCY RISKS —–
(1)  The central bank risks encouraging imports and further widening the trade gap if it supports the hryvnia. However, letting it float would remove an important anchor for domestic and foreign businesses in Ukraine’s export-driven economy. * Many people hold debt in foreign currency and would have to pay more to service it if the hryvnia weakened.

(2) Consumers are extremely sensitive to currency movements — they lost savings when the Soviet Union collapsed and again through hyper inflation and a currency crisis in the 1990s that more than halved the hryvnia’s value to about 4/$ and beyond.
(3) Ukraine was forced to restructure its debts in 2000 and made the final payments on that restructuring just last year.

FOREIGN DEBT —–
Ukraine’s foreign debt totalled just over $100 billion as of July 1, of which about $15 billion was government debt.

(1) The central bank has said it expects banking sector debt worth $1-1.2 billion to mature in the final quarter of this year.
(2) Citi analysts estimate Ukraine’s 2009 external financing requirement to be $55-66 billion, of which $32-40 billion is in the private sector. Foreign banks own 40-42 percent of total banking assets and 25 percent of short-term banking debt is owed to parent banks. (Compiled by Sabina Zawadzki; Editing by Ruth Pitchford)

LINK: http://www.reuters.com:80/article/bondsNews/idUSLK27995520081020

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8.  CZECH COAL MINING GROUP TO BUY 25% STAKE IN UKRAINE’S FERREXPO

By Jan Cienski in Prague, Financial Times, London, UK, Tuesday, October 21 2008
 
PRAGUE – New World Resources, the London-listed Czech coal mining group, is to buy 25 per cent of Ferrexpo, a Ukrainian iron ore producer whose owner had been forced to sell off part of his stake in the company after it plunged in value.
NWR said that it would pay pound126.6m ($217.5m), or 86p a share, for the stake in Ferrexpo acquired this month by NWR’s majority shareholder, RPG Industries, the investment vehicle of the Czech billionaire Zdenek Bakala. The purchase will be funded from NWR’s existing cash and the company expects to be offered a place on Ferrexpo’s board.
“It is very complementary to our presence in the region,” said Miklos Salamon, NWR’s chairman, adding that the purchase would give NWR a strategic partner in Ukraine, with some of Europe’s largest coal and iron reserves.
NWR, through its subsidiary OKD, is the largest hard coal producer in the Czech Republic and has begun analysing investments in Polish coal mines.
Ferrexpo, which has its headquarters in Switzerland and briefly entered the FTSE 100 this year, produces more than 9m metric tons of iron ore pellets a year – of which 85 per cent is exported to steelmakers around the world – as well as a further 30m metric tons of iron ore. Both companies are listed on the London Stock Exchange.
“We have got the region’s pre-eminent coal producer and pre-eminent iron ore producer in a significant alliance,” added Mr Salamon.
 
Ferrexpo is controlled by Kostyantin Zhevago, a Ukrainian billionaire businessmen and politician, who was faced with a margin call by JPMorgan after Ferrexpo’s shares were hit by the sell-off in commodities stocks.
Shares in Ferrexpo have dropped 84 per cent since May and closed at 77p on Monday. Mr Zhevago still holds 51 per cent of the company through his investment vehicle Fevamotinico.
Mr Bakala, who has made a fortune by investing in distressed heavy industries, quickly seized on Mr Zhevago’s troubles. “The only reason there was a deal was because of current circumstances,” said Mr Salamon.
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9.  OLIGARCH LOVE: SYNERGIES BETWEEN COAL AND IRON ORE

By Emiliya Mychasuk & Emiko Terazono, Financial Times, London, UK, Tue, Oct 21 2008

When times are tough it’s good for oligarchs to know other oligarchs who will do a deal, and then share that deal with minority investors of companies controlled by them.

So it is with Czech coal miner New World Resources, controlled by Zdenek Bakala , who is selling the Ferrexpo stake to New World that he recently
bought from Kostyantin Zhevago , the Ukrainian billionaire businessmen and politician, who was faced with a margin call by JPMorgan. Made all the more
convenient by the fact that JPMorgan Cazenove’s Ian Hannam floated both companies.

There are also links between New World chairman Miklos Salamon and the Ferrexpo chief executive, Mike Oppenheimer, the two having worked together
at BHP Billiton, Mr Salamon said yesterday.

He was a little impatient with analysts who said they couldn’t really understand the synergies between coal and iron ore, at a briefing, telling them it was a “very, very, very attractive opportunity” to get into a big ore body in Ukraine.

Minorities in New World will get to vote on the deal, while Mr Bakala’s company will not – but will get a say in the new directors to join the board as a result. No prizes for guessing. (people@ft.com)

 
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10.  ANOTHER UKRAINE EURO 2012 SOCCER ARENA FACES UNCERTAINTY
 
By Lyubov Sorokina, Reuters, Lviv, Ukraine, Mon Oct 20, 2008 
 
LVIV, Ukraine – Authorities in Ukraine’s western city of Lviv are looking for new builders after an Austrian firm pulled out of constructing a stadium for the Euro 2012 finals, an official said on Monday.
Austria’s Alpine Bau, one of the country’s largest building firms, last week said it could not complete the 30,000-seat stadium within budget constraints set by Lviv city officials.
The incident is the second involving construction of Ukrainian stadiums for the tournament after authorities had to change the general contractor for renovation of Kiev’s main stadium, due to host the Euro 2012 final.
After two visits to Ukraine by President Michel Platini, UEFA last month upheld the right of Ukraine to keep the tournament, co-hosted with Poland, subject to strict monitoring.
Oleh Zasadny, head of the Euro 2012 department at Lviv city council, said the council had rejected Alpine Bau’s new costs which exceeded the budgeted 85 million euros ($114.3 million).
“Lviv city council has therefore launched procedures to find a new contractor,” Zasadny told Reuters. “Talks are under way with companies from Italy, Croatia, Turkey, Germany and Spain and official proposals have been submitted.” In Kiev, a senior Ukrainian soccer federation official said it was awaiting word on who would be awarded the contract.
“Lviv authorities still have not decided on a contractor who can tell terms on completing the project and present a detailed plan on its realisation,” Ivan Fedorenko, head of the federation’s Euro 2012 directorate, told Reuters.
Fedorenko said a decision had also still to be taken on renovating Lviv’s dilapidated airport — a key concern to European officials, along with hotels and other infrastructure. He said city authorities were to report to UEFA next week on plans for the stadium and by mid-November on related projects.
Alpine Bau spokesman Karen Keglevich said the company found itself unable to meet the demands of local authorities. A threat of sanctions against Poland was lifted after UEFA reached an agreement with the Warsaw government to remove a government-appointed administrator for soccer and agree to hold new elections for the national federation.
UEFA were not immediately available for comment. (additional reporting by Igor Nitsak in Kiev and Christian Gutlederer in Vienna; editing by Miles Evans)

LINK: http://uk.reuters.com/article/worldFootballNews/idUKLK46646220081020?sp=true

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U.S.-Ukraine Business Council (USUBC) www.usubc.org.
Promoting U.S.-Ukraine business & investment relations since 1995. 
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11.  SE RAELIN JOINS U.S.-UKRAINE BUSINESS COUNCIL (USUBC)

A Ukrainian agricultural supply company, USUBC member 95
 
U.S.-Ukraine Business Council, Washington, D.C., Wednesday, October 22, 2008
WASHINGTON, D.C. – SE Raelin, a Ukrainian agricultural supply company, founded and managed by Peter B. Chykaliuk of Scarborough, Maine (through Cajo, Inc., a USA company) has been approved for USUBC membership, according to the USUBC executive committee, in an announcement on behalf of the entire USUBC membership. SE Raelin/Cajo, Inc is USUBC member ninety-five.

Peter Chykaliuk, PhD, started working in Soviet Ukraine in 1989 and was one of the early pioneers in the private agricultural supply business.  Another early private sector pioneer was USUBC senior advisor Leonid Kozachenko who worked closely with Peter. 

 
Peter has experienced the ups and downs of doing business in Ukraine over the past 19 years.  He says he is still very optimistic about the future growth of agriculture and agribusiness in Ukraine and the ability of Ukraine to contribute much more to the world’s supply of agricultural and food products.

Peter has Ukrainian heritage and says he is 100% Ukrainian. He told USUBC recently that his father unfortunately did not live long enough to see an independent Ukraine.  Peter attended the recent breakfast meeting USUBC held in Washington with Ukrainian President Victor Yushchenko.

Initially Peter imported farm machinery produced in the USA and then distributed farm chemicals, and bartered a few years crude oil products for grain and tolled grain in the alcohol plants.

 
In 1990 Peter formed a JV called Ukratek with Lvivselhosmash to produce upgraded local sprayers and imports of USA built equipment such as Spra-coupes. Peter then focused on niche markets and organized a wholly owned subsidiary registered in Ukraine in 1994 called SE Raelin.
Currently SE Raelin in Ukraine has developed a 95% market share of grain sorghum seed sales, adjuvants[surfactants] blueberry plants [only registered plants in Ukraine], and kiwi. He continues to import and sell farm machinery [since 1989], vehicles [pickups], and has just registered the first western produced sterile soybean inoculant trademarked Nitrodar. 

Cajo, Inc., is a USA registered company, owned by the Chykaliuk family, with over 20 years experience in trade and production with Ukraine. Its interests include:  Agricultural Seed, Equipment and Parts Supply, Blueberry Production and Development, Automobile and Truck Exports, Fine Apparel Manufacture and Retail, Medical Equipment Sales, and Music Recording and Management.

Cajo, Inc., holds the registered trademarks with the Ukrainian Institute of Industrial Property for Chyk, Raelin, Defoamer, Silo 700D, Chudoviy BMP, Amanda Lee, Nitrodar, Prime, Swift, Sprint II, Sprint W, Dash E and others.

Additional information about SE Raelin and Cajo, Inc. can be found on the websites:  www.raelin.com/ua/en/company and on www.cajoinc.com.

“I first met Peter in the early 1990’s in Ukraine and am pleased to have his company SE Raelin/Cajo, Inc. as a member of USUBC,” 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 allows USUBC to provide its members such as SE Raelin with a full-time operation and a significantly expanded program of work,” according to president Williams.
 
USUBC MEMBERSHIP WILL TOP 100 IN 2008
SE Raelin/Cajo, Inc. is the 45th new member for 2008, and the 75th new member since January of 2007. USUBC membership has quadrupled in the past 20 months, going from 22 members in January of 2007 to 95 members in October of 2008. Membership is expected to top 100 in 2008. 

The new USUBC members in 2008 include 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, and IMTC-MEI.

 
Additional new USUBC members in 2008 are: 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, Anemone Green Capital Limited, ContourGlobal, Winner Imports LLC (Ford, Jaguar, Land Rover, Volvo, Porsche), 3M, Edelman, CEC Government Relations RZB Finance LLC (Raiffeisen), IBM Ukraine, SoftServe Inc., The Washington Group (TWG) and SE Raelin/Cajo, Inc. 

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

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12.  UKRAINE’S ECONOMY ON BRINK AS VIKTOR YUSHCHENKO & YULIYA TYMOSHENKO BICKER

 
Tony Halpin in Moscow, The Times, London, UK, Tuesday, October 21, 2008
MOSCOW – Their political marriage swept them to power on a wave of popular support in the Orange Revolution. Now the bitter divorce between the couple who were nicknamed Beauty and the Beast threatens to tear Ukraine apart.
Viktor Yushchenko, the President, and Yuliya Tymoshenko, the Prime Minister, are waging war on each other as the economy in Ukraine teeters on the brink of disaster. Each side blamed the other’s lust for power for the split in the pro-Western coalition that led Mr Yushchenko to call parliamentary elections in December, the third in less than three years.
Mrs Tymoshenko sought to avoid an election yesterday by urging political opponents in parliament to join her in a “grand coalition” to confront the financial crisis. Her plea for reconciliation fell on deaf ears because most parties stayed away.
However, Mr Yushchenko acknowledged the depth of the financial crisis when he delayed the disputed polls for a week and recalled parliament to enact emergency measures. Elections will now be held on December 14.
 
Allies and enemies said that Mr Yushchenko was determined to hold the election to oust Mrs Tymoshenko as Prime Minister and prevent her from using the office to challenge him for the presidency next year. He has accused her of placing “personal interests over national ones” and said that the Orange alliance was destroyed by her “hunger for power”.
Government ministers were equally vicious about the President. Hryhoriy Nemyria, the Vice-Prime Minister and a key aide to Mrs Tymoshenko, told The Times: “The desire to get rid of Yuliya is so strong that it’s basically at the top of the President’s agenda and it doesn’t matter what will happen with Ukraine.”
Ukraine has had a series of political crises since the 2004 revolution. In the latest, the party supporting Mr Yushchenko pulled out of the coalition Government with Mrs Tymoshenko.
Mr Nemyria claimed that the President was seeking to create an unstable parliament by calling new elections so that he would be in control of Ukraine during the presidential contest against Mrs Tymoshenko, who is ahead of him in opinion polls. “This is a classic example when personal survival and political future demeans all rational behaviour,” he said.
Mrs Tymoshenko won a court order to block the decree to hold an election but Mr Yushchenko fired the judge and declared the ruling invalid. Mrs Tymoshenko withdrew her legal challenge and offered to accept any condition set down by the President if he cancelled the election. He refused.
A team from the International Monetary Fund is in Ukraine while it negotiates a loan of up to $14 billion (pounds8 billion) to support the banking system and prevent a run on the currency, the hryvnia.
 
The central bank has already placed restrictions on Ukrainians making withdrawals from deposit accounts. Its reserves of $37.5 billion are enough to cover less than four months of imports.
Mrs Tymoshenko appeared on television on Sunday to warn Ukrainians that holding an election during the financial crisis would destroy the country. She said that the Government should continue to work until the crisis had passed “and after that you can have any elections you like”.
Some analysts argued, however, that Mrs Tymoshenko is playing up the economic threat to buy time and position herself favourably for the presidential battle.
 
LINK: http://www.timesonline.co.uk:80/tol/news/world/europe/article4981663.ece
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13.  RUSSIA WILL KEEP ONE EYE ON UKRAINE AND THE OTHER ON RELATIONS WITH WEST

 
COMMENTARY: by Anne Penketh, The Independent, London, UK, Tuesday, 21 October 2008 

No disrespect to the people of Iceland (pop 302,000), but if Ukraine and its population of 46 million on the borders of Europe goes belly up as a result of financial and political turmoil it would be a most serious matter for all of us.

 
Any instability in Ukraine would have implications for our energy supplies, because Russian gas transits through the former Soviet state on its way to western Europe.
But the most pressing question concerns the intentions of Russia, the giant power on Ukraine’s border. Russia has already turned off the gas tap once to Ukraine back in January 2006. The trigger that time around was a pricing dispute, and prices are set to rise steeply again.
 
The risk now is that the Kremlin might be tempted to exploit Ukrainian instability in order to punish President Viktor Yushchenko for supporting Tbilisi during last August’s six-day war.
But President Putin said after the conflict that Russia did not have territorial ambitions over Ukraine, where Russia’s lease on the Crimean port of Sebastopol for its Black Sea fleet expires in 2017.
 
There had been fears in the West that after recognising the breakaway territories in Georgia after the August war, Moscow would move to protect the ethnic Russian minority in Crimea.
 
Last weekend, though, a Russian deputy prime minister and former defence minister, Sergei Ivanov, told the BBC that the fleet would leave if the lease was not renewed. “It’s Ukraine’s problem, not Russia’s,” he said. President Yushchenko has riled Moscow by ruling out an extension of the lease.
 
But “the Russians have been indicating that they are playing within certain limits,” said the Russia expert Philip Hanson of the think-tank Chatham House. He said given that the financial crisis was also affecting Russia severely, “the Russians have got a lot of interest in not worsening relations with the West”. Interesting?
 
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14.  ORANGE REVOLUTION IMPLODES TO LEAVE A NATION IN DESPAIR

 
By Askold Krushelnycky in Kiev, The Independent, London, UK, Tue, 21 Oct 2008 
 
KIEV – Their leaders are at war, their country is verging on bankruptcy and the Russians are growling on their doorstep. Ukrainians have been plunged into disillusion and despair by the lethal combination as they witness the death throes of the Orange Revolution that brought President Viktor Yushchenko and Prime Minister Julia Tymoshenko to power.
Now, it seems, the last vestiges of the idealism which fuelled the peaceful revolution four years ago are going to the wall as Mr Yushchenko insists on calling a third parliamentary election in as many years, in a move blocked by his rival, the Prime Minister.
Ms Tymoshenko, who has described the President’s election plan as “reckless” for raising political tensions at a time of dire financial crisis that has devastated Western institutions, went on television on Sunday night to urge political leaders to unite behind her to shield the country from economic meltdown. She warned that holding a parliamentary election in December would “destroy the country”.
But few top politicians heeded her call to attend a unity meeting yesterday. Those who joined her were members of her own bloc, the Communist Party and some rebels of the president’s Our Ukraine party. “It is a great shame that there has been insufficient wisdom to form a united team,” Ms Tymoshenko, clearly irritated, told a news conference. “But I feel we have seen a first attempt.”
Ukraine’s government has had to rescue two top banks, the national currency’s rate has fallen 12 per cent, the stock market is in free fall and the country is seeking a multibillion loan from the International Monetary Fund (IMF) to stabilise the financial sector.
And with relations between Ukraine and Russia having suffered over Mr Yushchenko’s support for Georgia during last August’s Caucasus war, the Russian gas giant Gazprom has now suggested next year’s price for gas imports could soar to $400 (pounds230) per 1,000 cubic metres from $179.50 now.
Ms Tymoshenko suggested the IMF, which sent a delegation for talks last week in Ukraine that are continuing this week, should make an aid package of up to $14bn dependent on the President abandoning his snap election plans.
At the start of 2005, the pro-Western Mr Yushchenko had massive support inside Ukraine, and the entire Western world seemed to be in love with the Orange Revolution. But he has managed to squander that immense goodwill in a stunning fashion by reneging on almost all of his election promises, particularly to fight rampant official corruption and to put behind bars some of the Mafia-like politicians and businessmen who have amassed huge fortunes by crooked means.
Over the past two years the relationship between the President and Prime Minister has degenerated from occasional snide bickering to a torrent of vicious insults and accusations so that talk of a revived Orange coalition is greeted with a cynicism that has increasingly squeezed out the optimism ushered in by the 2004 pro-democracy protests. Yet another election would further ratchet up that cynicism.
 
One young businessman, Ihor Tokarivsky, who for weeks during the Orange Revolution braved freezing temperatures and the danger that force would be used to disperse the demonstrators, said: “Yushchenko and Tymoshenko had everything and people like me still continued to support them despite the shameful public fights and the fact that they failed to keep their promises to lock up some of the criminals who have ripped off this country.
“But this time I’ve had enough and I don’t think I’ll vote at all and I have lots of friends who feel the same. I don’t believe any more that politicians will change the country for the better. Everyone just has to look out for themselves and their own families.”
One former member of Ms Tymoshenko’s BYuT party said: “Whatever the elections produce, little will change. Most MPs are there to make money and politics is only of concern to them insofar as they can use their positions to advance their business interests. It is hard to explain to a Westerner the level of cynicism prevalent in parliament. I wouldn’t call it a parliament; rather it’s Ukraine’s most exclusive business club.”
Ukraine: A nation in turmoil
(1)  Political turmoil has intensified since the President dissolved parliament this month and called a snap election, the third in as many years, resisted by
       the Prime Minister.
(2)  Relations with Russia have sunk to all-time low after war with Georgia.
(3)  The Ukrainian currency, the hryvnia, hit all-time low of 5.9 to the US dollar on 8 October.
(4)  Foreign debt totalled just over $100bn as of 1 July.
 
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15.  UKRAINE GOES FROM ORANGE TO RED

By R M Cutler, Canadian international affairs specialist, Montreal
Asia Times Online, Hong Kong, Wednesday, October 22, 2008

MONTREAL – For all the hand-wringing and justified concern about Asian economies, many countries in the region are in much better shape than several of the emerging markets in Europe. Hungary may yet have recourse to lending from the International Monetary Fund (IMF), while the Iceland debacle has received a good deal of publicity. Ukraine’s plight is hardly less extreme.

Ukraine is in the midst of a financial and banking crisis, exacerbated by political turmoil, that has driven the principal national stock equities indicator, the PFTS Index, down 78% from a high of 1,209 in mid-March to 266 on Monday.

 
The country relies heavily on external finance, and its banking system is by some measures the most at risk after Iceland’s, which collapsed only days ago. On the basis of the cost of its credit-default swaps, Ukraine is the least creditworthy of all of Europe’s emerging markets.

During the first two weeks of October, a bank run depleted aggregated accounts by about US$1.3 billion and the National Bank of Ukraine had to give a $1 billion stabilization loan to the sixth-largest bank in the country. Since then the central bank has reduced reserve requirements, forbidden the premature cashing-in of bank deposits with maturity dates, imposed limits on loans, and established a maximum 5% collar between the buy and sell rates for foreign-currency trading.

The foreign exchange market is negatively affected also by the external balance, the state’s debt to Russian energy giant Gazprom, and also the debt to the central government incurred by Ukraine’s various regional authorities for natural gas distributed throughout the country.

The national banking authority has had to sell US dollars to prop up the value of the hryvnya, the national currency, which has declined by 20% in recent weeks and by 12% just this month. The ratings agencies have responded unsympathetically. To give an example, Standard and Poor’s downgraded the country’s long-term foreign currency sovereign credit rating to BB- from B+.

To complete the painting of the economic picture, metals account for one-quarter of Ukraine’s gross domestic product and over two-fifths of exports, and as I have noted elsewhere (see Crash, Asia Times Online, October 11, 2008), prices for metals have fallen worldwide; at the same time, subsidies on energy prices in Ukraine have been increasingly reduced under pressure from Russia, from which Ukraine imports much of the energy it consumes.

For all these reasons, the IMF is setting up a US$14 billion standby facility for the country to stabilize its financial system. This is all taking place in a political context of continuing intra-elite conflict and turmoil that has been going on since the “Orange” revolution at the end of 2004.

Viktor Yushchenko was sworn in as president in January 2005 and Yuliya Tymoshenko, a former minister of energy, was named prime minister. Eight months later, Yushchenko dismissed Tymoshenko’s government and named one of his own allies to replace her.

 
Four months after that, in January 2006, a vote of parliament removed this new government over an agreement with Russia that sharply increased the cost of imported gas (see Ukraine clash threatens oil to Europe, Asia Times Online, August 2, 2008).

Yanukovich’s (Moscow-oriented) Party of the Regions became the largest party in parliament after March 2006 elections. It was outnumbered by the “orange” coalition (Yushchenko’s party plus Tymoshenko’s bloc), but this group was unable to form a government. Finally, in July 2006, Yanukovich was named prime minister on condition that he continue a pro-Western foreign policy orientation.

In January 2007, Yanukovich’s supporters in parliament voted a law to reduce the president’s prerogatives in governing. Yushchenko responded two months later by dissolving parliament. In new legislative elections, the orange parties gained a bare majority and Tymoshenko was (again) named prime minister, with no votes to spare.

 
Earlier this year, she survived a no-confidence vote, only for one of the president’s chief assistants to accuse her in the press three months ago of treason to Ukraine’s national interests for not supporting Georgia against Russia.

Last month, Tymoshenko’s group voted with Yanukovich’s party to (again) limit by statute the president’s powers, following which Yushchenko’s parliamentary allies left the orange coalition. In this context, following the inability of anyone to form a new ruling coalition, Yushchenko two weeks ago called for new parliamentary elections.

A great deal of criticism has been voiced in Ukraine over this intra-elite jockeying, which many observers see as positioning by Tymoshenko for a run for president in 2009. According to one report, the IMF has “recommended” cancellation of the snap parliamentary elections “as a condition” of access to the aforementioned $14 billion facility. On Monday they were postponed by a week from December 7 to the 14.

It is not altogether clear that the elections will take place even then, since administrative preparations are behind schedule and the cost of holding the elections may be deemed excessive in the midst of the immediate financial crisis. An improvised election campaign at present would only increase negative sentiment and paralyze the government, while energy costs, inflation and the current account deficit continue to increase.

Compared to this tableau, some Asian economies are not in such a bad situation after all.

FOOTNOTE: R M Cutler (http://www.robertcutler.org) is a Canadian international affairs specialist.

LINK: http://www.atimes.com/atimes/Central_Asia/JJ22Ag01.html

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16.  THE ICELAND SYNDROME 
 

By Anne Applebaum, Columnist, The Washington Post, Tue, Oct 21, 2008; Page A17
Imagine this scenario: In a medium-size European country — call it Country X — the bank regulators hold an ordinary meeting. These being extraordinary times, the regulators discuss the health of various banks, including the country’s largest — call it Bank Y — which is owned by an even larger Italian financial group.
 
Last spring, Bank Y, which is perfectly healthy, transferred a large sum to its now somewhat-less-healthy Italian parent; since this is nothing unusual, the regulators drop the subject and move on.
 
The following day, the matter is reported in a marginal, far-right newspaper in somewhat different terms: “A billion dollars transferred to Italy! Country X’s hard-earned money going abroad!”
 
Within hours, as if on cue, everyone starts selling shares in Bank Y, whose stock price plunges. So does the rest of Country X’s smallish stock market. So does Country X’s currency. Within a few more hours, Country X is calling for an international bailout, the IMF is on the phone and the government is wobbling.
Except for that final sentence — there was no international bailout or call to the International Monetary Fund, and the government is fine — that is a brief description of something that happened last week to one of Poland’s largest banks.
 
A real meeting, followed by an unsubstantiated rumor in a dodgy newspaper, and a bunch of nervous investors started selling. Shares in the bank collapsed by the largest margin in its history; for one ugly day, they dragged down the rest of the Polish stock market and currency as well.

As I say, the story ended there. But it could have gone further, and, indeed, in several other countries it has. A month ago, in the first round of this crisis, panicky rumors brought down banks. Now, with trillions of nervous dollars sloshing around the international markets, panicky rumors are bringing down countries.

The case of Iceland, which in recent weeks has nationalized its three major banks, shut its stock exchange and halted trading in its currency, is by now well known. Less well known is the speed with which the Icelandic disease is spreading.
 
Consider Hungary, once the destination of choice for investors who wanted an Eastern European head office with a 19th-century facade and a pastry shop next door: The currency is in free fall and so is the stock market, flummoxing those previously well-fed investors. (One of them told a Hungarian financial Web site: “I haven’t got a clue as to when and how this would end, I’m just staring into empty space.”)
 
Or Ukraine, whose central bank governor declared his banking system “normal and reliable” on Monday of last week. By Tuesday of last week, Ukraine had desperately requested ” systemic support” from the IMF.
So far, most of these crises have been explained away: The banks of Iceland had debts larger than Iceland’s gross domestic product, Hungary’s finances were long mismanaged, and Ukraine, whose president just called for the third election in as many years, is badly governed. But the speed with which some of these defaults are happening, coupled with the paranoia inherent in the political culture of small countries, has led many to suspect political manipulation as well.
To put it another way: If you wanted to destabilize a country, wouldn’t this be an excellent time to do it? If Country X’s stock market can crash after the publication of a single article in an obscure newspaper, think what might happen if someone conducted a systematic campaign against Country X. And if you can imagine this, so can others.
All governments have enemies, internal and external, or at least are faced with elements that do not wish them well: the political opposition, the country next door, the former imperial power. For someone, there will always be the temptation to bring down the government, destabilize the country and thus create political chaos.
Even when there hasn’t been political meddling, someone else will suspect that it has occurred, anyway. Here, then, is a prediction: Political instability will follow economic instability like night follows day. Iceland is not alone. Serbia, the Baltic states, Kazakhstan, Indonesia, South Korea and Argentina are all in financial trouble; so, too, are Russia and Brazil.
And here’s a final, unpleasant thought: Pakistan. This is a country with 25 percent inflation and a currency in free fall; a country with a jihadist insurgency on its border with Afghanistan, permanent hostility on its border with India, nuclear weapons and a tradition of street demonstrations in response to suspect newspaper articles.
 
Dozens of people, with all kinds of agendas, have an interest in using financial markets to destabilize Pakistan, and Afghanistan along with it. Eventually, one of them will. (applebaumletters@washpost.com)
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17.  THE INTERNATIONAL MONETARY FUND (IMF) FACES UP TO COMPETITION

 
Comment & Analysis: By David Rothkopf, Financial Times, London, UK, Tue, Oct 21 2008
For weeks, the headlines have been dominated by banks faltering and countries propping them up. But we have entered a new phase of this crisis in which countries themselves are starting to struggle. Where these battered countries are first turning for help illustrates that what we are witnessing is different from anything we have seen before.
 
It also lays out a clear challenge for those who are hoping the global financial summit announced over the weekend will produce an effective Bretton Woods II, a new international system reflecting a new financial order.
For decades, countries in trouble have turned to the International Monetary Fund and the great powers of the developed world for the cash infusions needed for debt payments or to meet budget shortfalls.
 
Typically, the money came with conditions, conforming to a prescription known as the Washington consensus that promoted market liberalisation and fiscal responsibility. For many the conditions were odious. But money talks and the result was the classic illustration of soft power, of western states advancing their interests not at the point of a gun but at the tip of a cheque-signer’s pen.
But as this crisis has unfolded, the first impulse of some of the countries in trouble has been to seek aid from emerging economy lenders, from countries that possess both the financial resources to help and a more accommodating attitude to lending conditions. When Iceland’s economy started to spiral downwards its leaders, frustrated by the lack of swift help from western allies, turned to Russia .
 
Although the slow pace of those talks ultimately resulted in Iceland agreeing a package led by the IMF, it is noteworthy that those loans came with fewer conditions than the Fund has imposed in the past, a sign that it is starting to realise it is not the only game in town.
THE CASE OF PAKISTAN
This trend is further illustrated by the case of Pakistan. With reserves falling to under $4.5bn (euro3.4bn, pound2.7bn), just enough to pay for six weeks of imports, politically unstable Pakistan has been speeding towards an economic calamity. A financial crisis would pose a threat to the new pro-western government of President Asif Ali Zardari, which is already under siege. But the institutions of the west are very unpopular in Pakistan.
So to whom did Pakistan turn in its hour of need? Last week Mr Zardari travelled to Beijing to seek a loan from the country with the world’s largest reserves. While specifics of the deal with the Chinese are unclear, it appears they will offer help in the form of commercial deals, energy aid and participation in a larger international rescue package.
 
The Pakistanis want to augment this with funds from the oil-producing nations of the Persian Gulf that have agreed to discuss a “friends of Pakistan” bail-out with China, the US and others in an effort designed not to appear western dominated. Again, the IMF has subsequently (and with explicit unease) been approached and is likely to play a role in any final package, although there are signs it may again soften its usual terms.
The developments in Iceland and Pakistan are not isolated cases. A new mix of lenders is being sought, suggesting that the successor to the Bretton Woods order is being created on an ad hoc basis by the markets. Well before the crisis, the Chinese lent billions to Africa. In one press release associated with a financing programme, the Chinese leadership noted the money came with “no political conditions”.
 
Even so, the move has concerned leaders in the global financial establishment. Hugo Chávez, president of Venezuela, drove the Americans crazy as Bolivia, Argentina, Ecuador, Nicaragua, Honduras and Cuba accepted his aid. Last year, Mr Chávez distributed four times as much aid in South America as the US.
Do these loans come, as advertised, without strings? Of course not. A recent meeting announcing a Russian loan to Venezuela produced a declaration of support for Russia’s territorial claims in the Caucasus.
 
China has often put pressure on beneficiaries to vote China’s way against Taiwan in the United Nations or to withdraw recognition of Taiwan. Venezuela wants to counter US influence in the Americas and its cash has reinforced the views of countries already wary of the US.
This new set of lenders is gaining influence. Mr Chávez has begun to create a Bank of the South to institutionalise his ad hoc programme. Even if that project does not achieve the scale he hoped – with falling oil prices, it will be hard to meet funding goals – it heralds the emergence of a new wave of alternative institutional structures, not dominated by western powers.
As other countries face crisis – Turkey, Argentina, Ukraine, the Baltics and others in eastern Europe all look precarious – it will be telling how many go the traditional route and how many initially explore other options.
Of course, the final irony is that the free market gurus at the IMF and in the US Treasury are relearning an old free market lesson: competition. Unlike the moment when aggressive private sector lenders made the Fund seem redundant, the current shifts have significant geopolitical implications. The balance of soft power is shifting. Western leaders should learn the lesson: the old system is outdated.
 
The powers that dominated it did not practice the medicine they preached to others in previous financial crises. Any new system must now reflect the new financial order, giving bigger roles to emerging powers. If this does not happen, the new entities could start out even weaker than the damaged ones they replace.
NOTE: The writer is a visiting scholar at the Carnegie Endowment for International Peace and the author of “Superclass: The Global Power Elite And The World They Are Making.”
 
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18.  IMF WARNS BUSINESS AS EUROPEAN UNION OUTLOOK WORSENS 

By Tony Barber in Brussels, Financial Times, London, UK, Tue, Oct 21 2008
European businesses will suffer a sharp contraction in credit next year as the full consequences of the global crisis unfold for non-financial companies, the International Monetary Fund predicted on Tuesday.
“In the US we already see a lack of access to credit for companies. In Europe there is a bit of a longer delay in the credit cycle. But there will be a very sharp slowdown in credit growth next year,” Alessandro Leipold, acting director of the IMF’s European department, told the Financial Times in an interview.
 
Mr Leipold was speaking as the IMF published its latest regional economic outlook for Europe, forecasting growth in eurozone gross domestic product of 0.2 per cent next year, down from an expected 1.3 per cent in 2008. For the 27-nation European Union, the IMF predicts GDP growth of 0.6 per cent in 2009, down from 1.7 per cent this year.
According to the IMF report, bank lending to eurozone non-financial companies reached a record nominal annual growth rate of 15 per cent last March. Mr Leipold said the credit cycle had clearly turned since then, bringing higher borrowing costs and tighter bank lending standards.
“Our forecast is that credit growth will fall to a low single-digit figure next year, maybe 2 or 3 per cent. It’s already down now to about 10 per cent,” he said. He said the sharp slowdown in bank lending would reduce inflationary pressures in the eurozone, opening an opportunity for interest rate cuts next year by the European Central Bank.
“Inflation risks are clearly disappearing. We wouldn’t speak of upside risks at all. We see further scope for monetary easing,” Mr Leipold said.
The IMF, which is working to stabilise the financial systems in Hungary and Ukraine, had detected risks that contagion from the global crisis might infect other parts of central and eastern Europe, he said.
With about three-quarters of the region’s banks owned by foreign institutions, based principally in western Europe, there was a risk that problems at the parent banks would cause the flow of funds to their subsidiaries to dry up.
“In western Europe, recapitalisation and other measures have been taken to support the parent banks, and that should be positive for eastern Europe. But there’s an issue of co-ordination across borders. If you offer favourable treatment for banks in western Europe, you could create adverse circumstances in eastern Europe.”
Mr Leipold said the IMF would like to see better co-ordination of financial market supervision in Europe, with one possibility being a “hub and spokes” system in which a strong central supervisor worked in close contact with supervisors at national level.
Acknowledging the political resistance in some EU countries to a more centralised system, he said: “We hope the financial crisis will be an opportunity to cross some political red lines.”
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19.  UKRAINE STRUGGLES AMID CRISIS
By Daryna Krasnolutska, Bloomberg, Kiev, Ukraine, Mon, Oct 20, 2008

KIEV – Ukraine’s hryvnia fell to its weakest level in more than a week against the dollar after Moody’s Investors Service followed other agencies
in reducing or reviewing the country’s rating because of the credit crisis.

Moody’s Investors Service lowered Ukraine’s outlook Monday as the global liquidity crunch adds pressure to an economy already beset by racing
inflation and political instability. The hryvnia has slumped 18 percent since the start of September as the collapse of the government and seizure in debt markets made it harder for Ukraine to fund its current-account deficit.

The outlook for the former Soviet republic’s foreign- and local-currency debt ratings was cut from positive to stable, Moody’s said Monday in an
emailed statement from New York. Moody’s downgrade follows moves by Fitch Ratings and Standard & Poor’s.

The worldwide financial turmoil is prompting investors to shun riskier assets in emerging markets. Ukraine has the worst creditworthiness of Europe’s
emerging markets, based on the cost of credit-default swaps, which protect bondholders against default. The country is also heading for early elections
on Dec. 7 after the second collapse of a ruling alliance between President Viktor Yushchenko and Prime Minister Yulia Tymoshenko.

“Although Ukraine’s government balance sheet remains strong at the moment, the current global market turmoil heightens the existing vulnerabilities,”
said Moody’s Vice President Jonathan Schiffer said in the statement.

The hryvnia fell 3.7 percent to 5.4400 to the dollar, its weakest level in more than a week, as of 2:25 p.m. in Kiev. The hryvnia has slumped 16 percent against the dollar since early September because of turmoil in global financial crisis, the government coalition collapse, and new national elections, scheduled for Dec. 7.

Fitch cut Ukraine’s credit rating to B+ on Oct. 17 and Standard & Poor’s put it on review for downgrades on Oct. 15. “There has already been speculation against the local currency, with its attendant adverse affects for inflation, debt servicing and the asset quality of the banking system,” said Schiffer.

The current-account deficit will probably widen to $15 billion this year, weakening the hryvnia, said central bank Governor Volodymyr Stelmakh last
Monday.

The shortfall reached 7.2 percent of gross domestic product in the first seven months, or $7.7 billion, as higher energy costs and domestic consumption boosted imports, the central bank said on Aug. 29.

The country is seeking a loan of as much as $14 billion from the International Monetary Fund to help cover the gap, said Oleksandr Shlapak, the first deputy chief of President Viktor Yushchenko’s staff, on Friday.

The economy may face the risk of recession as prices for its main exports, including steel, dropped as demand weakened on the global market, according
to Shlapak.

Worldwide inflation, driven by food and energy prices, was exacerbated in Ukraine by higher government spending. The annual rate almost tripled in a
year to a record 31.1 percent in May before easing back to 24.6 percent in September.

Ukraine’s foreign-currency denominated bonds are currently rated Ba3 by Moody’s, a high-yield, or “junk,” level three steps below investment grade. The local-currency debt is rated a step lower at B1.
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20.  UKRAINE: TEETERING ON THE BRINK
President Rescinds Decree Cancelling 7 December Election

BYuT Inform newsletter, Issue 90, Kyiv, Ukraine, Tuesday, October 21, 2008
 
KYIV – President Viktor Yushchenko has cancelled his decree which dissolves parliament and calls for new elections on 7 December. The step enables parliament to pass vital budget legislation and measures aimed at alleviating the financial crisis threatening Ukraine’s economy. At a press conference the president suggested that pre-term elections would be held on 14 December.
  
The presidential decree was cancelled following a meeting of the National Security and Defence Council (NSDC) which met on Monday. “We hope that parliament will approve the anti-crisis measures which were discussed at the Security Council,” said the president.
  
The president’s announcement was aired on national TV. It follows Prime Minister Yulia Tymoshenko’s TV address on Sunday, in which she appealed for the formation of a new coalition government to tackle the effects of the global financial crisis. A sombre premier told viewers that it would be “reckless” to hold elections given the severity of the threat facing the country.
  
Ms Tymoshenko suggested postponing the elections, originally scheduled for 7 December, in order that a reshuffled government, based on a broad coalition, could work on plans to stabilise the financial sector and strengthen the economy. “Such a coalition should act until such time as the threat of financial and economic collapse is removed from our country and the world at large. After that, you can have any elections you like.”
  
On Monday the president made it clear that he thought the financial crisis was best handled by the NSDC and the premier’s efforts to form a broad coalition were spurned.  “It is a great shame that there has been insufficient wisdom to form a united team,” said Ms Tymoshenko speaking to reporters.
  
Mr Yushchenko hopes parliament will pass spending cuts and create a fund to help prop up ailing banks and companies. The president rescinded his decree at a time when Ukraine is finalising a loan from the International Monetary Fund (IMF) to shore up its creaking financial system. Last week the government confirmed that the IMF is willing to loan up to $15 billion to help strengthen Ukraine’s financial services sector.
 
Until recently the global financial crisis had not severely impacted Ukraine’s economy, which is still expected to grow 6.9 percent this year. However, recent events have proven the 46 million population former-Soviet republic is not immune to the global turmoil gripping the world’s financial markets.
 
Central Bank Steps In  
Recently, the National Bank of Ukraine (NBU) was forced prop up Prominvestbank, Ukraine’s sixth largest bank, after anxious investors in the east of the country withdrew $1.3 billion. It now looks likely Prominvestbank will be nationalised – a move that has received the premier’s blessing. “We should return this bank back to the state and the state will assume all responsibility for Prominvestbank’s obligations,” said Ms Tymoshenko.
  
Also, a $300 million loan has kept Nadra, the seventh-largest bank afloat. On Friday the NBU relaxed measures imposed on banks across the retail sector, which had included freezing selected accounts.
  
Associated Press reported Volodymyr Dinul, an analyst with Renaissance Capital, as saying: “It looks like the National Bank is in control of the situation. Let us hope that everything will calm down sooner rather than later.”
 
Macroeconomic Warning Lights Flashing  
Ukraine’s macroeconomic indicators reveal that the economy is vulnerable. “It is the equivalent of warning lights flashing,” said a London-based emerging markets analyst.
  
The government is still grappling with curbing inflation, which in May topped 31 percent before falling back to 16 percent in September, as anti-inflationary measures implemented by the Cabinet of Ministers bore fruit. Indeed, in July the country experienced 0.5 percent deflation.
  
But perhaps of more immediate concern is the pressure on the hryvnia which on Monday was at UAH 5.45 to the dollar. In recent weeks, the currency has taken a battering as investors exited emerging markets in a scramble for dollars. Nevertheless, the NBU has reserves of $37.5 billion to prop up the currency but is concerned not to draw too heavily on its reserves.
  
Current Account Deficit Widens  
At the same time the country’s widening current account deficit is cause for alarm. This is being aggravated by the country’s trade deficit, which, for the first eight months of the year, has grown to $12.5 billion from $5.9 billion in the same period last year. This has not been helped by a global drop in the demand for steel – one of Ukraine’s principal exports.
  
According to SigmaBleyzer, in 2009 “the current account deficit is likely to widen to $24 billion, which corresponds to 10 percent of forecasted GDP.” Of this gap, about $10 billion reflects the likely increase in the cost of imported gas.
  
However one London-based analyst thought these figures were somewhat gloomy. He told Inform that he considered the predicted $24 billion figure was high as a slowing economy will see import demand fade and he anticipated some foreign exchange devaluation. He also suggested a slowing economy would see energy consumption fall and, together with energy conservation measures and a reasonable price for gas, the gap would be lower than predicted.
  
Recent gas negotiations between Prime Minister Tymoshenko and her Russian Federation counterpart, Vladimir Putin, resulted in a broad market agreement, which foresees a gradual increase to market prices over a three-year period. Although a final decision on the price is expected in November, Naftohaz Ukrainy CEO, Oleh Dubnya, has said he expects the 2009 gas price to be in the vicinity of $250 to $300 per 1,000 cubic meters.
 
High Credit Risk  
Another cause for concern is Ukraine’s relatively high level of external debt. In the last two years total external debt grew 45 percent to $100 billion. Most of this is fuelled by the corporate and banking sectors, both of which are now under intense pressure.  Ukraine’s fledgling stock market has lost some 43 percent of its value in October alone, after gains last year of 130 percent.
  
The uncertainty surrounding the economy and financial sector has seen the country downgraded in terms of its ability to pay back debt. Ukraine is seen as a high default risk, with its Credit Default Swaps (an insurance-like contract that promises to cover losses on a bond in the event of default by the bond issuer) now trading at a mind-boggling 2,000 basis points.
  
This means that the annual cost of insuring $10 million of debt for five years has rocketed. According to Markit, a credit research firm, such a price tag would involve “an upfront payment of over $4 million plus $500,000 a year.”
  
This mounting risk is reflected in the US Treasury’s Quarterly Assessment of Financial Risks, September 2008, which placed Ukraine among the 10 top financial risks in the world. 
  
On Monday Moody’s cut its sovereign rating outlook on Ukraine to stable from positive. On Friday, Fitch Ratings downgraded its long-term foreign and local currency issuer default rating on Ukraine to “B+” from “BB-“. A statement from Fitch said: “The downgrade reflects Fitch’s concern that the risk of a financial crisis in Ukraine involving a large depreciation of the currency, further stress in the banking system and significant damage to Ukraine’s real economy is significant and rising.”
 
IMF to the Rescue  
Last week Ukraine joined Hungary, Iceland and Serbia by approaching the IMF for assistance. The head of the NBU, Petro Poroshenko stressed that IMF funds were only a contingency to “calm down investors.”
  
Mr Poroshenko’s First Deputy Chairman, Anatoly Shapovalov, said that the size of the credit from the IMF would depend on Ukraine’s quota subscription in the fund. This is believed to be around $2 billion. Normally countries draw three to five times the amount in the fund. But such a sizeable loan would come with many conditions attached.  
  
“At the moment, we do not need these funds, but who can say how the global crisis will develop tomorrow?” said Mr Shapovalov.
  
The IMF has denied that the funding is contingent on the early elections being postponed. However, over the weekend the New York Times quoted BYuT lawmaker Sergei Teriokhin as saying that “if the contested status of the cabinet is not resolved, the monetary fund will not know whom to meet with.”
 
Election Madness  
Given the financial and economic turmoil, most observers are aghast by the president’s decision to dissolve parliament and hold an election – a process that could deprive the country of a government until spring 2009.
  
“It would be morally and politically irresponsible to hold elections at this time,” said Ms Tymoshenko, “the world is facing its sternest financial crisis for a generation and we decide the best way to resolve it in Ukraine is to spend $80 million on an election. As rational, responsible leaders we must act calmly and swiftly. The country needs stability, so I appeal once more for unity.”
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21.  CENTRAL EUROPEAN MEDIA ENTERPRISES COMPLETES BUY
OUT OF MINORITY PARTNERS IN STUDIO 1 + 1 IN UKRAINE
 

Central European Media Enterprises, By PR Newswire, Tuesday, October 21, 2008
HAMILTON, Bermuda – Central European Media Enterprises Ltd. (“CME”) (Nasdaq/Prague Stock Exchange: CETV) today announced that on October 17, 2008 it completed the purchase of the remaining 10% of the Studio 1+1 group following the exercise of its call option. CME now owns 100% of the Ukrainian television station.
Michael Garin, CME’s Chief Executive Officer, commented: “This is the final step in achieving full control of Studio 1+1, one of the key objectives of our strategy in Ukraine. As a result, we expect to strengthen our performance and position in this market. Our goal for the future is to make Studio 1+1 the number one television station in Ukraine.”

Adrian Sarbu, CME’s Chief Operating Officer, added: “Studio 1+1 is a tremendous asset in what is by far our largest market with 47 million people. With the completion of this transaction we are now in a position to accelerate the execution of our strategic plan to improve the operating performance and profitability of the station. We have already taken the first steps on the way to become the number one television station in Ukraine.

 
We have appointed two key executives in Ukraine, reset our programming strategy, repositioned our news show and established a new production unit. Studio 1+1 forms the core of our growth strategy for Ukraine and we look forward to expanding our presence in this market.”
The 10% interest was acquired for cash consideration of US$109.1 million pursuant to the framework agreement signed in January 2008.
Launched in 1997, Studio 1+1 is one of the most popular national broadcasters in Ukraine, reaching almost 47 million people with an all-day audience share of 12% and prime time audience share of 14% in its 18+ target group during the first half of 2008.
CME is a broadcasting company operating leading networks in seven Central and Eastern European countries with an aggregate population of approximately 97 million people.
 
CME’s television stations are located in Bulgaria (TV2 and Ring TV), Croatia (Nova TV), Czech Republic (TV Nova, Nova Cinema, Nova Sport and MTV Czech), Romania (PRO TV, PRO TV International, Acasa, PRO Cinema, Sport.ro and MTV Romania), Slovakia (Markiza, Nova Sport and MTV Czech), Slovenia (POP TV, Kanal A) and Ukraine (Studio 1+1, Studio 1+1 International, Kino, Citi). CME is traded on the NASDAQ and the Prague Stock Exchange under the ticker symbol “CETV”.
 
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22.  RUSSIA UNROMANTICIZED

 
Commentary: By John R. Bolton, The Washington Post
Washington, D.C., Mon, Oct 20, 2008; Page A15
 
Former secretaries of state Henry Kissinger and George Shultz argued recently on this site that the United States should neither be “isolating” Russia nor drifting toward “confrontation.” The Post’s Masha Lipman urged us to avoid “Cold War preconceptions and illusions.”
 
Unfortunately, these distinguished commentators are aiming at straw men. No serious observer thinks we face a new Cold War or that isolating Russia because of its increasing foreign adventurism is a real solution. U.S. opposition to Russia’s recent behavior should not rest on a desire to “punish” Russia but on the critical need to brace Moscow before its behavior becomes even more unacceptable.
Russia has been growing increasingly belligerent for some time. Its invasion of Georgia is only the most recent and vicious indicator of its return not to the Cold War but to a thuggish, indeed czarist, approach to its neighbors. Vladimir Putin gave early warning in 2005, when he called the breakup of the Soviet Union “the greatest geopolitical catastrophe of the 20th century.”
 
In the same speech, Putin lamented that “tens of millions of our fellow citizens and countrymen found themselves beyond the fringes of Russian territory.” He may now be acting to reverse that “catastrophe,” as further demonstrated by Moscow’s embrace of Ukrainian Prime Minister Yulia Tymoshenko and other efforts to interfere in that country’s elections. Prudence based on history requires us to assess Russia’s invasion of Georgia as more than an aberration until proven otherwise.
Russia has repeatedly demonstrated its capacity to threaten American interests: providing cover to Iran’s nuclear weapons program by enthusiastically neutering sanctions resolutions at the U.N. Security Council and trying to market reactors to Tehran; selling high-end conventional weapons to Iran, Syria and other undesirables; using its oil and natural gas assets to intimidate Europe; making overtures to OPEC; and cozying up to Venezuela through joint Caribbean naval maneuvers, weapons sales and even agreeing to construct nuclear reactors.

Take the controversy over locating U.S. missile defense assets in Poland and the Czech Republic. We fully informed Russia before withdrawing from the 1972 Anti-Ballistic Missile Treaty that we would create a limited (but geographically national) missile defense system to protect against the handfuls of missiles that might be launched by states such as North Korea or Iran.

 
As anyone can tell from looking at a globe, anti-missile sites in Europe wouldn’t defend against the missile trajectories of a Russian strike on America. (That’s why the Distant Early Warning Line was in Alaska and Canada, not Europe.) Russia’s threats against Poland are aimed at intimidating Western Europe, an all-too-easy objective these days.
 
We have real interests at stake, such as a route to the Caspian Basin’s oil and gas assets that does not traverse Russia or Iran. If Moscow’s marching through Georgia goes unopposed, marching will look more attractive elsewhere, starting with Ukraine, which has a large ethnic Russian population “beyond the fringes” of Moscow’s control. “Legitimate security interests” do not justify invading and dismembering bordering countries.
A rational Russia policy has to escape the persistent romanticism of Moscow in recent administrations and the desire of some Europeans to close their eyes and hope things will work out. Too many Europeans believe they have passed beyond history and beyond external threats unless they themselves are “provocative.” Last spring in Bucharest, that mentality led Germany and others to reject U.S. suggestions to put Georgia and Ukraine formally on a path to NATO membership. Moscow clearly read that rejection as a sign of weakness.
Ultimately, what most risks “provoking” Moscow is not Western resolve but Western weakness. This is where the real weight of history lies. Accordingly, attitude adjustment in Moscow first requires attitude adjustment in NATO capitals, and quickly, before Moscow’s swaggering leaders draw the wrong lessons from their recent successes.
First, NATO must reverse the Bucharest summit mistake immediately. This is achievable before Inauguration Day on Jan. 20. Admitting Estonia, Latvia and Lithuania into NATO has stabilized a possible zone of confrontation in the Baltics, and moving to bring in Ukraine and Georgia would eliminate a dangerous vacuum in the Black Sea region.
 
Second, we should scale up rapidly in military cooperation with current and aspiring NATO members in Central and Eastern Europe to make it clear that more Russian adventurism is highly inadvisable.
 
Hopefully, other NATO countries will join with us, but we should act bilaterally if need be. Third, we should proceed fully with missile defense plans, on which we have repeatedly offered Russia full involvement and cooperation, to protect us all from rogue-state threats.
Such an approach will not endanger Western security but enhance it. And if Russia takes offense, better to know that now than later, when the stakes for all concerned may be much higher.
FOOTNOTE: John R. Bolton, a former U.S. ambassador to the United Nations, is the author of “Surrender Is Not an Option: Defending America at the United Nations and Abroad.” He is a senior fellow at the American Enterprise Institute.
 
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23.  A NATO PATH FOR UKRAINE AND GEORGIA

Letter-to-the-Editor, by Robert McConnell, The Washington Post

Washington, D.C., Tuesday, October 21, 2008; Page A16

In his Oct. 20 op-ed, “Russia Unromanticized,” John R. Bolton called for NATO to “reverse” its Bucharest summit decision on Ukraine and Georgia. I
agree with Mr. Bolton’s conclusion, but NATO doesn’t have to “reverse” anything.

Here’s why: In Bucharest, NATO gave Ukraine and Georgia political “guarantees” that they would receive NATO membership, an extraordinary and
unique position from NATO. Now is the time for NATO to follow up on its promise and give the two countries the first step in the process, membership
action plans (MAP).

The plans have no time limits. Granting MAPs to the two countries would be the beginning of the process. The question is not, as some have said, whether Ukraine and Georgia are ready for NATO. The question is whether NATO is ready for Ukraine and Georgia.

On that point at least Ukraine has been a more active partner in recent NATO activities than have been a number of NATO members.

ROBERT MCCONNELL
McLean

The writer is co-founder of the U.S.-Ukraine Foundation, which encourages democratic development, free-market reform and human rights in Ukraine.

LINK: http://www.washingtonpost.com/wp-dyn/content/article/2008/10/20/AR2008102002539.html
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24.  UKRAINE’S NATO HOPES DASHED

While the Georgia-Russia conflict has played a role in dashing Ukraine’s
hopes for NATO membership, so has very dramatic domestic political turmoil
 
By Jeremy Druker for ISN Security Watch, International Relations & Security Network (ISN)
Zurich, Switzerland, Monday, October 20, 2008

Back in April at the Bucharest summit, NATO leaders had both good news and bad news for Ukraine. The good news was that the leaders officially agreed that Ukraine would eventually become a NATO member and supported the country’s request for a Membership Action Plan (MAP). The bad news was that a MAP invitation was not forthcoming.

Still, Ukrainian officials could leave Romania satisfied that NATO foreign ministers would review the country’s progress already in December. And, optimists believed, if the answer was still negative, the Alliance might be looking for a triumphant way to celebrate its 60th anniversary in 2009. What better way than to invite Ukraine, a large country key to Europe’s future security plans.
Now, six months later, those hopes appear dashed – though the Bush administration continues to spend its waning days in office pushing for Ukraine’s entry into NATO. The Georgia-Russia conflict over South Ossetia has played a major role, but just as important has been Ukraine’s domestic political turmoil, which has also served to heighten lingering concerns among Western European leaders about the country’s overall readiness and stability.
The Georgia war has given plenty of ammunition to both sides of the “Ukraine in NATO” debate. On the one hand, Russia’s heavy-handed invasion – condemned by many for its disproportionate use of force and the subsequent occupation of large chunks of Georgian land – vindicated those who “see a pro-western Ukraine as an indispensable bulwark against a neo-imperial Russia,” as Dmitri Trenin from the Carnegie Endowment for International Peace put it recently in a Newsweek article.
A Ukraine entrenched in the Atlantic Alliance would, supporters say, put an end to speculation that the Crimean peninsula, which houses Russia’s Black Sea Fleet, is next on Moscow’s list of places to provoke confrontation and move in aggressively.
Convincing as those points might be to some, in most western capitals, they pale in comparison to the major counter-argument that Russia is clearly capable of playing hardball and even violating international law in the name of furthering its strategic interests. So soon after Georgia – with the West still trying to come up with a plan for dealing with a resurgent Russia, but craving its energy exports – Moscow should not be provoked.
Using such a line of reasoning, Germany and France, among others, helped derail Ukraine’s ambitions back in the spring. They have not shifted their stance since then. In fact, they have moved backwards and have become more recalcitrant. Earlier this month, German Chancellor Angela Merkel decided to not even wait for December.
 
At a press conference with Russian President Dmitry Medvedev in St Petersburg, Merkel said neither Ukraine nor Georgia would receive a MAP invitation at the foreign ministers’ meeting.
On top of that, the already dysfunctional political scene in Ukraine has degenerated even further over the past few weeks, giving NATO members another reason for rejection. On 8 October, President Victor Yushchenko dissolved parliament and called for early elections.
 
That came a few weeks after the breakup of the ruling coalition, the culmination of a long-running battle with Prime Minister Yulia Tymoshenko and her recent decision to support opposition moves to limit presidential powers. 
The two former Orange Revolution allies have also sparred over accusations from the president’s team that Tymoshenko took a neutral stance over the war in Georgia, refusing to denounce Russia in return for support for her presidential ambitions. Yushchenko, who quickly condemned Russian actions, has even claimed that Tymoshenko’s behavior was contrary to the country’s national interests and tantamount to treason.
It’s hard to know whether detractors honestly believe the current political situation precludes a MAP invitation, or whether this excuse is rather a fig leaf for fears of provoking Russia. Some believe that the current “turmoil” is simply chaotic, unbridled democracy and political plurality at work.
“Political discussions are active, interesting, invigorating,” said Ivan Lozowy, a journalist based in Kiev who runs the newsletter Ukraine Insider. Political leaders have to deal with limitations, stemming from competition, on their power and ambitions. This is all good.”
“Best of all would be a real reformist alternative, which we currently do not have, and if those in high government posts would stop trying to amass more power and use the power they have to benefit the average Ukrainian. But given Ukraine’s history, it’s a great thing to see this competition,” he told ISN Security Watch.
Andrew Wilson, a Ukrainian expert at the European Council for Foreign Relations, put the likelihood of a MAP invitation in December at virtually nil. “There is a slight chance that some NATO members would offer Yushchenko something for domestic political purposes,” he told ISN Security Watch. But with the president’s political numbers running so low, Wilson thought NATO leaders would probably find it inadvisable to bet on the president in such a manner.
The question is also whether such a “gift” would gain Yushchenko points beyond his hard-core followers. NATO continues to prove a difficult sell to the population, even in pro-western parts of the country.
In a poll conducted by the Kyiv International Institute of Sociology (KIIS) on 30 August-8 September 2008, respondents were asked “Which military security option is the best for Ukraine?” While only 17.4 percent said joining NATO, 28.3 percent chose “joining a military union with Russia” (25 percent opted for not joining any bloc and 10.6 percent for a new EU-member-only system of collective security).
KIIS also asked Ukrainians how they would vote in a referendum “next week” on joining NATO. Around 22 percent said they would vote “Yes” and almost 65 percent said “No.”
“The Ukrainian government has employed a small, not very noticeable and ineffective advertising campaign in favor of NATO, but, at least in this case, mud does stick,” said Lozowy. “NATO has these distinct negative associations for the average Ukrainian: It is anti-Russia, it is aggressive, the Alliance bombed Yugoslavia, etc. On the other hand, if you ask the man on the street if they want Ukraine to ‘be part of Europe’s collective security system’ a very high percentage of people would be ‘for’ such a choice.”
The irony in all of this is that militarily, Ukraine is probably as ready as any new members in recent years have been. The country has been involved in Partnership for Peace activities since the program began in 1994, and in 1997, the country signed a “Charter on a Distinctive Partnership.”
In December 1999 then-president Leonid Kuchma initialed a decree on defense reform that paved the way for NATO to monitor Ukraine’s reforms and provide regular consultations and advice. In 2002, Ukraine officially declared its intention to join the alliance. In the past few years, real defense reform has taken place with sharp reductions in troops, an increase in readiness levels, and heightened transparency.
All of that will mean apparently little, however, when NATO foreign ministers gather in December, the same month the country goes to the polls to elect a parliament for the third time since Yushchenko’s dramatic election in the winter of 2004-2005.

FOOTNOTE: Jeremy Druker is executive director, editor-in-chief and one of the founders of Transitions Online. The views and opinions expressed herein are those of the author only, not the International Relations and Security Network (ISN).

LINK: http://www.isn.ethz.ch:80/isn/Current-Affairs/Security-Watch/Detail/?fecvnodeid=108031&fecvid=21&v21=108031&lng=en&id=92919

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25.  “OUR DAILY BREAD” HOLODOMOR EXHIBITION TO OPEN IN CHICAGO OCT. 24

Exhibition to feature fifty-four Holodomor artworks by Ukrainian artists
 
“They put a gun to your head and made you swear you would bring in grain the next day.
Everyone cried. There was nothing left to bring!” Hanna Ikasivna Cherniuk, Holodomor survivor
 
Ukrainian National Museum, Chicago, Illinois, Wednesday, October 15, 2008
 
CHICAGO – “Our Daily Bread”, an exhibition of artworks commemorating the Ukrainian Holodomor-Genocide, opens Friday, October 24th at the Ukrainian National Museum, 2249 West Superior, in Chicago. 
 
“Our Daily Bread” officially opens at 6:30 PM with a program that features a short video by Ukrainian singer Oksana Bilozir and an opening statement by the granddaughter of a Holodomor survivor, Ms. Oryna Hrushetsky-Schiffman. 
 
In 1932 and 1933, between seven and 10 million Ukrainians were deliberately starved to death during the “Holodomor” – or death by starvation. This genocide was masterminded by Joseph Stalin and his inner circle, and was carried out by Soviets who confiscated every last bit of food from Ukrainian peasants who were resistant to collective farming – and who represented the backbone of the Ukrainian people.
 
This year, 2008, marks the 75th anniversary of the Holodomor, and the government of Ukraine as well as Ukrainians around the world have been organizing events in an effort to expose and publicize this crime against humanity while there are still survivors young enough to recall its horrors.
 
EXHIBITION FEATURES 54 HOLODOMOR ARTWORKS
In Chicago, the latest event commemorating the Holodomor is an exhibition at the Ukrainian National Museum opening Friday, October 24th. “Our Daily Bread” features 54 artworks that are part of the “Holodomor: Through The Eyes of Ukrainian Artists” collection. 
 
The founder and trustee of the unusual collection, U.S. businessman Morgan Williams, gathered the over 350 original Holodomor artworks in the collection during the last 11 years in Ukraine.  Williams is director, government affairs, Washington, D.C., for the SigmaBleyzer private equity investment group and serves as president of the U.S.-Ukraine Business Council (USUBC).

 
Most of the artworks were created after 1988, when Ukrainians were finally free to evoke the suffering and horrors of the Holodomor in the last days of the USSR, right before Ukraine declared independence in 1991. Before 1988 no one was allowed to talk about this tragedy let alone express themselves through artwork or writings.  Many Ukrainian artists may very well have only learned of the Holodomor at that time, after decades of extreme Soviet suppression of the atrocities.
 
The government of Ukraine has officially declared the Holodomor a genocide against the Ukrainian people and is asking the United Nations to do so as well. Just this past September, the United States House of Representatives passed a Resolution condemning the Holodomor and the former Soviet government’s deliberate confiscation of grain harvests, which resulted in the starvation of millions of Ukrainian men, women, and children.
 
It was a devastating chapter of Stalin’s reign of terror that wiped out one quarter of the peasantry – and later included the intelligentsia and other leaders of Ukrainian society who were shot and exiled by the hundreds of thousands in an attempt to destroy the Ukrainian nation. And it was carried out at a time when Ukraine, then officially the Ukrainian SSR, had one of the richest farmlands in the world – “the breadbasket of Europe.” 
 
The exhibition will also include a room depicting what life was like in Ukraine prior to enforced collectivization—as well as an evocative walk-through installation depicting the horrors of the Holodomor.
 
The “Our Daily Bread” Holodomor exhibition is on view through Sunday, November 30, 2008. The Museum hours are Thursday to Sunday from 11:00 a.m. to 4:00 pm.  The Ukrainian National Museum is located at 2249 West Superior Street in the Ukrainian Village neighborhood. Call 312-421-8020 or visit the Museum’s website, www.ukrainiannationalmuseum.org  for more information.

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26.  UKRAINIANS OF RUSSIA STARTLED WITH RUSSIA’S BAN FOR HOLDING INTERNATIONAL

ACTION EVERBURNING CANDLE IN COMMEMORATION OF HOLODOMOR 1932-1933
 
Ukrinform, Kyiv, Ukraine, Friday, October 17, 2008 
 
KYIV – The Community of Ukrainians in Russia (CUR) and the Federal National-Cultural Autonomy (FNCA) of Ukrainians of Russia express regret and surprise at the actions of Russian authorities that practically made it impossible to hold the international action Everburning Candle by Ukrainian organizations in Russian regions, the statement of CUR and FNCA reads, UKRINFORM own correspondent reports.
The events on commemorating the victims of Holodomor 1932-1933 planned for October had no political ground, Ukrainian organizations in Russia emphasize. However, Russian authorities prohibited holding the mass educational commemorative events within Everburning Candle which arrived in Russia from Kazakhstan on October 8 on various reasons.
 
Only Ukrainian organizations in Moscow and Saint Petersburg managed to hold large-scale events, even the Russian Orthodox Church refused (except Moscow) to hold commemorations and called them “inexpedient”.
As UKRINFORM earlier reported, in 2008, on the initiative of the World Congress of Ukrainians, in view of the 75th anniversary of Holodomor 1932-1933, Ukrainians from all over the world are holding the action Everburning Candle. Its route covers all continents and countries where Ukrainians live.
On October 6, the Russian Foreign Ministry sent a diplomatic note in which the Russian party, referring to Ukraine’s position regarding Holodomor, made a condition either to hold events in line with Russia’s position on this issue or to cancel the action.
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AUR#912 Oct 18 Political & Financial Turmoil; Fitch Downgrades; Holodomor Exhibition in Chicago

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       
                     
ACTION UKRAINE REPORT – AUR – Number 912
Mr. Morgan Williams, Publisher and Editor, SigmaBleyzer
KYIV, UKRAINE, SATURDAY, OCTOBER 18, 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
Andrew E. Kramer, The New York Times, New York, NY, Sat, Oct 17, 2008
 
Agence France Presse (AFP), Kiev, Ukraine, Fri, Oct 17, 2008
Fitch Ratings, London/Moscow, Friday, October 17, 2008
 
By Maryana Drach, Iryna Shtogrin, RFE/RL, Prague, Czech Republic, Ukraine, Thu, Oct 16, 2008
 
By Stefan Wagstyl, Financial Times, London, UK, Thursday, October 16 2008
Analysis & Commentary: By Bohdan Danylyshyn, Minister of Economy of Ukraine
Zerkalo Nedeli, Mirror Weekly, #38 (717), Kyiv, Ukraine, 11 -17 October, 2008
 
Ukraine’s economy is in trouble, there is no doubt about it.
Analysis & Commentary: By Edward Hugh, Macroeconomist, Barcelona, Spain
Global Economy Matters, Sun, Oct 12, 2008 & RGE Monitor, New York, NY, Sun, Oct 12, 2008
 
Editorial: International Herald Tribune, Paris, France, Tuesday, October 14, 2008
 
9SOFTSERVE, INC. JOINS THE U.S.-UKRAINE BUSINESS COUNCIL (USUBC)
Leading multinational software development and consulting company, member 93
U.S.-Ukraine Business Council (USUBC), Washington, D.C., October, 2008
 
Exhibition to feature fifty-four Holodomor artworks by Ukrainian artists
Ukrainian National Museum, Chicago, Illinois, Wednesday, October 15, 2008
 
Raphael Lemkin’s perception of the Ukrainian genocide is a solid recommendation to
the UN Assembly to finally recognize the Ukrainian tragedy for what it was – ‘a case
of genocide, the destruction of a nation. 
By Roman Serbyn, historian, professor, scholar, Montreal, Canada
Action Ukraine Report (AUR) #912, Kyiv, Ukraine, Satruday, October 18, 2008
Ukrainian National Information Service (UNIS), Washington, D.C. Friday, Oct 3, 2008
 
13CAN EUROPE SURVIVE GERMANY?
Analysis & Commentary: By Alexander Motyl
Professor of Political Science at Rutgers University-Newark
The Atlantic Council, New York, NY, Thursday, October 2, 2008  
Window on Eurasia, by Paul Goble, Vienna, Friday, October 3, 2008
 
Activities of the Security Service of Ukraine regarding declassification and publication
about the operations of the Soviet Union Securities Services and the history of the
Ukrainian Liberation Movement

Security Service of Ukraine (SBU), Kyiv, Ukraine, Thursday, October 2, 2008
SBU material translated into English for the Action Ukraine Report (AUR) #912
Morgan Williams, Editor & Publisher, Washington, D.C., Saturday, October 18, 2008
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1
 POLITICAL TURMOIL JEOPARDIZES FINANCIAL RELIEF FOR UKRAINE
 
Andrew E. Kramer, The New York Times, New York, NY, Sat, Oct 17, 2008
 
MOSCOW — Aid for Ukraine’s staggering economy may be endangered by the country’s continuing political instability. Like Iceland and Hungary, Ukraine is seeking aid from the International Monetary Fund to counter the global financial crisis. But Ukraine, its economy reeling from falling steel prices, is also struggling with political problems.
The infighting threatens an emergency loan from the monetary fund. The fund is seeking assurances from the cabinet that next year’s budget will be balanced, but President Viktor A. Yushchenko issued a decree this month dissolving Parliament and, with it, the cabinet.
That decree, which would lead to elections on Dec. 7, is being contested by the president’s opponents in Parliament. So until the decree’s validity is decided in the courts, it is unclear whether the current cabinet holds power. The prime minister, Yulia V. Tymoshenko, says it does, while the president’s office says it does not.
In the interim, a delegation from the monetary fund has been meeting with representatives of the prime minister and the president. The fund is offering a loan of as much as $15 billion to shore up the country’s finances as foreign investors flee.
Ms. Tymoshenko, who met with the delegation on Friday, expressed support for the loan. But if the president’s order to dissolve Parliament is upheld, she said, the cabinet will lack the authority to negotiate with the fund.
In that case, negotiations will be delayed until a new Parliament is formed after the elections. After previous elections, coalition-building in Ukraine has taken months.
“Alarm bells aren’t ringing yet,” Sergei Teriokhin, a former minister of the economy and member of Parliament in Ms. Tymoshenko’s bloc, said in a telephone interview. But if the contested status of the cabinet is not resolved, he said, the monetary fund will not know whom to meet with. “It is necessary that somebody in the country make guarantees on the budget policy of next year.”
Mr. Yushchenko and Ms. Tymoshenko have alternately collaborated and competed since they rallied crowds together on Independence Square in Kiev during the protests known as the Orange Revolution in 2004.
 
Most recently, his Our Ukraine bloc was in a coalition with Ms. Tymoshenko’s, an arrangement that gave her the prime minister’s post. But the two split after the Russian invasion of Georgia in August. Mr. Yushchenko accused Ms. Tymoshenko of muting her criticism of the Russian military action to please the Kremlin.
The political turmoil has coincided with a steep economic decline. On Friday, the international agency Fitch Ratings downgraded Ukraine’s sovereign debt rating and issued a negative outlook for the country.
 
A Ukrainian shipping company, Industrial Carriers, has gone bankrupt. The government has frozen rail tariffs for steel companies, and as foreign investment dries up, speculators are betting on a decline in the national currency.
In response, Ukraine plans to nationalize some commercial banks, which have liquidity problems, a member of Parliament told the monetary fund’s delegation on Friday.
Hungary, which has struggled to cope with the effects of the financial crisis, also received a vote of no confidence on Friday when Fitch cut its rating to negative from stable. Hungary’s large debt, much of it in foreign currencies, has made the country particularly vulnerable to the current external shocks.
The government scaled back its growth estimates for 2009 to just 1.2 percent from 3 percent. Hungary has lined up support from the European Central Bank and the monetary fund in an effort to reassure credit and currency markets. (Nicholas Kulish contributed reporting from Budapest.)
 
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2. CRISIS-HIT UKRAINE SEEKS IMF EMERGENCY LOAN
 
Agence France Presse (AFP), Kiev, Ukraine, Fri, Oct 17, 2008
 
KIEV – Ukraine held crunch talks Friday on an emergency loan from the IMF to prop up its fragile banking system, but moves to address the economic crisis were overshadowed by deepening political strains.
Prime Minister Yulia Tymoshenko, who is locked in a fierce battle with President Viktor Yushchenko over his decision to call fresh polls, said the loan of up to 14 billion dollars was “essential” to bail out the country.
As the talks continued with the International Monetary Fund, global ratings agency Fitch downgraded Ukraine’s credit rating and issued a stark warning about the ex-Soviet republic’s economic outlook.
 
“The downgrade reflects Fitch’s concern that the risk of a financial crisis in Ukraine involving a large depreciation of the currency, further stress in the banking system and significant damage to Ukraine’s real economy is significant and rising,” the agency said in a statement.
Tymoshenko on Thursday linked the outcome of the IMF talks to the cancellation of the December 7 parliamentary elections, which have become the subject of a bitter political tug-of-war. President Viktor Yushchenko on October 9 ordered the snap general elections. Tymoshenko immediately contested the order.
For Ukraine to receive credit, “it is necessary to postpone the elections, something the International Monetary Fund said in its statement,” news agencies quoted Tymoshenko as saying ahead of the loan talks.
The cabinet has blocked funding needed for the elections and a court suspended Yushchenko’s order. On Friday, Yushchenko’s backers said a higher court had overturned the earlier ruling and said the elections could go ahead.
Amid the infighting, the deputy chief of the country’s central election commission, Andriy Magera, indicated the timing of the elections remained in doubt.
“All deadlines for appropriate preparation for voting expired long ago,” Magera told Interfax-Ukraine news agency in an interview.
Earlier, both Yushchenko and Tymoshenko expressed hopes the IMF loan deal would go through. The IMF was “ready to give Ukraine a loan amounting to 14 billion dollars for the stabilisation of our state’s financial sector,” Yushchenko’s office said in an announcement of his meeting with the IMF team. Tymoshenko had earlier met with the head of that team, Ceyla Pazarbasioglu.
“We are very interested in our cooperation resulting in Ukraine receiving essential financial assistance from the IMF,” Tymoshenko said in a statement.
Ukrainian parliament speaker Arseny Yatsenyuk separately met with Pazarbasioglu and told her that Ukrainian authorities were planning to nationalise ailing commercial banks in Ukraine.
Yatsenyuk told the IMF official that “nationalisation of commercial banks was to be performed in order to save the Ukrainian banking system,” the Ukrainian parliament said in a statement published on its website. Local IMF representatives declined Friday to comment on the negotiations.
Ukraine stopped early withdrawals from savings accounts this month in a bid to halt a run on banks. The central bank has bailed out several banks and the Ukrainian stock market has lost more than 70 percent of its value this year.
Such problems have made the country one of Europe’s most vulnerable emerging economies, according to Capital Economics analyst Neil Shearing.
“The turmoil in global markets has raised concerns about a funding crisis in emerging Europe, with some investors fearing that Hungary could be the next Iceland (when) in fact Ukraine appears the more vulnerable to a balance of payments crisis,” Shearing said in a statement.
This was made worse, he said, by the political crisis that led President Yushchenko to call the December 7 general election after the collapse in September of the pro-Western coalition government.
 
“Once political risk is factored in, Ukraine could be most vulnerable to a balance of payments crisis, despite the fact that its overall external deficit is smaller,” Shearing said.
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3.  FITCH RATINGS DOWNGRADES UKRAINE TO ‘B+’

 
Fitch Ratings, London/Moscow, Friday, October 17, 2008
LONDON/MOSCOW – Fitch Ratings has today downgraded Ukraine’s Long-term foreign and local currency Issuer Default Ratings (IDRs) to ‘B+’, from ‘BB-‘ (BB minus). The Outlooks on both IDR remain Negative. The agency has also downgraded the Country Ceiling to ‘B+’ from ‘BB-‘ (BB minus) . The Short-term foreign currency IDR is affirmed at ‘B’.
“The downgrade reflects Fitch’s concern that the risk of a financial crisis in Ukraine involving a large depreciation of the currency, further stress in the banking system and significant damage to Ukraine’s real economy is significant and rising.
 
Such a scenario would damage the sovereign’s balance sheet. Nevertheless, Fitch believes risks to Ukraine’s ability to meet its sovereign obligations remain low in the near term owing to the sovereign’s modest refinancing needs,” said Andrew Colquhoun, Director in Fitch’s Sovereigns Group.
Ukraine has officially requested assistance from the IMF and a Fund team is currently in Kyiv. Fitch would view a sizable and appropriately-designed IMF programme as a positive factor, although the agency awaits precise details before drawing firm conclusions.
 
However, depositor confidence in the banking system may remain shaky and the economy will face a difficult adjustment even if a programme is arranged, extending Ukraine’s exposure to financial instability.
On 13 October, Fitch signalled rising concerns over the health of Ukraine’s banking system amid a sharp tightening in liquidity conditions and some deposit withdrawals from the system following the failure of sixth-largest bank Prominvest.
 
Fitch is unconvinced that the raft of emergency support measures announced by the central bank, including stepped-up liquidity provision and a ban on early redemption of term deposits, will be adequate to shore up depositor confidence and forestall further banking-system stress. New central bank rules restricting loan growth threaten to exacerbate a slowdown in the economy, which could hit banks’ asset quality relatively soon.
A relatively high share of FX-denominated lending (51% at end-August) exposes the financial system to risks from enhanced currency volatility. Ukraine’s currency, the hryvnia (UAH), fell to 5.6 against the USD by 8 October, down 10% on the month, before climbing back to around 5.2-5.3 on intervention by the central bank.
 
The UAH is likely to stay under pressure from a widening current account deficit, which Fitch projects at around 7% of GDP in 2008, versus 4.2% in 2007. Falling steel prices will intensify a terms-of-trade shock originating in a likely strong increase in Ukraine’s gas import price next year. Strong borrowing by the private sector took Ukraine’s gross external debt to USD100bn by end-June 2008, including USD28bn of private-sector short-term debt.
 
Hard numbers on private-sector external debt maturities for 2009 are not available, but Fitch estimates these could be around USD19bn for longer-term borrowing. With many private-sector borrowers likely to find it hard to refinance their maturing external borrowing, the sovereign may be forced to provide resources from official reserves, which are also needed to shore up confidence in the exchange rate.
Fitch continues to draw comfort from Ukraine’s moderate sovereign refinancing needs for 2009 of USD2.5bn, of which USD0.9bn are domestic (mostly in UAH) and USD1.6bn are external (including a USD0.5bn eurobond maturity in May), compared with the latest disclosure for official reserves of USD37.5bn on 9 October.
 
The country’s low general government debt/GDP ratio of 10% for end-2007 is well below the ‘BB’ median of 34% (and the ‘B’ median of 33%). However, worsening economic prospects and requirements for official support to the economy could erode Ukraine’s fiscal strength in the medium term.
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[return to index] [Action Ukraine Report (AUR) Monitoring Service]
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4.  IN UKRAINE, IMPACT OF GLOBAL CRISIS BEGINNING TO STING

By Maryana Drach, Iryna Shtogrin, RFE/RL, Prague, Czech Republic, Ukraine, Thu, Oct 16, 2008
KYIV — Political uncertainty is nothing new for Ukrainians. But financial uncertainty is something different — and deeply unwelcome. As the effects of the global financial crisis take hold around the world, money flows have become a source of extreme anxiety in Ukraine. On the streets of the capital, many residents expressed worry about the fate of their savings.

“I went to Privatbank to withdraw money from my active account, which I’m supposed to be able to use any time,” says one man. “They told me to go away; they didn’t give me anything. I’m still fighting about it. Tomorrow I’m going to go and file a lawsuit.” “I have doubts,” says another. “This is one of those situations where money is controlling people, rather than people controlling their money.”

Others were more sanguine. “I trust the banks. The interest rates haven’t gone down and our bank is working normally,” says one woman, adding, as an afterthought: “When my deposit comes in December, I can take the money out and put it someplace else.”

‘STRICT, BUT CORRECT’
Officials at Ukraine’s central bank are all too aware of the risks of public jitters. Citing a “psychological factor,” the National Bank of Ukraine (NBU) this week decided to impose limits on lending, foreign-currency trade, and early withdrawals of certain deposits.

The decision, taken October 13, came after National Bank depositors — unnerved by mounting inflation and a weakening currency — withdrew more than $1.3 billion from their accounts in just under two weeks. It’s hoped the steps will prevent a full-scale run on the bank by panicking citizens.

The NBU was also forced to provide a $1 billion stabilization loan to the country’s sixth-largest bank, Prominvestbank, which failed after panicked depositors in the eastern region of Donetsk rushed to withdraw their money.

Vyacheslav Yutkin, who serves as chairman of the board of the Ukrainian branch of Russia’s Sberbank, says the NBU’s measures were appropriate but too slow in coming.

“The methods of the Ukrainian National Bank are strict, but correct. It’s an important and necessary preventive measure,” Yutkin says. “If the National Bank had reacted two weeks earlier, banks would have had the chance to hold on to at least $1.5 billion in accounts, and the current liquidity crisis wouldn’t be so bad. But it took a long time for them to make a decision, and that made the crisis even worse.”

PIECES OF THE PUZZLE 
Some officials are still offering an upbeat assessment of the economic climate. Economy Minister Bohdan Danylyshyn on October 15 noted Ukraine’s 2008 GDP growth stayed steady at 7 percent through September, and still remains strong despite “some decline” in certain sectors.

Other authorities have expressed confidence that Ukraine will escape the worst of the damage brought on by the global financial crisis because the country’s still-developing stock exchange is less vulnerable to the vagaries of market fluctuations.

It is difficult to gloss over other indicators, however. Inflation peaked in May at 31 percent — putting Ukraine higher than any other country except Zimbabwe and Venezuela — before dropping to a less alarming 16 percent in September. The value of the local currency, the hryvnya, last week sank by 20 percent, forcing the NBU to intervene and sell dollars at an artificially low rate.

With such figures in mind, many economy-watchers acknowledge Ukraine will not be able to avoid the long-term effects of the crisis.

This will be particularly true if a global economic and construction slowdown shrink the global market for commodities like steel, which is Ukraine’s top export and responsible for 40 percent of its hard-currency earnings. Many steel mills have already slowed or stopped production because of a drop in worldwide demand.

A global recession would also have a dramatic impact on remittances for Ukraine’s large migrant workforce. Ukraine is second only to Russia in remittances in Central and Eastern Europe, sending home nearly $8.5 million a year — an estimated 8 percent of the country’s GDP.

WILD CARD
Then there is the critical factor of the price Ukraine will pay for Russian gas in 2009. Ukraine currently pays just $180 per 1,000 cubic meters. But Russia has repeatedly said it wants former Soviet states to switch to market prices, and has pointedly noted its fees for Western European markets exceeded $500 in October. A sudden hike in Ukraine’s gas prices could have a devastating effect on the country’s financial reserves — although not everyone is worried.

“We shouldn’t forget that Ukraine has almost $40 billion in reserves; that’s more than enough,” says Oleksandr Suhonyako, the head of the Association of Ukrainian Banks, a grouping of the country’s major commercial banks and credit institutions.

 
“But the financial crisis isn’t going to be over soon, and it just keeps growing every day. I think it’s not a matter of a month, but half a year, or even more. In order the meet the problems of the future, we need to start thinking about international loans now.”

Prime Minister Yulia Tymoshenko, speaking at a news conference on October 14, avoided answering a question of whether Ukraine was seeking help from the International Monetary Fund (IMF).

Such a move would be interpreted by many as a sign that Ukraine’s economy was in deep trouble. Instead, Tymoshenko — perhaps looking ahead to a presidential bid in 2010 — stressed that the government was doing “everything possible and impossible” to minimize the impact of the global crisis on Ukraine.

But an NBU official said on October 15 that Ukraine might seek support from an IMF credit program. Hungary, Serbia, and Iceland have already said they will approach the IMF for help gaining access to credit and defending their currencies investors’ risk aversion.

Finance Minister Viktor Pynzenyk has begun meeting with members of an IMF expert mission that arrived on October 15, and the two sides “discussed the situation concerning the world financial crises and the challenges facing Ukraine’s financial system,” Reuters reported.

The statement added that both sides agreed to produce “recommendations for Ukraine vital for the operation of the banking sector and macroeconomic stability for Ukraine, based on the experts’ assessment and taking account of the experience of other European countries.”

Reuters reported that the IMF’s Kyiv office made no comment on the mission, adding that it was expected to remain in Ukraine for at least a week. It cited estimates of the potential IMF largesse to Ukraine at $3 billion-$5 billion.

Speaking to reporters after a cabinet session on October 16, Reuters quoted Tymoshenko as saying that “we have information” that the IMF “is ready to examine special credits from $3 billion-$14 billion to stabilize the financial system,” but that it would be contingent on Ukraine calling off early elections announced last week by President Viktor Yushchenko.

NO RAPID REACTION?
Accordingly, it’s the government’s own internal struggles that may prove one of the greatest liabilities as the country fights against impending economic woes.

Ukraine in December is facing its third set of parliamentary elections in as many years, a result of intractable squabbling between Tymoshenko and Yushchenko. The pair’s Orange Revolution partnership in 2004 quickly devolved into an intense political rivalry that has mired Ukraine in a protracted political standoff and may continue until 2010, when the two are expected to face off for president.

Yutkin says Ukraine has grown accustomed to political uncertainty, and that the ongoing political drama will not have a noticeably adverse affect on economic conditions.

“I think politics are having only minimal influence in this situation,” he says. “The economic system in Ukraine adapted a long time ago to the conditions of political instability and inflation. Higher prices and political upheaval aren’t the main factors causing panic among bank depositors.”

The World Bank, however, warned this week that policymakers in Eastern Europe and Central Asia “need to be prepared to respond quickly to the rapidly changing international financial environment.” Some worry that Ukraine’s constant cycle of elections and political infighting mean little, if any, decision making will be done in the interim.

 
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[return to index] [Action Ukraine Report (AUR) Monitoring Service]
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U.S.-Ukraine Business Council (USUBC): http://www.usubc.org
Promoting U.S.-Ukraine business relations & investment since 1995.
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5.  EASTERN EUROPE IS IN THE RED

By Stefan Wagstyl, Financial Times, London, UK, Thursday, October 16 2008
When Lev Partskhaladze, a Ukrainian property developer, was preparing to float his company on the London stock market three years ago, he saw no end to his country’s home and office construction boom. Today, with cranes standing idle over Kiev building sites and property sales evaporating, he admits the global credit crunch is bringing the boom to a halt.
“We are seeing a financial crisis transforming into an economic crisis in the world. It has not fully hit Ukraine yet but it’s close,” says the chairman of XXI Century Investments. With its shares down 97 per cent from their peak, the company is trying to raise cash by offloading projects to other developers.
Mr Partskhaladze is not alone in having to confront the region’s changed realities.
 
Across central and eastern Europe, the global crisis is biting hard, albeit very unevenly. In Russia, the authorities have set aside nearly $200bn (pounds116bn, euro149bn) for a financial market rescue, Ukraine is in talks with the International Monetary Fund over emergency loans of up to $14bn, Hungary was on Thursday bailed out with a euro5bn ($6.7bn, pounds3.9bn) loan facility from the European Central Bank.
Latvia and Estonia are suffering the region’s first recessions in a decade, while growth in oil-rich Kazakhstan has slowed to a crawl. Even in Poland, where Donald Tusk, the prime minister, insists his country is “an island of stability”, the crisis has raised doubts about Warsaw’s euro entry plans.
Stock markets have plunged accordingly, with Polish shares trading at less than half their peak levels and Ukraine’s down by three-quarters.
 
Property markets have slowed, even if developers are still trying to hold up prices. After riding high earlier in 2008, some currencies have come under pressure, notably the Hungarian forint. In Ukraine, where the central bank has intervened to support the hryvnia, the credit default swap rate, a risk measure, has soared 1,400 points to 1,900, among the world’s worst.
The financial whipsaw has cut billionaires down to size, not least Oleg Deripaska, the Russian metals oligarch, who has sold valuable stakes to raise cash. Others are grabbing opportunities to buy cheaply: Mikhail Prokhorov, the Russian nickel investor, acquired 50 per cent of Renaissance Capital, a Moscow bank, for $500m – about one-quarter of its value of a year ago.
With the global crisis still raging, despite the calming effects of this week’s support moves in the US and the European Union, it is impossible to predict how events will play themselves out in a region increasingly important to the west as an export market and low-cost production base. But hopes it might escape unscathed have evaporated. Apart from corporate casualties, some countries could run into difficulties funding current account deficits.
 
Erik Berglof, chief economist of the European Bank for Reconstruction and Development, says: “There is enormous uncertainty right now … These countries could deal with rising borrowing costs and an economic slowdown coming from the US and western Europe, but a complete shutdown of international borrowing – nobody can withstand that.”
The result of this shock will, as in the west, increase the state’s role in the economy once more – and possibly provoke political conflicts over the share-out of scarce financial resources. As in the west, there could be public anger against those who profited from the boom years, often spectacularly so. Hungary, which first ran into economic trouble two years ago, has already experienced social tensions.
Economic growth is slowing sharply, with the IMF forecasting a decline in real gross domestic product growth for central and south-east Europe from 5 per cent this year to just 3.5 per cent in 2009. For Russia and the former Soviet Union, it predicts around 7 per cent for this year and 5.5 per cent for 2009.
 
By global standards, with the US and western Europe facing recession, these are respectable numbers. In non-crisis circumstances, a moderate slowdown would even have been welcome in some countries. Until the summer their main danger was overheating, with inflation running as high as 31 per cent in Ukraine. Thanks to bumper harvests, tumbling food costs are helping to curb consumer price rises but inflation is still high in some countries, notably Russia, with 15 per cent.
Also, the region as a whole is less exposed to financial turmoil because companies and households have mostly taken less credit than in the west. Raiffeisen International, the Austrian bank, says bank assets were just 90 per cent of GDP in 2007 in central Europe and 65 per cent in Russia, compared with 250 per cent in the eurozone.
But these generalisations conceal many country risks. As Jan Krzysztof Bielecki, chief executive of Poland’s Bank Pekao, says: “The development of the situation over the last few weeks has shown that there is nothing more mistaken than calling this a single region. The differences between Poland and Kazakhstan are like the difference between heaven and hell.”
A key danger is the region’s dependence on external finance, especially bank credit. According to the Institute of International Finance, total private capital and credit flows into “emerging Europe” (including Turkey) are likely to fall from a record $394bn last year to $322bn in 2008 and $262bn in 2009.
 
Given that $262bn is still a high figure by historical standards, there is great scope for a much bigger drop. Within this total, bank credit is set to fall particularly fast, from $219bn in 2007 to $155bn in 2008 and just $74bn next year.
While foreign direct investment is forecast to increase modestly to nearly $90bn next year, it cannot compensate for the dramatic decline in bank lending. Nor will portfolio investment save the day: the flows are far too small, peaking last year at just $8.5bn.
The biggest financing needs are in Russia, where the central bank estimates $39bn in debt falls due this year and $116bn in 2009. Little wonder that bankers and oligarchs are queuing for credits the authorities are distributing from their $560bn in foreign exchange reserves. Russia is in no danger of default but banks are under pressure – with fears of a panic increasing this week after Globex, a midsized lender, banned depositors’ withdrawals.
If the crisis persists, even the wealthy Russian state will have to count its roubles. Relative to the size of the national economy, Moscow’s financial rescue package is bigger than the $700bn programme launched by the US. Russia’s budget spending is more than doubling to $586bn in 2010, just as the oil price has roughly halved from its peak. Further declines will put spending under pressure.
 
But with inflation high, driving up pay and pensions, there is little scope for painless cuts, especially as Russia is committed to huge infrastructure projects, including the Sochi 2014 winter Olympics.
IN UKRAINE ————
In Ukraine, banks have also borrowed heavily overseas to finance credit growth and are struggling to refinance themselves. At the same time, the current account deficit is widening as prices for steel, Ukraine’s main export, plummet. So Kiev’s external financing needs are growing just as credit is short and foreign direct investment, a big source of finance in recent years, is slowing.
Ukraine’s authorities insist the economy is in good shape. The central bank has maintained order by taking control of one bank and supporting 20 other lenders. But efforts to ease the crisis are hampered by political turmoil, with president Viktor Yushchenko calling early parliamentary elections for December. Yulia Tymoshenko, prime minister, on Thursday confirmed Kiev was turning to the IMF, which she said was considering lending “$3bn-$14bn”.
In central and south-east Europe and the Baltic states, many economists assumed countries would be protected from the global storm because their banks’ finance came not from markets but from the multinational banks that have bought most local lenders. But as Mr Berglof of the EBRD says, with parent banks now under pressure, this assumption may no longer apply. “This strength is turning into a vulnerability,” he warns.
Individual banks deny they have plans to pull out. But they have been raising the costs of foreign exchange denominated loans, which account for around half of corporate and household lending in central Europe. This week, leading Hungarian banks cut such foreign exchange lending, in moves which on Wednesday precipitated the biggest daily drop in the forint in five years.
 
On Thursday the currency rallied sharply after the authorities announced public support from the ECB – unprecedented for a country outside the eurozone – and liquidity boosting measures. Janos Veres, finance minister, says the IMF stands by to support Hungary but will intervene only in extremis.
Poland, the Czech Republic and Slovakia are in better economic condition than Hungary, having avoided the profligate public spending in which Budapest indulged until running into financial difficulties in 2006. The Czechs, with low local interest rates, are free of foreign exchange loans. But like Hungary, these countries are exposed to another painful shift – an expected steep decline in demand from western Europe. Slovakia, with its heavy dependence on a single industry – cars – is particularly vulnerable.
Except for Hungary, however, bankers are less concerned about central Europe than the Baltic states and south-east Europe, where current account deficits are high. All have relied heavily on a mix of foreign direct investment and credit for financing recent rapid growth. But with economies slowing, bankers wonder which countries can avoid a hard landing – or worse.
 
Estonia and Latvia, which ran into financial difficulties even before the global crisis, are already in recession. Lithuania is not far behind. But at least Baltic current account deficits are falling, from 18 per cent of GDP on average last year to 8.6 per cent in 2009, according to the IMF.
In south-east Europe, the Fund predicts deficits to stay at 14 per cent next year, including 21.5 per cent for Bulgaria. “Action is needed to rein in rising external and internal imbalances, mindful of more volatile external financing conditions,” the IMF says But whether that action will come in time is a moot point. Analysts at Citigroup rank Romania and Bulgaria alongside the Baltic states, Hungary and Ukraine as countries vulnerable to “a risk to financial stability”.
As credit growth decelerates across the region, putting a brake on economies, current account deficits should decline as credit-financed imports fall. So soft landings are certainly well within reach. The difficulty comes in bridging the financing gaps that are bound to emerge in the most hostile financial conditions in 60 years. If there is a crumb of comfort, it is that these ex-communist states have more experience than most of implementing tough economic policies under pressure. [Additional reporting by Jan Cienski in Warsaw, Roman Olearchyk in Kiev and Thomas Escritt in Budapest]
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[return to index] [Action Ukraine Report (AUR) Monitoring Service]
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6.  GLOBAL FINANCIAL CRISIS – A TEST FOR UKRAINE

 
ANALYSIS & COMMENTARY: By Bohdan Danylyshyn, Minister of Economy of Ukraine
Zerkalo Nedeli, Mirror Weekly, #38 (717), Kyiv, Ukraine, 11 -17 October, 2008
 
Before discussing future implications of the global financial crisis for Ukraine’s economy, let us consider if it has already affected us. The national economic system is integrated into the world economy closely enough to be involved in the global processes.
 
The eroded macro-stability of international markets could not but impact internal developments in Ukraine. The global financial crisis of 2007-2008, as any other, has been unfolding in several waves. We have survived the first two without big losses, although not without mistakes.
[1] The first wave rose in 2007, when stock indices of the world’s leading banks and financial institutions went down. Under the circumstances, risk capital looking for stable yet high-profitability markets moved from developed to emerging markets, which continued to show high growth rates and profitability.
 
According to financial experts, the risk to profitability ratio in those emerging markets was fairly attractive. As a result, stock markets in respective countries grew in 2007, China and Ukraine being leaders of such growth.
The inflow of credits was also substantial: in 2007, Ukrainian economy borrowed USD 24.3 billion in middle- and long-term credits.
[2] The second wave started in early 2008, when the ongoing fall in the world stock markets re-directed cash flows from one class of assets to another, in particular to commodities and energy resources. These assets became more marketable, and commodity prices soared up. In January-July, average metal prices in eight regions of the world rose by 81%; “Brent” oil price rose by 32%.
 
By the time first favourable forecasts appeared as to the global gross grain harvest in 2008/2009 marketing year, wheat prices (USA, FOB) for 2007/2008 marketing year had grown by 79%, on average.
Ukraine’s economy responded to the above challenges in the following way.
The overall inflationary background intensified. Inflationary spiral, set spinning in 2007, has been in motion in 2008. Political instability affected economy.
 
Over the first eight months of 2008, industrial manufacturers’ prices grew by 36.5%, especially in such sectors as mining of mineral resources (except for fuel-and-energy ones) by 70.4%; metallurgy and metal works by 68.1%, coke production by 64.3%; and the chemical industry by 55.9%. All of these sectors are oriented towards foreign markets or towards servicing export-oriented production.
The convergence factor (resulting from openness of the Ukrainian economy to global trends, e.g. to the 2008 consumer price rise in most countries of the world) also accelerated inflation processes in the domestic consumer markets.
 
In September CPI amounted to 101.1% (in January-September it amounted to 116.1%), but it was much less than in 2006 and 2007, when it grew by 2.0% and 2.2%, respectively. So in general, in Q3 Ukraine had the lowest rate of price rise in the last four years – as low as 0.5%. The overall inflation was driven, first and foremost, by rising prices (tariffs) for services.
The role of export-oriented production in the country’s economic growth increased. In early 2008, production growth in export-oriented sectors accelerated, and the financial resources of the national economy were re-distributed, in particular through the banking system, from other sectors into commodities and export-oriented ones.
 
Thus, in the first seven months of 2008, production growth in metallurgy was 3.5%; in the chemical industry it was 5.2%. It accounted for relatively high growth rates in industry at large –7.3%.
Over the same period, the share of profitable companies in the total number of enterprises increased from 65.1% in January-July 2007 to 66.9% in January-July 2008, and their profits boosted by 71.7% as compared to the corresponding period of 2007. Leaders of profitability growth were coke production and oil refinement (by 5.7 times), the mining industry (by 2.2 times), and chemical and petrochemical industries (by 2.5 times).
Lending also increased, especially in such sectors as agriculture (135.1%), coke production and oil refining (132.5%), machine building (132.1%), chemical and petrochemical industries (130,6%).
In early 2008, the Ukrainian economy remained attractive for foreign investors. The growth of total foreign capital investments in the national economy was 2.7 times as rapid as in the corresponding period of 2007. And again, most essential capital investments went to well-performing sectors: agriculture (149.7%), banking and financial activity (142.1%), coke production and oil refining (123%).
Against a backdrop of positive balance of payments and excessive supply of hard currency, the official exchange rate of hryvnia to the US dollar decreased by 3.96% to reach 4.85 UAH/USD in late August. In January-August, foreign currency reserves augmented by USD 56 billion – to USD 38.1billion.
The second wave of the global financial crises set off ripples in the Ukrainian stock market. The PFTS index lost 43.5% in the first seven months of 2008, primarily due to the withdrawal of some foreign investors (the so-called ‘jobbers”) from Ukrainian, as well as from the global, markets and to political instability in Ukraine.
 
Almost all companies listed on PFTS suffered a decline in share and securities prices. Under the conditions of free capital flows, the Ukrainian economy demonstrated market-driven tendencies to seeking super-profits, which enhanced its export-oriented and commodity components, especially given intensified commodity drivers in the global markets.
[3] The third wave of the global financial crisis is unfolding before our eyes.  It has already caused a series of bankruptcies of the world’s leading financial companies and financial crisis rollover to the real economy sector, drop in demand on global markets and, as a result, plummeting commodity prices and stagnation of leading economies. In August-September, average metal prices in eight regions of the world fell by 18.3%, and oil prices fell by 26.5%.
The Ukrainian economy has not yet felt the consequences of the third wave in full. At this juncture, it is hard to estimate their severity and duration, but some impact has been obvious.
Thus, in August, for the first time since October 2002, industrial production decreased by 0.5% (y-o-y), in particular in metallurgy – by 8.6%, the chemical industry – by 9.1%, and coke production and oil refining – by 4.9%.
In other words, a set of external shocks, coupled with the export-oriented companies’ strategy geared towards searching out niches in foreign markets while underestimating domestic ones, slowed growth, which, in the first eight months of 2008, was as low as 2% in metallurgy and 3.5% in the chemical industry. In general, rates of industrial production growth fell to 6.3% in the first eight months of 2008.
The PFTS index continued to go down, losing another 43% in the last two months. Bad news from mining industries and metallurgy had an adverse impact on the PFTS index, too.
In view of the above, the GPD growth of 7.1% was achieved at the expense of other sectors, chiefly, agriculture, where the harvest was unusually rich.
Devaluation processes became manifest in the currency market, and in September foreign currency reserves reduced by USD 0.6 billion. Negative inflation expectations contributed to the overall turmoil. A negative balance of sale/purchase of cash foreign currency by the population amounted to USD 1,321 million.
The third wave of global financial crisis forced governments in the world’s largest economies to revise their policy vis-à-vis financial markets. In particular, the governments of the USA, the UK, Germany, Russia, the Benelux States and other countries decided to support some of the troubled financial institutions.
Investors expect the government of Ukraine to take similar measures. However, the drivers of mortgage and financial crises in the USA and other developed economies and those forming potential negative tendencies in Ukraine’s economy are different.
In order to find solutions allowing for mitigation of the influence of the global crisis on the Ukrainian economy, we should analyze the most likely channels of this influence.
As matters stand, the channel relating to global stock markets is not the most powerful and painful for Ukraine’s economy. Of course, it puts certain pressure on the currency market as the risk (speculative) capital flows out, but it will hardly affect the development of the real economy sector in Ukraine.
 
For one thing, the organized stock market is underdeveloped – only 4.66% of all transactions take place on it. For another thing, foreign investors and other sources of funding, including stock market funds, account for as little as 5%-7% of all investments.
There are other channels of influence, more deeply-felt by the Ukrainian economy.
[1] The first channel is foreign trade. Widespread financial problems have already undermined demand in the international markets. Recession in the world’s leading economies will be accompanied by the decreasing investment demand and poorer dynamics of construction. This, in turn, will continue to drive down prices for metallurgy and machine building products.
Since the Ukrainian economy is highly dependent on exports making up more than 47% of the country’s GDP, the above trends in the global markets will be harmful for the development of export-oriented sectors, with subsequent repercussions on industries relying on exports directly and indirectly.
[2] The second channel is the banking system. The penetration of foreign capital into Ukraine’s financial institutions is considerable. The financial sector is one of the national leaders in attracting foreign direct investments (19% of total accumulated foreign capital).
 
The share of foreign capital in the banking sector amounts to 37.2% of total capital, which exceeds the threshold of economic security established at 30%; in the insurance sector it approaches the threshold value, currently constituting 28.1%.
Given the large share of transnational financial corporations on the Ukrainian banking sector, the global financial crisis could have an indirect adverse impact if mother companies suffer great losses or have liquidity problems.
In this context, it is noteworthy that investments and development of Ukrainian manufacturing companies hinge more on lending than on the stock market: 16% of investments in fixed assets are funded from loans. The most credit-dependent sectors are agriculture, construction, processing industries, including the chemical and petrochemical industry, the food industry, coke production and oil refining.
[3] The third channel of influence is debt. In June 2008, gross foreign debt made up 59.9% of GDP at USD 100.06 billion. Almost 85% of this debt was that of the private sector. According to IMF data, the maximum limit of foreign debt for low and middle income countries is set at 49.7% of GDP; once this limit is exceeded, the probability of financial crisis increases to 70%.
Deteriorating liquidity in global financial markets could slow up lending to the Ukrainian economy. As a result, Ukrainian borrowers will have difficulty refinancing their credit liabilities in external markets.
Furthermore, the share of short-term capital in foreign debt is large (28.2% as of late June 2008). Over the first six months of 2008, the ratio of short-term foreign debt coverage with reserves fell by 15% to 1.258. This capital, in the event of its sudden outflow could contribute to destabilization of the national currency exchange rate.
The current conditions of the national economy development differ a great deal from those of 1998 when Ukraine was also hit by a profound global financial crisis. Now the national economic system is less resistant to financial shocks. Whereas in 1997-1998 corporate debt was small and the corporate sector did not rely so heavily on foreign funding, today the national financial system is more dependent on external cash flows.
If worst comes to worst, and all of the above channels start working at once and in their full capacity, the global financial crisis will have grave consequences for Ukraine:
[1]  the deficit of foreign trade balance will increase sharply to go beyond 10% of GDP, which is critical for emerging economies;
[2]  the positive balance of account of capital transactions and financial transactions will dwindle;
[3]  the positive balance of payments, maintained over the last few years, will turn into a negative one.
In order to prevent dramatic devaluation, the National Bank of Ukraine will have to sell hard currency from its reserves. And yet, it will be a difficult task to achieve. Under the circumstances, GDP growth could slow down to 2.5%- 3%, CPI will go beyond 20%.
It is not about mere situation modeling, other things being equal. Nor is it about analyzing scenarios based on the “what if” principle. Since the 1998 crisis, the national economy has become much more integrated into international financial markets; its structure and development characteristics have changed significantly.
 
Today economic growth is determined by domestic potential, rather than external factors. Households’ consumer demand is growing rapidly, together with investments in renovation of fixed assets and introduction of modern technologies. Ukraine has become an international market player.
In light of the escalating global financial crisis, the government and National Bank have taken a number of measures allowing for the reduction of the risk of its profound destructive influence. They include a package of anti-inflation initiatives, steps to enhance banking sector stability and to minimize the impact of the global financial crisis on Ukraine’s economy.
 
In early 2008, the National Bank passed a resolution toughening requirements to calculating the banks’ regulatory capital adequacy (long-term asset transactions with time of floatation exceeding the time of funding should be additionally risk adjusted at 50% rate and so on), which enabled banks to adjust and improve their position.
In addition, Ukraine has an “insurance police” of sorts in the form of Euro- 2012. If the planned scope of work is fulfilled, the country will get a guaranteed inflow of foreign direct investments, mid-term and long-term loans, because investors worldwide view such events as image-building, promotional projects with low financial risks.
As a popular saying goes, hope for the best and prepare for the worst. The current challenges and threats require that public authorities and the private sector address them effectively and take additional preventive measures.
What can the government do?
Given the risks of reduction in export-oriented production due to weakening global demand and problems with payments under export transactions, the government should work to stimulate domestic demand for the group of export goods and, thus, enhance the role of domestic production. It can start with launching new infrastructure and residential construction projects funded from the state budget.
 
The government should prevent a sharp decline in grain prices by urging the Agrarian Fund to purchase grain of this year’s harvest. It will provide agricultural producers with sufficient resources to prepare and carry out the sowing campaign. It will also support, directly and indirectly, the development of metallurgy, coke production, the mining industry, oil refining, the chemical industry, the food processing industry, trade and transport.
In order to manage the financial instability risk, it is strongly advisable to revise the draft 2009 budget so as to increase capital expenditures, including in construction, without increasing the budget deficit. It is also important to set up a Stabilization Fund that will cover all governmental guarantees, which will gain more confidence in the governmental commitment to pursue a well-balanced and sound budget policy.
In times of financial crisis, the government’s strategy is to encourage investments into the real sector of the economy. To this end, alongside accelerating the implementation of projects related to Euro-2012, we should unblock privatization processes.
 
The government cannot do that alone, we need support from the Verkhovna Rada to get the State Privatization Programme adopted. Parliament should also pass a package of laws drafted by the government and geared towards boosting Ukraine’s investment attractiveness.
What can NBU do?
In order to prevent a banking crisis, NBU should establish principles of refinancing commercial banks that have short-term liquidity problems for the period of financial crisis. A currency crisis can be averted with a series of measures precluding the exchange rate destabilization by speculators. NBU should continue to pursue the policy of increasing the rate volatility in order to reduce risks to the balance of payments.
What can businesses and investors do?
Given the limited financial resources inside the country and shrinking access to foreign loans, businesses face a difficult choice: either to suspend production and lose markets, maintaining high prices in expectation of better times, or to reduce prices trying to restore demand and keep consumers.
 
The latter option is for those manufacturers who care about their future, expansion and economy of scale; the former is for profiteers who make large money quickly and drop the production.
The government can undertake to hold consultations aiming to sign memoranda with investors and large businesses on reducing prices for goods and services.
Only the concerted efforts of the government and National Bank, supported by Parliament and the business community will enable the Ukrainian economy to pass the maturity test in times of global financial crisis.
 
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[return to index] [Action Ukraine Report (AUR) Monitoring Service]
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7.  UKRAINE WOBBLES AS THE FINANCIAL GROUND BENEATH IT TREMBLES

Ukraine’s economy is in trouble, there is no doubt about it.
 
ANALYSIS & COMMENTARY: by Edward Hugh, Macroeconomist, Barcelona, Spain
Global Economy Matters, Sun, Oct 12, 2008 & RGE Monitor, New York, NY, Sun, Oct 12, 2008
 
       “The medium-term outlook is sensitive to external developments and policy responses. A benign external environment, featuring even
       higher steel prices and FDI, could produce growth in excess of 7 percent, but inflation could prove hard to control under a peg. Under
       an adverse external outlook, by contrast, the peg could lead to external sustainability problems.”  IMF 2006 Article IV Consultation
       Staff Report (February 2007) (http://www.imf.org/external/pubs/cat/longres.cfm?sk=20411.0)
UKRAINE’S ECONOMY IS IN TROUBLE, THERE IS NO DOUBT ABOUT IT. The cost of protecting debt against a sovereign default by Ukraine’s government soared to a record on Friday, following the arrival of a twin storm of both political and financial uncertainly.
 
The Ukraine president Viktor Yushchenko announced earlier in the week (only to be challenged on Saturday by his perpetual rival Julia Tymoshenko) that he was going to call what would be the country’s third parliamentary elections in as many years just as the central bank found itself forced to step in and take control of the country’s sixth-largest bank while the country’s currency – the hyrvnia – went for a nose-dive.
 
With the benefit of hindsight the IMF forecast cited in the paragraph above has been extremely prescient. During the “benign external environment stage” Ukraine’s economic growth has been substantial, steel prices have been high, and FDI flows (especially into the banking sector) strong.
 
As a result inflation went through the roof. Now we have entered the “adverse external environment” stage, and steel prices are falling while bank and other external finance flows reverse direction. The sustainability issues are evident, and the coming days are going to be critical.
Ukraine is not alone in having problems at this point (but here there is no strength or consolation to be found in company), and stock markets around the globe fell dramatically last week. Ukraine’s PFTS bourse was, thus, only one among several that found themselves compelled to suspend trading.
 
Ukraine’s stockmarket was closed for the second time in the week on Wednesday (trading had previously been suspended on Monday) following an 11 per cent drop in shares on Tuesday (with banks plummeting between 22 and 26 per cent, and metal producers slumping from 13 to 16 per cent).
 
Trading did recommence again on Thursday, only to see an additional 14 percent in value wiped out, and the doors firmly barred again on Friday. Markets will now remain closed until Monday, when, at the time of writing, they are scheduled to open once more.
 
The PFTS index has now lost 41 percent since the start of September, when the large scale investor pull-out from Russia really got underway, and is down 73 percent since the start of the year, a rollercoaster performance following the 130 percent rise last year. [To see the chart and a series of charts go to http://globaleconomydoesmatter.blogspot.com/index.html]
 
CREDIT DEFAULT SWAPS SOAR 
Credit-default swaps on Ukraine’s $14.9 billion state debt jumped by 473 basis points to 1,700, the biggest one-day advance, according to CMA Datavision prices in London. Ukraine now is priced as having the highest risk of default among Europe’s emerging markets.
Ukraine is highly dependent on foreign investment at a time when credit markets around the world are frozen. Ukraine’s current account deficit has surged strongly this year to a projected $7.7 billion (up from about $2 billion). At the same time annual inflation soared to a record 31 percent in May and was still stuck at 25 percent in September.
The central bank has already spent an estimated $1 billion supporting the hyrvnia after it fell as much as 12 percent against the dollar during September and early October. The intervention reduced foreign reserves to $36.5 billion yesterday and pared the decline in the hryvnia, which strengthened by 6.6 percent on Friday to reach 4.9987 per dollar. This followed a drop to 5.9 to the dollar on Wednesday (or a cumulative 20% devaluation since early the start of September).
 
All these numbers are large, whichever way you look at them. And this kind of intervention is expensive, and while Ukraine is not on the brink of bankruptcy (yet) it cannot continue for that long. Reserves already fell in terms of months of next period imports from 4 months to 3.7 between Q1 and Q2 2008 according to central bank data. At the same time Ukraine’s external financing requirements have risen sharply in recent years (see chart below). [To see the chart and a series of charts go to http://globaleconomydoesmatter.blogspot.com/index.html]

BANKS TAKE A BEATING 
The National Bank of Ukraine also took over the management of Prominvestbank during the week, and imposed a moratorium on payments to creditors for six months, triggering generalised credit rating downgrades.

The move came after nearly a week of local media reports, which were followed by queues outside banks and in front of ATMs, that Prominvestbank was in difficulties due to heavy involvement in Ukraine metal and real estate industries – both good earners until as late as last month, but now sectors which face massive losses due to falling international commodity prices and more costly credit.
Moody’s investor services expressed concern about the ability of Kiev-based Prominvestbank – which had a reported 27.6 billion hryvnia ($5.1 billion) of assets as of Sept. 30 ” to continue its operations as a viable stand-alone entity”.
 
In a report written by analyst Yaroslav Sovgyra, and was published Thursday, the ratings agency said “Prominvestbank’s franchise and the overall credit profile have been significantly impaired in light of the recently experienced run on deposits by the bank.” Moody’s cut its foreign-currency deposit grade for Prominvestbank to Caa2, the fourth-lowest ranking, and down from B2. Fitch Ratings cut Ukraine’s credit outlook to “negative” from “stable” on Sept. 25.
Ukraine’s banks owed a total of $38.4 billion as of July 2008, according to central bank data. To put things in perspective, this could be compared with the estimated $61 billion owed by Iceland’s three collapsed banks. But the foreign indebtedness of Ukrainian banks has grown rapidly in recent years, doubling in 2006 to $13.87 billion, from $6.75 million in 2005.
 
Much of the lending (around 50%) is forex denominated, and although the total private debt to GDP ratio (65%) is comparatively low, lending has been rising at a very fast rate (75% per annum).
Around 30% of Ukraine’s total foreign debt ($128 billion or around 65 percent of GDP in 2008 according to IMF estimates) is owed by commercial banks.
In an attempt to address the crisis, the Ukraine central bank has injected 7.795 billion hryvnia into the banking system since the beginning of October, following 5.96 billion lent to banks during September.
 
The problem is much more extensive than Prominvestbank itself, with shares in Raiffeisen Bank Aval, Ukraine’s second-biggest bank by assets, also down 74 percent this year. Shares in AKB Ukrsotsbank, the country’s fourth-biggest bank, have slumped 79 percent.
Ukraine’s banking sector appeared even more shaky following the Prominvest decision than it did before it, with numerous banks formally applying for government assistance. According to intefax a total of 25 loan institutions have filed requests for low- interest credits or other state financing.
Local newspaper Kommersant-Ukraina named Narda bank (another in the top ten) as one of the banks seeking government financing. Narda are set to receive a 290 million dollar bail-out package to cover approximately 230 million dollars of external debt, according to the report.
Other Ukrainian banks reported to be asking for help on Thursday were Rodovidbank, Alfa-Bank, Kreditprombank, and Finansi i Kredit bank, according to an article in Economicheskie Izvestia. The article said that the central bank had already approved 23 of 25 assistance package requests – and that they were worth in total around 620 million dollars,. Banks applying for cash injections account for something like 25 per cent Ukraine’s banking sector.
Apart from Kazakhstan, Ukraine is currently the only government among Europe’s emerging markets with credit-default swaps currently trading above the 1,000 basis points level. But even Kazakhstan debt is way below the Ukraine equivalent, with contracts on Kazakhstan jumping to 1,050 basis points from 759 basis points on Friday as the government increased sevenfold the limit on retail bank deposits guaranteed.
The problem is most certainly becoming a regional one, and extending across Eastern Europe, with contracts on Russian government debt up 179 basis points (to 559), their highest level since at least 2004. Credit-default swaps on Turkey rose 138 points to 552 points, while those on Hungary increased 116 points to 458.
As I have argued in a number of previous posts Ukraine is evidently suffering from a wide variety of problems, including institutional chaos and ongoing population decline, and it is not really surprising that it should be singled out as the country destined to lie at the heart of the forthcoming CEE “correction”.
STRONG GDP GROWTH 
        “The growth forecast for 2008 reflects strong performance during the first half of the year, terms-of-trade gains, and indications of a
        bumper harvest,” the October 2008 IMF World Economic Outlook report stated. “Going forward, growth is projected to decelerate
        markedly, reflecting weaker export market growth, slowing real wage increases, moderating terms-of-trade gains, and higher financing
The current events in Ukraine may well take some observers by surprise, since the general impression has been that the economic performance has been solid and GDP growth has been strong in recent years, and this has given the impression that the underlying reality was sound, which it basically hasn’t been.
 
The country has been bedevilled by constant infighting, while at the same time a combination of strong migration of Ukraine workers to external destinations and very long term low fertility has meant that the country endemically suffers from acute labour shortages as the population both ages and declines comparatively rapidly. Hence, in my view, the absurdly high levels of inflation we have been seeing.
Nevertheless, real GDP has grown by 7.5 percent a year on average since 2000, in line with other CIS countries, and indeed that rate has been higher than in most other transition economies: whether or not this growth was built on sand is what we are now all about to find out. [To see the chart go to http://globaleconomydoesmatter.blogspot.com/index.html]

GDP was up at a 7.1% y-o-y rate in the January to August period, and in fact the expansion has even been accelerating in recent months largely, due to the good harvest and the increase in agricultural output – up 24.4% January to August. Manufacturing output has also been doing well, driven by a seemingly unquenchable thirst for steel in Russia, and was up 7.3% y-o-y in the January-August period.

 
Construction, on the other hand, has now been in recession for some time, with output down 5.3% y-o-y in the first eight months of the year. The decline in construction is a reflection of the growing credit difficulties the economy has been having, and the slowdown has been making its presence felt in domestic consumption generally, with the rate of retail sales increase (while remaining strong) starting to taper off, falling from 10.4% y-o-y in Q1 to 8.2% in Q2.
 
And as we know, the recent Russian tank excursion through the Roki tunnel has meant that Russia is now nothing like so thirsty for steel (see below), and as a result, we should expect to see headline Ukraine GDP growth dropping fairly rapidly (we could be down to a 3 or 3.5% annual rate by the end of Q4, with more downward movement to follow as we move into 2009), as the country gets caught in the twin pincer of an internal credit crunch (sudden stop) and a sharp drop in external demand for its key product.
OVERHEATING AND THE INFLATION PROBLEM 
Evidently the Ukraine economy was pushed well beyond its short term capacity limits by a combination of expansionary fiscal and incomes policies (real, inflation adjusted, income was up 13.4% y-o-y in January-August) and high steel prices (both of which fuelled very strong domestic demand growth), and these were simply reinforced by very rapid money and credit growth.
 
These factors, together with rising food and energy prices, lifted CPI inflation to a peak of 31% percent in May (see chart below), since which time the rate has fallen back, but only as far as the 24.6% rate registered in September. [To see the chart go to http://globaleconomydoesmatter.blogspot.com/index.html]

Core inflation has also risen – with producer prices still rising at an annual rate of 42.7% in September (having peaked at 46.3% in July, see chart below), while real wage growth continues to be substantial, and inflation expectations remain at a very high level. [To see the chart go to http://globaleconomydoesmatter.blogspot.com/index.html]

CURRENT ACCOUNT DETERIORATION 

The Ukraine current account deficit has deteriorated sharply because of the very strong domestic demand growth and, more recently, the eroding competitiveness of Ukraine manufacturing industry. This has loss of competitiveness has occurred despite significant improvements in the terms of trade. This favourable situation is now coming to an end and in all probability even reversing as steel prices drop substantially.
 
Capital inflows, and especially FDI, which have been strong, may now well reverse. Private external debt and debt rollover have risen sharply, leaving the economy more sensitive to balance-sheet risks and deteriorating global liquidity conditions, according to the most recent staff report by IMF economists.
 
The IMF estimate (October 2008, WEO) that this years current account deficit will rise from 3.7% of GDP in 2007 to 7.2%. [To see the chart go to http://globaleconomydoesmatter.blogspot.com/index.html]

Fiscal policy has been dangerously expansionary in the face of the rising inflationary pressures and the deteriorating current account position. Nominal spending has risen by an average over 30 percent a year since 2003, stimulating domestic demand and increasing the size of the government sector. This growth reflected rapidly rising public-sector wages and social transfers and, in 2008, partial restitution of Soviet-era bank deposits that had been wiped out by hyperinflation.

Deficits have been moderate, as spending growth has been paid for by inflationary revenue windfalls that fiscal policy itself has helped bring about. Nevertheless, the fiscal stance has been procyclical and Ukraine is one of the few countries in Eastern Europe to have increased its fiscal deficit as capital inflows have surged.
STEEL DEPENDENT ECONOMY 
In what is now a sign of the times Ukraine’s biggest steel mill, owned by the ArcelorMittal group, reduced steel output by 10.5 percent to 5.471 million tonnes in January-September 2008, according to Ukraine news agency reports last week.
 
The reports suggested the ArcelorMittal mill had decreased rolled steel output by 12.4 percent to 4.663 million tonnes so far this year, while pig iron output fell by 9.3 percent to 4.935 million. The company had previously increased steel output to 8.103 million tonnes in 2007 from 7.6 million in 2006.
Just over the border, OAO Severstal, Russia’s largest steelmaker, also announced last week plans to slash output in Russia, the U.S. and Europe by as much as 30 percent in October and review full-year forecasts. Production is to be cut 30 percent in the U.S. and Italy, and 25 percent in Severstal’s home town of Cherepovets in Russia.
Steelmakers from China and South Korea to Austria and Russia are curbing output as demand for cars and buildings weakens, and as banks withdraw funding for new plants. OAO Magnitogorsk Iron & Steel, Russia’s third-largest producer, Posco, Asia’s biggest stainless steel maker, and Voestalpine AG, Austria’s top steel company, all signaled cuts in production plans this week.
The production and export of steel is an important pillar of the Ukrainian economy, and steel production accounts for more than a third of total goods exports (equivalent to some 12 percent of GDP). Thus real GDP growth in Ukraine is closely linked to steel prices. During the global economic upswing of the past few years, along with a wider surge in metals valuations, steel prices have risen dramatically, thus underpinning Ukraine’s mostly favorable export performance and impressive GDP growth ever.
 
Although steel prices had been holding up till very recently, the current global financial turmoil is having a dramatic impact on car, construction and investment activity, all of which impact steel prices and we may therefore expect significant adverse effects on Ukraine growth and export receipts. A key issue for the future is, of course, how Ukraine’s economy can be made less dependent on such global price volatility in one key product.
SHARP STEEL DOWNTURN 
As recently as Sept. 4 OAO Severstal had been suggesting that output would rise 31 percent to 23 million metric tons this year, so the slowdown has been very rapid indeed. Goldman Sachs Group Inc. yesterday cut its 2009 steel price forecast by 29 percent. Global export prices for hot-rolled coil steel, a benchmark, have declined 19 percent since July, according to Bloomberg Metal Bulletin data.
And the slump doesn’t only affect current output, investment is also affected. Thus Austrian steelmaker Voestalpine announced during last week that it is considering delaying a decision on building a new steel plant on the Black Sea due in part to the financial crisis. Voestalpine had been planning to build a plant with a 5.5 million tonne capacity in either Bulgaria, Romania, Turkey or Ukraine, with a cost which investment analysts estimate to be in the 5 to 6 billion euros ($6.7-8.2 billion) region.
HYRVNIA UNDER PRESSURE 
      While the official exchange rate is set as Hr 4.95 – plus or minus eight percent – to the U.S. dollar, some exchange booths were
       offering Hr. 5.5 to Hr 6 for $1. Kiev Post Report
The hyrvnia – Ukraine’s national currency fell to an eight-year low last Wednesday, following the decision of the National Bank of Ukraine to widen the currency’s trading band. The National Bank, which has $38 billion in foreign exchange reserves, is now engaged in a delicate balancing act since while on the one hand officials are promising “strong interventions” to keep the hryvnia at roughly five to the dollar, international financing sources are drying up and Ukraine is running a growing current account deficit, which hit nearly $8 billion in July.
The strategy appears to be not to waste foreign exchange reserves, defending an arguably un-defendable exchange rate, but to conserve reserves to support banks and corporates to meet external debt service payments falling due and, also, to more generally prop up the banking sector. The problem is that the NBU can either support the currency, or support the banks and corporates but it does not really have enough foreign exchange reserves to do both at once.
Ukraine’s central bank has weakened the currency’s official rate against the dollar and widened its trading limits on October 7. The currency’s new official rate until the end of the year was weakened to 4.95 per dollar from 4.85 and it will be allowed to rise or fall 8 percent from that level, compared with the previous 4 percent.
The hryvnia has slumped 18 percent against the dollar since Sept. 2, when President Viktor Yushchenko’s party broke from its coalition with Prime Minister Yulia Timoshenko. Yushchenko dissolved the parliament yesterday, calling for new elections.
The managed currency is also being pushed down by demand for dollars from local banks and companies who need to pay down debt which they can’t refinance so they have to buy dollars and pay back now. Exporters seeing this situation are also postponing selling dollars hoping for more local weakness down the road.
Nationalnyi Bank Ukrainy, which kept the hryvnia little changed against the dollar throughout 2007 and 2006, allowed it to trade more freely this year to help combat inflation, now at 26 percent. The bank strengthened the hryvnia’s official rate by 4 percent to 4.854 per dollar in June, after leaving it at 5.05 per dollar since April 2005.
DECLINING POPULATION THE ROOT OF ALL EVIL? 
One of the things we should all now be learning as we look out across what is currently happening right across Eastern Europe (and I do mean right across) is that what we have is an environment where a number of long term underlying problems persist.
 
These range from a lingering and heavy state presence in the economy, high and enduring inflation which steadily eats into the export competitiveness of manufactured goods and services, wage pressures which stem from labour supply shortages produced by out-migration and long term low fertility, and heavy balance sheet exposure due to an extensive euro- or dollarization of the banking sector (the later being the Ukraine case).
 
The large current account deficits which follow from the above, and the consequent ongoing dependence on the arrival of substantial capital inflows can create a vulnerability to short term shocks which puts the entire macroeconomic framework at risk. The current credit crunch is, of course, almost a text book example of just such a short term shock.
This danger of a strong correction in adverse times becomes even greater (as we are now seeing) if measures are not taken (which they weren’t in Ukraine’s case, see this post) to drain excess liquidity from the system (by running a fiscal surplus for example), to loosen labour supply constraints by facilitating inward migration of unskilled workers, and to accelerate the pace structural reforms – and particularly those which facilitate the development of “greenfield” investment sites which help channel capital flows towards productivity-enhancing uses and in so doing raise exports. Unfortunately, at least this time round, it would seem it is a little late in the day for this kind of advice.
So to answer the question I somewhat provocatively inserted at the head of this section, Ukraine’s declining population is not 100% of the problem, not by a long stretch it isn’t, but it is an important component, and does form a context in which the other parameters need to be situated, and this dimension of the current crisis in Ukraine is all the more important since it is one which is normally ignored, and even more to the point, has been left unattended for so long that it has become an issue which it is very hard to address.
 
A DECLINING AND AGEING POPULATION 
According to data from the State Statistics Committee , Ukraine’s population fell by 290,220 in 2007. That is a rate of only just short of a million people less every 3 years. Simply there are more people dying every year than are being born, with 472,657 births being registered (up 12,000 from 460,368 for 2006) and 762,877 deaths (down slightly from 758,093 in 2006).
 
What this means is that Ukraine’s population is now falling very fast, at an annual rate of 0.675%. And remember this is the natural decline, not counting out migration. As we can see in the chart below the Ukraine population peaked in 1993, and has been in some sort of free-fall ever since. [To see the chart go to http://globaleconomydoesmatter.blogspot.com/index.html]

There are a number of factors which lie behind this dramatic decline in the Ukrainian population.

 
[1] One of these is fertility, which is currently in the 1.1 to 1.2 Tfr range. In fact Ukraine’s fertility actually dropped below the 2.1 replacement level all the way back in the 1980s, but somehow people haven’t seen fixing this “bust” as being in any way particularly important.
[2] A second factor which is also important is life expectancy, and in the Ukraine case the trend in male life expectancy has been most preoccupying, since it has been falling rather than rising in recent years. In particular male life expectancy which is currently running at around 64.
 
Apart from stating the obvious here, we should note that the deteriorating health outlook which this low level of life expectancy reflects places considerable constraints on the ability of a society like Ukraine to increase labour force participation rates in the older age groups, and this presents a big problem since increasing later life employment participation is normally though to be one of the principal ways in which a society can compensate for a shortage of people in the younger age groups.
[3] The third factor influencing population dynamics is obviously migration. Ukranian out-migration since the turn of the century is distinguished by two key tends: a) a reduction in intensity when compared with the very dramatic population movements which were so characteristic of the 1990s, and b) a significant change in destinations. From migrating East the Ukrainians are now moving West.
 
There is little in the way of systematic data here, but there is national level data on the numbers of Ukrainians who now live and work in Portugal, Spain and Italy, together with plenty of anecdotal information about Ukranian migrant workers in Latvia, the Czech Republic, Poland and elsewhere in the EU 10.
According to information provided by Ukrainian diplomatic missions, 300,000 Ukrainian migrants may be working in Poland, 200,000 each in Italy and the Czech Republic, 150,000 in Portugal, 100,000 in Spain, 35,000 in Turkey, and another 20,000 in the US.
 
According to official information based on the number of permits issued by the Russian Federal Migration Service, some 100,000 Ukrainian citizens currently work in Russia, although the real number of Ukrainians working there is often estimated to be more in the region of 1million.
WITH FEWER AND FEWER PEOPLE AVAILABLE FOR WORK 
This out migration is very significant from the economic point of view, since the majority of those working abroad send money back on a regular basis (see chart below which shows World Bank estimates for Ukraine remittance flows) while at the same time are not present in the country to offer themselves for the work which this extra money creates.
 
So out migration and the accompanying remittances are one thing in a high fertility, growing population like that which is to be found in Ecuador or the Philippines, and quite another in the long term low fertility, declining population environment of Central and Eastern Europe. Hence all that demand driven wage inflation.
 
As we can see from the data in the chart below (which the World Bank Economists themselves recognise if surely a substantial underestimation) the flow of remittances into Ukraine has increased steadily in recent years. [To see the chart and a series of charts go to http://globaleconomydoesmatter.blogspot.com/index.html]
 
According to the World Bank remittances amounted to approximately 1% of Ukraine GDP in 2007, a number which seems rather small given the number of migrants involved, and one may suspect here that the data is rather underestimating the scale of the flows, but even as it is this amounts to a fiscal stimulus of 1% of GDP as a minimum.

As a result unemployment has been falling steadily over the last two years:

According to data from the Ukraine statistics office the official rate of unemployment stood at 1.8% of the economically active population in August 2008 (down from 2.4% in January).

 
Now these numbers are undoubtedly an underestimate of the true levels of unemployment (the ILO compatible rate is the much higher 6.2%, but given the very special health situation in Ukraine we need to ask ourselves just how many of those who are formally included in the ILO classification are actually fit for work in a modern economy) but they do give an indication of the trend, and it is clear that some parts of the Ukraine labour market have been suffering from acute labour shortages, and hence the wage-push inflation the country has been experiencing.
 
Wages have been rising (see chart below) [To see the chart go to http://globaleconomydoesmatter.blogspot.com/index.html] at a rate which has been way above the combined inflation and productivity increase levels for many years now, and although wages did start from a very low level, and some degree of “catch up” was not only inevitable but also desirable, the complacency of the relevant authorities (both nationally and internationally, IMF, World Bank etc) in the face of such levels AFTER inflation really started to take off really does strike the external observer as quite extraordinary.

In many ways Ukraine could be considered to be a rather important strategic component in the whole Eastern labour supply and demographic puzzle, as we are no about to see, since many have been hoping against hope that as the recent expansion steadily drained labour supply resources across the whole region, then Ukraine would simply be able to step up to the plate and offer countries as diverse as the Baltics, Poland, Hungary, the Czech Republic and Russia the labour they needed to keep their own inflation in check.

 
This view implied, in my opinion, that Ukraine was to become some kind of “fish farm” for the rest of Eastern Europe, and that view as we are seeing was always based on a huge misunderstanding, since a low fertility society simply cannot export labour indefinitely, and if it does try to do so, then internal wages simply explode.
IN CONCLUSION 
Of course, such demographic considerations may well seem to be rather distant from the very real and pressing drama which is breaking out in Ukraine.
 
Obviously there are a great many lessons to be learned from the current “undoing” of the Ukraine economy. One of these is undoubtedly the desirability of moving away from dependence on one or two key commodities (steel, agriculture) whose prices are known to be very volatile and tied-in intimately with the global business cycle.
 
Another would be the belated recognition that while FDI inflows are vital, such flows into the banking and financial sectors are not the same as inflows to fund greenfield industrial site development, and that an economy which is dependent on one or two primary commodities on the one hand, and construction associated business and financial services on the other simply is not a balanced or a stable one.
It is also clear that, whatever the well-wishing we would all like to make towards a rise in living standards for the Ukranian people, it is now abundantly clear that this cannot be achieved via a lack of vigilance towards the dangerous impact of spiraling wage-cost inflationary pressure, not can policy be adequately conducted under such circumstances by a central bank whose main priority is steering the value of a currency.
 
Laxity and tolerance towards the inflation menace ultimately comes at a very high price, especially when it is allowed to get out of control in the way it has been in the Ukraine.
Finally, even if in fighting the short-term battle for survival which is now going to confront the Ukraine economy and its banking sector longer term demographic concerns are inevitably going to take a back seat, I think we need constantly to keep in mind that a failure to come to grips with this key ingredient in Ukraine’s problem set will surely only lead to more of the same at some point in the future. So if you don’t especially like suffering – and who does – then act, and act now.
FOOTNOTE: Edward Hugh is a macro economist, who specializes in growth and productivity theory, demographic processes and their impact on macro performance, and the underlying dynamics of migration flows.

Edward is based in Barcelona, and is currently engaged in research on aging, longevity, fertility and migration, and the impact of all of these on economic growth. He is currently working on a book “Population, The Ultimate Non-renewable Resource?” He is a regular contributor to a number of economics weblogs, including India Economy Blog, A Fistful of Euros, Global Economy Matters and Demography Matters. He was, in fact, a founding member of all these weblogs.

Mr. Hugh follows in detail the Indian, Italian, Spanish, German and Japanese economies. He has a more than a passing interest in the economies of Turkey and Brazil and in the emerging economies of Eastern Europe. E-mail: ed.hugh@gmail.com

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8.  UKRAINE NEEDS TO SORT OUT ITS PROBLEMS ON ITS OWN

EDITORIAL: International Herald Tribune, Paris, France, Tuesday, October 14, 2008
 
Once again, the president of Ukraine, Viktor Yushchenko, has called for a parliamentary election – the third in as many years – in an attempt to resolve his never-ending political struggle with his two main rivals, Yulia Tymoshenko and Viktor Yanukovich, the current and former prime ministers.
We sympathize with Yushchenko and his vision of anchoring Ukraine economically and politically in the West. And if new elections help clear up the political mess in Ukraine, well and good. The main thing is to make sure these are elections by and for Ukraine, without meddling from Russia, or the West.
Yushchenko and Tymoshenko were favorites of the West in the 2004 “Orange Revolution.” Thousands of Ukrainians went into the streets to overturn the rigged election of Yanukovich, backed blatantly by Russia, as president. But the “Orange” allies soon fell out. Yanukovich was soon back in the Parliament and, for a spell, Yushchenko’s prime minister.
 
In all that time, the three rivals have dismally failed to find a way to share power, seriously hampering Ukraine’s development. Part of the problem is the division of Ukraine itself, with Yushenko supported in the European-looking west of the country, Yanukovich in the Russia-leaning east, and Tymoshenko moving back and forth.
The divisions are not going away anytime soon. And they will not be helped by any new meddling from Russia or the United States. After the nasty war in northern Georgia in August, both East and West should have no illusion about the danger of a conflict in the far larger and far better-armed Ukraine. The only way to avoid that, and to move toward political stability, is to leave the Ukrainians to sort out their own identities and prospects.
We still believe that Ukraine’s future is with the West. But we don’t believe that its Westward journey will be helped by pressures to join NATO so long as a sizeable portion of Ukrainians are against it.
 
At the same time, all three major political contenders have already declared their support for joining the European Union, which at this stage seems to be the best and most promising route for Ukraine.
 
Supporting the Ukrainians in this endeavor while staying out of their internal politics seems like the best support the EU and the U.S. could show for this young country.
 
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9.  SOFTSERVE, INC. JOINS THE U.S.-UKRAINE BUSINESS COUNCIL (USUBC)
Leading multinational software development and consulting company, member 93

U.S.-Ukraine Business Council (USUBC), Washington, D.C., October, 2008
 
WASHINGTON, D.C.
– SoftServe, Inc., a leading independent multinational software development and consulting company, has been approved for  membership in the U.S.-Ukraine Business Council (USUBC), according to the USUBC executive committee, in an announcement on behalf of the entire membership. SoftServe Inc. is USUBC member ninety-three.

 
SoftServe, Inc. helps global organizations enhance their customer’s competitive capabilities by providing the technology and processes that achieve strategic results. With over one thousand professionals on staff, SoftServe provides vendors with a wide range of software development, quality assurance, software maintenance and related services.
 
HEADQUARTERS IN LVIV, UKRAINE AND FORT MYERS, FLORIDA
SoftServe started in 1993 with two people in Lviv, Ukraine. SoftServe now has its European headquarters in Lviv while its development facilities are located throughout Ukraine.  As a next step in the implementation of its global strategy, SoftServe just recently opened its US headquarters in Fort Myers, Florida, expanding its strong presence in the region with numerous customers and two sales offices in Boston, Massachusetts, and Santa Ana, California.  
 
USUBC has been working with SoftServe now for several months according to Morgan Williams, SigmaBleyzer, who serves as president of USUBC.  “We
met in Lviv recently with Taras Vervega, Executive Vice President, Business Development, and Yuliya Kovalyova, PR Manager, to discuss the SoftServe program and their work in the United States. SoftServe can be very proud of what they have accomplished since 1993,” Williams said. Taras Vervega will represent SoftServe on the USUBC board of directors.
 
“The U.S.-Ukraine Business Council (USUBC) is very pleased to have SoftServe, Inc. as a new member. USUBC has grown very rapidly during the past 19 months and now has a membership base which allows USUBC to provide its members such as SoftServe with a full-time operation and a significantly expanded program of work,” according to president Williams.

 
EXPANSION INTO THE GLOBAL MARKETPLACE 
Through the years, SoftServe has been partnering with over hundred companies worldwide on a wide range of products and technologies offering superior level of capability in technical skills and project leadership. The company consistently succeeds by delivering to the highest levels of development outsourcing and by supporting clients with their long-term application support services.
 
Armed with solid commitment to supreme quality and world-class service delivery, SoftServe continues striving to further extend its expansion efforts into the global marketplace and develop new strategic partnerships in order to enable its distinguished client base around the world to yield even greater business value.
 
SoftServe’s state-of-the-art infrastructure, ISO- and CMMI-certified processes and unrivaled talent ensure the promise of excellence in even the most complex of projects.  The company clients gain the ability to accelerate their growth and expand their product offerings far beyond their internal capabilities, thereby increasing competitive advantage.
 
SOFTSERVE’S PARTNERS AND RANKINGS
Holding Microsoft Gold Certified Partner status since 2004, SoftServe has developed close partner relationship with Microsoft Corporation. In 2006 and 2007, SoftServe was chosen a Finalist of Microsoft Partner of the Year Award Program with its applications SalesWorks™ and RE3W.
 
In 2008, the company became the first exclusive Microsoft ISV NXT Partner in Central and Eastern Europe, and was recognized as Mobility Solutions Partner of the Year 2008 in this region.
 
In 2008, SoftServe was also ranked No. 5 in “Top 10 to Watch in Emerging European Markets” category by GlobalServices 100 – the elite rating of offshore outsourcing vendors based on leadership, innovation, and outstanding performance.
 
SOFTSERVE ACQUIRES ALVION UKRAINE
In September 2008, SoftServe announced the acquisition of Alvion Ukraine, a Sevastopol-based business intelligence services and ETL services provider. According to Taras Vervega, the EVP for Business Development at SoftServe, the move will enable the company to expand operations and services portfolio. The transaction is a part of SoftServe’s strategy to offer greater business value to the company’s clients along with expanding its presence in the southern part of Ukraine.

Post-acquisition, Alvion will be merged into SoftServe’s distributed development organization in Ukraine. In addition, the services portfolio of Alvion will be integrated into SoftServe’s portfolio, which will enable Alvion’s clientele to benefit from client partnerships of SoftServe. The acquisition will also allow SoftServe to achieve expertise in ETL technology and online customer support.

KEY SOFTSERVE EXECUTIVES: 

Chairman – Vilnis Ezerins
President – Taras Kytsmey 
Executive Vice President, Software Engineering – Yaroslav Lyubinets 
Executive Vice President, Business Development – Taras Vervega 
Executive Vice President, Delivery – Yura Vasylyk 
 
USA Address: SoftServe Inc., 13350 Metro Parkway, Suite 302, Fort Myers, FL 33966, USA; US tel.: 239 690 3111; 866 687 3588
European Address: SoftServe Inc., 52 V. Velykoho St., Lviv 79053, Ukraine; Europe tel.: +380-32-240-9090
Additional information about SoftServe can be found on their website: http://www.softservecom.com or by sending an e-mail to PR contact: Yuliya Kovalyova, PR Manager, info@softservecom.com.
 
USUBC MEMBERSHIP WILL TOP 100 IN 2008
SoftServe Inc. is the 43rd new member for 2008, and the 73rd new member since January of 2007. USUBC membership has quadrupled in the past 20 months, going from 22 members in January of 2007 to 93 members in September of 2008. Membership is expected to top 100 very soon.

The new USUBC members in 2008 include 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, and IMTC-MEI.

 
Additional new USUBC members in 2008 are: 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, Anemone Green Capital Limited, ContourGlobal, Winner Imports LLC (Ford, Jaguar, Land Rover, Volvo, Porsche), 3M, Edelman, CEC Government Relations RZB Finance LLC (Raiffeisen), IBM Ukraine and SoftServe Inc.

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

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10.  “OUR DAILY BREAD” HOLODOMOR EXHIBITION TO OPEN IN CHICAGO OCT. 24

Exhibition to feature fifty-four Holodomor artworks by Ukrainian artists
 
“They put a gun to your head and made you swear you would bring in grain the next day.
Everyone cried. There was nothing left to bring!” Hanna Ikasivna Cherniuk, Holodomor survivor
 
Ukrainian National Museum, Chicago, Illinois, Wednesday, October 15, 2008
 
CHICAGO – “Our Daily Bread”, an exhibition of artworks commemorating the Ukrainian Holodomor-Genocide, opens Friday, October 24th at the Ukrainian National Museum, 2249 West Superior, in Chicago. 
 
“Our Daily Bread” officially opens at 6:30 PM with a program that features a short video by Ukrainian singer Oksana Bilozir and an opening statement by the granddaughter of a Holodomor survivor, Ms. Oryna Hrushetsky-Schiffman. 
 
In 1932 and 1933, between seven and 10 million Ukrainians were deliberately starved to death during the “Holodomor” – or death by starvation. This genocide was masterminded by Joseph Stalin and his inner circle, and was carried out by Soviets who confiscated every last bit of food from Ukrainian peasants who were resistant to collective farming – and who represented the backbone of the Ukrainian people.
 
This year, 2008, marks the 75th anniversary of the Holodomor, and the government of Ukraine as well as Ukrainians around the world have been organizing events in an effort to expose and publicize this crime against humanity while there are still survivors young enough to recall its horrors.
 
EXHIBITION FEATURES 54 HOLODOMOR ARTWORKS
In Chicago, the latest event commemorating the Holodomor is an exhibition at the Ukrainian National Museum opening Friday, October 24th. “Our Daily Bread” features 54 artworks that are part of the “Holodomor: Through The Eyes of Ukrainian Artists” collection. 
 
The founder and trustee of the unusual collection, U.S. businessman Morgan Williams, gathered the over 350 original Holodomor artworks in the collection during the last 11 years in Ukraine.  Williams is director, government affairs, Washington, D.C., for the SigmaBleyzer private equity investment group and serves as president of the U.S.-Ukraine Business Council (USUBC).

 
Most of the artworks were created after 1988, when Ukrainians were finally free to evoke the suffering and horrors of the Holodomor in the last days of the USSR, right before Ukraine declared independence in 1991. Before 1988 no one was allowed to talk about this tragedy let alone express themselves through artwork or writings.  Many Ukrainian artists may very well have only learned of the Holodomor at that time, after decades of extreme Soviet suppression of the atrocities.
 
The government of Ukraine has officially declared the Holodomor a genocide against the Ukrainian people and is asking the United Nations to do so as well. Just this past September, the United States House of Representatives passed a Resolution condemning the Holodomor and the former Soviet government’s deliberate confiscation of grain harvests, which resulted in the starvation of millions of Ukrainian men, women, and children.
 
It was a devastating chapter of Stalin’s reign of terror that wiped out one quarter of the peasantry – and later included the intelligentsia and other leaders of Ukrainian society who were shot and exiled by the hundreds of thousands in an attempt to destroy the Ukrainian nation. And it was carried out at a time when Ukraine, then officially the Ukrainian SSR, had one of the richest farmlands in the world – “the breadbasket of Europe.” 
 
The exhibition will also include a room depicting what life was like in Ukraine prior to enforced collectivization—as well as an evocative walk-through installation depicting the horrors of the Holodomor.
 
The “Our Daily Bread” Holodomor exhibition is on view through Sunday, November 30, 2008. The Museum hours are Thursday to Sunday from 11:00 a.m. to 4:00 pm.  The Ukrainian National Museum is located at 2249 West Superior Street in the Ukrainian Village neighborhood. Call 312-421-8020 or visit the Museum’s website, www.ukrainiannationalmuseum.org for more information.
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U.S.-Ukraine Business Council (USUBC) www.usubc.org.
Promoting U.S.-Ukraine business & investment relations since 1995. 
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11.  EXCERPTS FROM “SOVIET GENOCIDE IN THE UKRAINE”

Raphael Lemkin’s perception of the Ukrainian genocide is a solid recommendation to
the UN Assembly to finally recognize the Ukrainian tragedy for what it was – ‘a case
of genocide, the destruction of a nation. 
 
By Roman Serbyn, historian, professor, scholar, Montreal, Canada
Action Ukraine Report (AUR) #912, Kyiv, Ukraine, Saturday, October 18, 2008
 
MONTREAL – I have reproduced below, excerpts from “Soviet Genocide in the Ukraine”, the last chapter of a monumental History of Genocide, written in the 1950’s by the Jewish-Polish scholar Raphael Lemkin.
 
Unfortunately, the monograph has not yet been published and the chapter on Ukraine is known only to a few Lemkin scholars. The whole chapter (12 double-spaced pages) on Ukraine will soon be published in the original English language in the USA and eventually in other languages, in other countries.

Lemkin’s text deserves special attention by the Ukrainian community as it commemorates the 75th anniversary of the tragic events.

 
It should be noted that Lemkin, developed the concept and coined the term “genocide”, applies it to the destruction of the Ukrainian nation and not just Ukrainian peasants.
 
Lemkin speaks of:
 
a) the decimation of the Ukrainian national elites,
b) destruction of the Orthodox Church,
c) the starvation of the Ukrainian farming population, and
d) its replacement with non-Ukrainian population from the RSFSR as integral components of the same genocidal process.
 
The only dimension that is missing in Lemkin’s excellent analysis is the destruction of the 8,000,000 ethnic Ukrainians living on the eve of the genocide in the Russian Republic (RSFSR).

As Ukraine and the Ukrainian diaspora commemorates, in the coming months of October and November the 75th anniversary of the Genocide against the Ukrainians, it should be inspired by the all-encompassing approach to the analysis of the great Ukrainian catastrophe by the father of the concept of genocide and the man who did most to have it enshrined in the UN Convention of 1948.

 
Lemkin’s perception of the Ukrainian genocide is a solid recommendation to the UN Assembly to finally recognize the Ukrainian tragedy for what it was — “a case of genocide, the destruction of a nation.”

Roman Serbyn

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RAFAEL LEMKIN
 
SOVIET GENOCIDE IN UKRAINE (excerpts)
[…]
 What I want to speak about is perhaps the classic example of Soviet genocide, its longest and broadest experiment in Russification – the destruction of the Ukrainian nation. […]
 
[…] As long as Ukraine retains its national unity, as long as its people continue to think of themselves as Ukrainians and to seek independence, so long Ukraine poses a serious threat to the very heart of Sovietism. It is no wonder that the Communist leaders have attached the greatest importance to the Russification of this independent[-minded] member of their “Union of Republics,” have determined to remake it to fit their pattern of one Russian nation. For the Ukrainian is not and has never been, a Russian. His culture, his temperament, his language, his religion – all are different. […]
 
Ukraine is highly susceptible to racial murder by select parts and so the Communist tactics there have not followed the pattern taken by the German attacks against the Jews. The nation is too populous to be exterminated completely with any efficiency. However, its leadership, religious, intellectual, political, its select and determining parts, are quite small and therefore easily eliminated, and so it is upon these groups particularly that the full force of the Soviet axe has fallen, with its familiar tools of mass murder, deportation and forced labor, exile and starvation.
 
The attack has manifested a systematic pattern, with the whole process repeated again and again to meet fresh outburst of national spirit. The first blow is aimed at the intelligentsia, the national brain, so as to paralyze the rest of the body. […]
 
Going along with this attack on the intelligentsia was an offensive against the churches, priests and hierarchy, the “soul” of Ukraine. Between 1926 and 1932, the Ukrainian Orthodox Autocephalous Church, its Metropolitan (Lypkivsky) and 10,000 clergy were liquidated. […]
[…]
The third prong of the Soviet plan was aimed at the farmers, the large mass of independent peasants who are the repository of the tradition, folk lore and music, the national language and literature, the national spirit, of Ukraine. The weapon used against this body is perhaps the most terrible of all – starvation. Between 1932 and 1933, 5,000,000 Ukrainians starved to death, an inhumanity which the 73rd Congress decried on May 28, 1934. There has been an attempt to dismiss this highpoint of Soviet cruelty as an economic policy connected with the collectivization of the wheatlands, and the elimination of the kulaks, the independent farmers was therefore necessary.
 
The fact is, however, that large-scale farmers in Ukraine were few and far-between. As a Soviet writer Kossior [error: Kosior was party boss of Ukraine – R.S.] declared in Izvestiia on December 2, 1933, “Ukrainian nationalism is our chief danger,” and it was to eliminate that nationalism, to establish the horrifying uniformity of the Soviet state that the Ukrainian peasantry was sacrificed. The method used in this part of the plan was not at all restricted to any particular group. All suffered – men, women, children.
 
The crop that year was ample to feed the people and livestock of Ukraine, though it had fallen off somewhat from the previous year, a decrease probably due in large measure to the struggle over collectivization. But a famine was necessary for the Soviet[s] and so they got one to order, by plan, through an unusually high grain allotment to the state as taxes.
 
To add to this, thousands of acres of wheat were never harvested, were left to rot in the fields. The rest was sent to government granaries to be stored there until the authorities had decided how to allocate it. Much of this crop, so vital to the lives of the Ukrainian people, ended up as exports for the creation of credits abroad.
 
In the face of famine on the farms, thousands abandoned the rural areas and moved into the towns to beg [for] food. Caught there and sent back to the country, they abandoned their children in the hope that they at least might survive. In this way, 18,000 children were abandoned in Kharkiv alone. Villages of a thousand had a surviving population of a hundred; in others, half the populace was gone, and deaths in these towns ranged from 20 to 30 per day. Cannibalism became commonplace.
[…]
The fourth step in the process consisted in the fragmentation of the Ukrainian people at once by the addition to the Ukraine of foreign peoples and by the dispersion of the Ukrainians throughout Eastern Europe. In this way, ethnic unity would be destroyed and nationalities mixed. […]
 
These have been the chief steps in the systematic destruction of the Ukrainian nation. Notably, there have been no attempts at complete annihilation, such as was the method of the German attack on the Jews. And yet, if the Soviet program succeeds completely, if the intelligentsia, the priests and the peasants can be eliminated, Ukraine will be as dead as if every Ukrainian were killed, for it will have lost that part of it which has kept and developed its culture, its beliefs, its common ideas, which have guided it and given it a soul, which, in short, made it a nation rather than a mass of people.
 
The mass, indiscriminate murders have not, however, been lacking – they have simply not been integral parts of the plan, but only chance variations. Thousands have been executed, untold thousands have disappeared into the certain death of Siberian labor camps.
[…]
 
[…] This is not simply a case of mass murder. It is a case of genocide, of destruction, not of individuals only, but of a culture and a nation. […] Soviet national unity is being created, not by any union of ideas and of cultures, but by the complete destruction of all cultures and of all ideas save one – the Soviet.
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12.  HOLODOMOR MEMORIAL SITE APPROVED IN WASHINGTON, D.C.

 

Ukrainian National Information Service (UNIS), Washington, D.C. Friday, Oct 3, 2008
WASHINGTON, D.C.- On Thursday, October 2, 2008, the National Capital Planning Commission (NCPC) approved and awarded a parcel of federally owned land to the Ukrainian Government as the site for the Memorial to Victims of the Ukrainian Genocide of 1932-33. Public Law 109-340 authorized the memorial, as signed by President Bush on October 13, 2006.
 
The Ukrainian Famine-Genocide bill (HR562) was sponsored by Rep. Sander Levin (D-MI), co-chair of the Congressional Ukrainian Caucus, which
passed unanimously in the House of Representatives and Senate in 2005, 2006 respectively.
The adopted site is an approximately 3100 square foot triangular site located at the intersection of North Capital Street, Massachusetts Avenue, and F Street in NW Washington, DC. Office, government, institutional, and residential buildings characterize the general area surrounding the site.
 
The Postal Museum is across the street, and it is five blocks north of the U.S. Capitol. This open and visible site is situated in a busy and highly trafficked area that serves as a transition point between east and west Washington, DC.

The site is important as the first reservation west of Union Station, and is a significant entrance point from Union Station to NW DC through Massachusetts
Avenue, which is known for its international character.

Speaking about the accomplishment of the site selection, Alan Harwood a Principal with EDAW, Inc., the planning and design firm that is leading the
project team, “the Ukrainian memorial will be located on a wonderful and prominent site in the Nation’s Capital. It will be highly visible to many residents, employees, and visitors.”

Although the proposed memorial has not yet been designed, based on preliminary discussions, the Ukrainian Government has stated that it anticipates that the commemoration of this event will consist of a contemplative space with a memorial element appropriate for a landscaped setting. The proposed
memorial is anticipated to “include typical features such as an abstract or allegorical element in a landscaped setting.”

Initiated under the auspices of the Ukrainian Congress Committee of America in cooperation with Rep. Levin’s office, the process has been widely
supported by the Ukrainian American community. The National Committee to Commemorate the 75th Anniversary of the Ukrainian Genocide of 1932-1933 has taken upon itself financing of the Environmental Assessment for the project.

Its chairman, Michael Sawkiw, Jr., thanked the community for their continued financial support: “Without the support of Ukrainian Americans, our dream of having a memorial in Washington, DC would not have come to fruition yesterday during the site selection hearing.”

The Ukrainian Government is confident that it can create a successful and functional public space that befits the site’s prominence in the National Capital,
embracing the site’s natural openness, and seamlessly integrating the memorial into the surrounding environment.

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13.  CAN EUROPE SURVIVE GERMANY?

ANALYSIS & COMMENTARY: By Alexander Motyl

Professor of Political Science at Rutgers University-Newark
The Atlantic Council, New York, NY, Thursday, October 2, 2008  
If Europe ever dies, Germany will have killed it.

The community of values that Europe is supposed to be-one that claims to embody democracy and human rights and always gives preference to soft
power over hard-can survive only as long as its largest state shares those values.

Russia is the test that Germany failed. As Vladimir Putin steered his country in an unabashedly authoritarian and neo-imperialist direction, Germany showered him with praise.

 
When Chancellor Gerhard Schröder called Putin a “true democrat” at the height of Ukraine’s Orange Revolution in late 2004, he effectively declared democratic Ukraine’s Western aspirations incompatible with Germany’s relations with an authoritarian Russia and thereby repudiated democracy.

Last spring’s German declaration of solidarity with Putin’s opposition to Ukraine’s and Georgia’s possible NATO membership also revealed the triumph
of hard-nosed geopolitics over democratic values and soft power.

Chancellor Angela Merkel’s endorsement of the logic of Putin’s opposition-that foreign-policy decisions made by Ukraine’s democratically elected political elites are undemocratic while only those endorsed in popular opinion polls by its population are democratic-was a direct repudiation of Ukraine’s democratic institutions and a backhand endorsement of Putin’s dismantling of democracy in Russia.

Her September 10th designation of Russia’s invasion of Georgia as a mere “controversy” that should not overshadow Germany’s “shared interests” with Russia went even further than Schröder in sacrificing non-Russian democracy to Russian dictatorship.

Germany’s indifference to democratic values is a puzzle. After all, Germany should know better.

 
It devastated Ukraine, Belarus, and Poland in two world wars; it perpetrated the Holocaust along with a variety of other genocides against Roma and Slavs in Eastern Europe; and it was responsible for the deaths of almost 2 million Ukrainians in World War I and 8 million in World War II. (As Erich Koch, Hitler’s ruthless Reichskommissar of Ukraine, said, “I will pump every last thing out of this country. I did not come here to spread bliss.)

One would have expected Germany to be especially sensitive to the democratic aspirations and security concerns of the peoples it came closest to annihilating. Instead, Germany has consistently preferred authoritarian Russia to its democratic non-Russian neighbors.

Gas goes some way in explaining Berlin’s preferential option for the Kremlin, but not quite. After all, the Eastern Europeans most critical of Russia-such as Poland and the Baltic states-are far more dependent on Russian gas than Germany.

 
Lucrative pipeline deals and other commercial ties also don’t do the trick: economic logic should dictate a closer alliance with the United States, Germany’s largest trading partner, but instead German policy makers are frequently more anti-American in their rhetoric and policy than anti-Russian.

A closer look at history may help explain Germany’s anomalous behavior. In 1922, Weimar Germany signed the Treaty of Rapallo with Soviet Russia,thereby paving the way for extensive economic and military cooperation that isolated, and helped destabilize, the fledgling states of
East Central Europe. In 1938, the Molotov-Ribbentrop Pact led to the division of Poland by Hitler and Stalin.

 
Throughout the 1970s and 1980s, Germany willingly accepted Soviet hegemony in the satellite states (and even snubbed the Solidarity movement), in exchange for rapprochement with East Germany. The Schröder-Putin pipeline deal of late 2005 and Merkel’s endorsement of the logic of Putin’s opposition to Ukraine’s and Georgia’s integration into Euro-Atlantic structures continue this pattern.

In all five instances, radically different German regimes consistently pursued the same foreign policy goal. Whether unstable and democratic as in 1922, powerful and totalitarian as in 1938, stable and democratic as during the Cold War, or powerful and democratic as today-German elites, whether Christian Democrats, Social Democrats, or Nazis, forged alliances with an authoritarian Russia at the expense of their democratic neighbors in Eastern Europe.

 
This overarching vision of Germany’s interests is unabashedly geopolitical, pointing to a possible reassertion in today’s Germany of the Realpolitik political culture that dominated German foreign policy after unification in 1871 and that produced the disasters of the two world wars.

It’s hard to see how Europe-whether as an ethical community or as the European Union-can survive Germany’s return to great-power thinking and politics. A truly democratic club of countries cannot unconditionally prefer authoritarianism to democracy in all its dealings with its eastern neighbors.

 
A truly functioning EU-whether as a club of equals or as a super-state-cannot exist if its largest member is committed to its own interests above all others. (It was Schröder, after all, who in the run-up to the Iraq War declared that he would ignore a UN resolution to support the U.S. invasion.)

Since the problem is political culture, any effective solution must focus on it as well. The Holocaust points the way to just how German elites might be swayed to think differently about politics. The shame of six million dead Jews has kept Germany honest in its dealings with Israel.

 
The shame of the millions of Poles, Ukrainians, and Belarusians who were killed in two world wars may be the only way to remind Berlin that it cannot just ignore the values and interests of the countries that lie east of Germany and west of Russia in its ruthless pursuit of self-interest.
And the ethical community that is supposed to be Europe could only benefit from a recognition that human rights also exist outside the European
Union’s current borders.
 
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14.  TODAY’S STALIN CULT IN RUSSIA MORE INSIDIOUS THAN LATE SOVIET ERA ONE, ANALYSTS SAY

Window on Eurasia, by Paul Goble, Vienna, Friday, October 3, 2008

VIENNA – The cult of Stalin that has emerged in the Russian Federation over the last decade is more dangerous than its Soviet-era predecessor not only because it celebrates his crimes rather than ignoring them but also because it is finding an increasingly enthusiastic and almost completely uncritical audience among the young.

Christians have a special responsibility to counter this trend by promoting the restoration of historical memory among Russians, according to speakers at a Moscow conference on “Spiritual Resistance in the Church and in Society” organized by the Community of Orthodox Brotherhoods (www.blagovest-info.ru/index.php?ss=2&s=3&id=23080).  
The organizers asked participants to address three basic questions: Why after the opening of archives in the early 1990s did Russians not develop immunity” to the evil of Stalinism? “Why did our people turn out not prepared to do what, for example, Germans were able to do? And how can those who experienced Stalin’s rule find “a common language” with the young?
Irina Karatsuba, a historian at Moscow State University, told the meeting this week that Russia had lost 137 million lives during the 20th century from wars, revolutions and so on. Of that number, she continued, “the repressed formed a not insignificant fraction.” But today, all too few people are focusing on that.
Instead, she said, “surprising things are taking place in our time concerning recollections about this period of our history.” Indeed, she insisted, “now we are moving backwards in comparison even with how Khrushchev understood repressions.” In his time, Soviet textbooks “hid” what had happened. But now Stalin’s terror is presented as not only necessary but useful.
“In certain new textbooks,” she continued, the Soviet dictator’s actions “are presented as ‘an effective instrument without which industrialization and collectivization would have been impossible and without which the country would not have won the war and preserved its sovereignty – and [for the Kremlin and many ordinary Russians] sovereignty is ‘our all.'”
 
According to Karatsuba, the reason this has happened is that in the 1990s, “the root of [this] evil was not pulled out, the people did not repent, and there was not a Nurnberg Process against communism.” But she expressed the hope that “now it is still not too late” to do so and to ensure that Russians will be able “to distinguish good from evil.”
A second speaker, educator Yevgeny Knorre argued that “the waves of the revival of love for Stalin at the end of the 1960s and the first half of the 1970s and now in the 2000s … are connected with periods of ‘the crushing of hopes’ and stagnation” – Brezhnev’s “zastoy” in the first case and Vladimir Putin’s “stabilization” in the second.
In such times, which often are characterized by spiritual emptiness, people are looking for a father figure who can take care of them and lead them out of their difficulties, Knorre said. And he suggested that the Russian Orthodox Church must take a more active role in countering this emptiness much as the Catholic Church has done in Italy.
Oleg Ushakov, a lawyer who spoke third, agreed but suggested that many people in the Orthodox Church are themselves attracted to the idea of a little father tsar and remain attached to “a terrible monarchical ideal” which itself “is also connected with a loss of historical memory and spiritual understanding.”
 A fourth speaker, identified by Blagovest-Info.ru only as “an elderly artist from Yekaterinburg whose family was “subjected to repressions,” said she is shocked by the “nostalgia” for Stalin among his victims, but she added that she is even more “horrified” by school texts that seek to “justify” what Stalin did.
And a fifth speaker, Aleksandr Arkhangelsky, identified only as “not the television announcer,” said that these textbooks which argue that Stalin did the right thing are especially dangerous because in Russia today “there are already many young people who are ready to become active bearers of evil.”
“If the Church does not interfere,” he continued, “then the government will again make use of its ideological and repressive machine,” an action that could mean that many of the horrors of the 20th century in the Soviet Union will be repeated in the 21st century in the Russian Federation.
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15. OPENING OF SECURITY SERVICE (SBU) INFORMATION CENTER IN KYIV

Activities of the Security Service of Ukraine regarding declassification and publication
about the operations of the Soviet Union Securities Services and the history of the
Ukrainian Liberation Movement

 
NEWS RELEASE: OPENING OF SBU INFORMATION CENTER IN KYIV
Security Service of Ukraine (SBU), Kyiv, Ukraine, Thursday, October 2, 2008
SBU material translated into English for the Action Ukraine Report (AUR) #912
Morgan Williams, Editor & Publisher, Washington, D.C., Saturday, October 18, 2008
 
KYIV – In order to facilitate the impartial coverage of the Ukrainian history, consolidation of society and exposure of stereotypes and myths about the events of the 20th century, the Security Service of Ukraine, SBU, has engaged in the systemic work to declassify and publicize its archive documents throwing light on the operations of Soviet security services and the liberation movement in Ukraine.
 
Working group of historians to study OUN/UPA activities
In early 2008, a working group of historians to study OUN/UPA activities was set at the SBU. The group was made up of members of various state and public organizations: the Ukrainian Institute of National Memory, the State Committee of Archives of Ukraine, the Institute of History at the National Academy of Sciences, the Taras Shevchenko Kyiv National University, the SBU National University, the SBU archive and the Memorial Society.   
According to work group members, their research will focus on the liberation movement in Ukraine from 1920 through 1991. As separate aspects, the dissidents’ movement of the 1960s – 1970s as well as the democratic movement of the 1980s – 1990s will be examined. As a priority task, the group will study the documents of the SBU central and oblast archives. 
The work group goal is to attract scholars for the examination of archive materials and the implementation of joint research and publication projects.
The group’s chair is SBU head’s adviser Volodymyr Vyatrovych, Ph.D (History). His contact phone is (380 44) 239-70-93. 
 
Center for the study of documents related to the history of the Ukrainian liberation movement
At present, the SBU is possessor of the largest amount of materials related to OUN/UPA activities. However, these materials have been studied inadequately and were not accessible to the public. Given highly mixed and controversial feelings on these issues existing in Ukraine, the declassification and publication of archives is of crucial importance. 
Accordingly, the center for the study of documents about the history of the liberation movement was set up in June 2008. The center is part of the SBU state archive. The center’s main purposes are:
[1] searching, studying, systematization and declassification of archive materials related to the history of the liberation movement;
[2] creation of an annotated electronic directory of materials; 
[3] implementation of publication projects, preparation of books and articles, organization of public hearings related to OUN/UPA activities;
[4] enrollment of NGOs in the study of documents about the liberation movement, cooperation with domestic and foreign research and public organizations involved in the study of OUN/UPA history.
 
The center can be reached at: phone: (044) 256-98-32, fax: (044) 253-13-86, email: arhivsbu@ssu.gov.ua
SBU INFORMATION CENTER LAUNCHED OCTOBER 2, 2008 
On Oct. 2, 2008, the Security Service of Ukraine, SBU, launched its Information Center (IC) [in Kyiv] including an open electronic archive – to simplify access to materials stored in the SSU archive. [I attended this event in Kyiv, AUR Editor]
Over the past several years the SBU has been actively involved in declassifying documents related to the operations of Soviet security services and the history of liberation movement in Ukraine.
 
The IC provides an opportunity to get acquainted with electronic copies of archive documents. All documents have been arranged according to various topics (1932-1933 Holodomor, OUN/UPA Activities, Repression in Ukraine, Movement of Dissidents, etc.)
The IC also gives access to a large number of photographs, scientific journals and books, electronic versions of exhibitions and presentations. At present, the IC has 8 workplaces. The IC’s easy search system will be convenient to scholars, journalists and students of Ukrainian history working with original materials.
 
As declassification and conversion of materials into electronic form continues, the IC database is updated daily. Simultaneously, SBU has appealed to institutions, NGOs, and individuals who own archive documents related to the specified topics, asking them to make their materials available to IC visitors.  
 
The SBU Information Center is located at the following address: 4 Irynska St., Kyiv, Ukraine; Phone: 380 44 255-82-24.
 
Electronic archive of national memory
The SBU, jointly with the Ukrainian Institute of National Memory, has initiated the formation of an electronic archive of national memory. The archive will make it possible to facilitate the study of liberation movement history and contribute to the emergence of its uniform assessment by Ukrainians.
At present, the bulk of related materials is stored in state and law-enforcement agencies archives as well as the archives run by NGOs and individual researchers, both in Ukraine and abroad. The purpose of establishing the electronic archive is to create a unified database allowing a comprehensive study of the 20th century liberation movement history. Stage 1 of such work which is already under way is to convert SBU archive documents into electronic form.
Archive materials are being arranged according to the recommendations of Ukraine’s research institutions and scholars. The final analysis of documents is carried out by the Ukrainian Institute of National Memory, an authorized central executive body for restoring and preserving the national memory. The electronic archive database is to be published by the official sites of SBU and UINM.
 
Publication projects
A lot of attention is being given to the publication of documents from the SBU archive.
[1] The book titled “Declassified Memory. 1932-1933 Holodomor in Ukraine as reflected by GPU/NKVD documents” was prepared by the SBU with the assistance from the “Ukrayina 3000” international charity foundation, the country’s academic institutes and scholars as well as the Ukrainian Institute of National Memory.
The book, for the first time in the Ukrainian history, presents a complete range of Soviet security services documents (the State Political department, GPU, and the People’s Commissariat of Internal Affaires, NKVD), unveiling the causes, strategies and consequences of the 1932-1933 Holodomor, the most severe tragedy which afflicted Ukraine in the 20th century.
 
The documents throw light on massive political repression by state security agencies, including efforts to quash the truth about the Famine and providing a credible source for the study of activities by central and local executive officials and party leaders in 1932-1933. For over 70 years these materials were classified and not accessible to researchers.  The book also includes research articles analyzing various aspects of the Holodomor.
[2] “Roman Shukhevych in the Documents of Soviet State Security Agencies” is a collection of materials about various aspects of the life of UPA Commander-in-Chief Roman Shukhevych. The book was published jointly with the Center for Ukrainian Studies at Kyiv Shevchenko National University.
[3] Another book on the 1932-1933 Holodomor is currently being prepared jointly by the Interior Ministry and the Administration of Poland.  It is the 7th volume to be published within the framework of the “Poland and Ukraine in the 30s and 40s of the 20th century. Unknown documents in secret services archives,” research/publication project between Ukraine’s SBU and its Polish partners.
The book titled “1932-1933 Holodomor in Ukraine in the documents of Soviet and Polish secret services” will come out in the Ukrainian and Polish ahead of the 75th anniversary of the Holodomor. The book’s presentation is scheduled in Kyiv as part of the events to mark the Day of Memory for the victims of holodomors. Later, the book will be translated into English and presented in the United States, Canada and Europe.  
Volume 7 will include documents and materials presenting the points of view on the Holodomor taken by Polish and Ukrainian researchers. The book is unique as the materials have been studied by an international team of scholars. 
The book will contain materials from the SBU archive and Poland’s military archive. The Polish documents include the reports by the Polish police and diplomats hitherto unknown to the wide public. The documents provided by the SSU archive have also not been published before. This research/publication project, whose first volume came out in print in 1998, is supported by presidents Viktor Yushchenko and Lech Kaczynski.
 
Public hearings
With the participation of the work group of historians, the SBU launched a series of public hearings of scholars, journalists and members of the public in order to shed light and discuss the Ukrainian liberation movement, attracting newly declassified documents.
 
In 2008, for instance, the following public hearings were held: “Operations of secret agents and guerilla groups,” “UPA: its trail in history”, “Accusations against the Nachtigall Unit – historical truth or political games,” “OUN activities in Central and Eastern Ukraine,” “Role of Jews in the Ukrainian liberation movement.” Public hearings are open to interested individuals.   
 
Exhibitions
Based on declassified materials from SBU archives, three road-show topical exhibitions were arranged. Along with the already showcased “UPA: History of the Unconquered”, the two others are “Roman Shukhevych” and “Declassified Memory.” 
“Declassified Memory” which portrays the 1932-1933 Holodomor was showcased in all the regions of Ukraine, attracting about 100,000 visitors. Exhibition materials have been handed over to the foreign ministry for translation into other languages and presentation worldwide. 
 
LIST OF HOLODOMOR PERPETRATORS 
The SBU publicised and placed on its website the first list of high-ranking Communist party and state officials who were heads of punitive bodies OGPU (United State Political Department) and GPU (State Political Department) in 1932-1933 as well as the documents signed by these officials that formed a legal and organizational base for perpetrating the Holodomor and massive political repression. 
The documents give conclusive evidence of the fact that the 1932-1933 Holodomor-Genocide was deliberately engineered by the totalitarian Communist regime. 
To make the archive materials on the organizers and culprits of Holodomor as well as the documents signed by them more accessible, SBU offered website visitors an opportunity not only to familiarize themselves with the list of perpetrators but also access orders, Communist party politburo protocols, secret instructions to party activists, instructions on how to apply the notorious “Law on the Five Ears,” directives on arrests in the rural areas, etc.  
Such kind of publication initiates a new project involving SBU archives, and the Security Service of Ukraine urged the Ukrainian Institute of National Memory, the State Committee of Archives, lawyers, experts of other law-enforcement agencies’ archives, Holodomor researchers, members of NGOs to join in to evaluate the activities of Holodomor organizers and perpetrators and eventually bring them to justice for committing crimes in Ukraine.
 
Cooperation with other countries
The SBU is involved in cooperation with respective agencies in other countries of the world, primarily in the former CIS republics, with the purpose of finding and exchanging information about the victims of political repression by the totalitarian regime in the USSR.
Accordingly, the SBU cooperates with the Committee for National Security of Kazakhstan, having received information regarding 15,675 Ukrainians who were victims of repression and served their sentences in Kazakhstan in 1920s-1950s. 
Notably, the Kazakh security service provided a list of 7,103 Ukrainians and victims of the Steplah concentration camp and 915 victims of the Karlah camp (near Karahanda). In addition, regional branches of the CNS handed over lists of 7,657 Ukrainians who, according to their archives,  were kept in other concentration camps.
Simultaneously, the SBU handed over to Kazakh authorities a list of 85 natives of Kazakhstan who had been imprisoned or repressed in the Ukrainian SSR.   
Materials on the SBU website
Events announcements, news on SBU activities, electronic versions of publications and exhibitions, copies of archive documents, protocols of work groups and public hearings sessions are available on the SSU official site at www.ssu.gov.ua
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