AUR#913 Oct 22 Why Ukraine Needs IMF Funding Now; Currency Weakened; Orange to Red; Chicago Exhibition "Our Daily Bread"

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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
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


Reuters, Kiev, Ukraine, Monday, October 20, 2008 
By Jan Cienski in Prague, Financial Times, London, UK, Tuesday, October 21 2008
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
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
By Daryna Krasnolutska, Bloomberg, Kiev, Ukraine, Mon, Oct 20, 2008

President Rescinds Decree Cancelling 7 December Election
BYuT Inform newsletter, Issue 90, Kyiv, Ukraine, Tuesday, October 21, 2008

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
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 

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.
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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.
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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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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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
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U.S.-Ukraine Business Council (USUBC):
Promoting U.S.-Ukraine business relations & investment since 1995.
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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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 from – Calyon Bank Ukraine: GLC deposit rating to Ba1/NP from Baa1/P-2,   
   NSR to from
– Index-Bank: GLC deposit rating to Ba1/NP from Baa3/P-3, NSR to from
– ING Bank Ukraine: GLC deposit rating to Ba1/NP from Baa1/P-2, NSR to from
– OTP Bank Ukraine: GLC deposit rating to Ba1/NP from Baa2/P-2, NSR to from
– Pivdenny Bank: GLC deposit rating to B2 from B1, NSR to from
– PrivatBank: GLC deposit rating to Ba1/NP from Baa3/P-3, NSR to from
– Raiffeisen Bank Aval: GLC deposit rating to Ba1/NP from Baa1/P-2, NSR to from
– Savings Bank of Ukraine: GLC deposit rating to Ba1/NP from Baa2/P-2, NSR to from
– Ukreximbank: GLC deposit rating to Ba1/NP from Baa2/P-2
– UkrSibbank: GLC deposit rating to Ba1/NP from Baa2/P-2, NSR to from
– Ukrsotsbank: GLC deposit rating to Ba1/NP from Baa2/P-2, NSR to from
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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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.

(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.

(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.

(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.

(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.

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)


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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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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. (

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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)


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U.S.-Ukraine Business Council (USUBC)
Promoting U.S.-Ukraine business & investment relations since 1995. 

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: and on

“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.
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:

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

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

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

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 ( is a Canadian international affairs specialist.


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

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

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

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


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


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

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).


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

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.
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,  for more information.

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

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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