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

 
ACTION UKRAINE REPORT – AUR       
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In-Depth Ukrainian News, Analysis and Commentary

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

4UKRAINE CAN MEET ECONOMIC CHALLENGES, IMF MISSION SAYS 

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

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

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

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

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

17.  UKRAINE POLL SUGGESTS SUPPORT FOR PRESIDENT MINIMAL 

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Ukrainian politicians seem clueless about how national leaders should behave.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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16.  YUSHCHENKO’S ALLIES DESERT HIM

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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