AUR#916 Nov 6 IMF Approves $16.4 Billion for Ukraine; Restore Financial & Economic Stability, Strengthen Confidence

 
ACTION UKRAINE REPORT – AUR       
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IMF APPROVES UKRAINE FOR $16.4 BILLION
Help authorities restore financial and economic stability and strengthen confidence.

ACTION UKRAINE REPORT – AUR – Number 916
Mr. Morgan Williams, Publisher and Editor, SigmaBleyzer
WASHINGTON, D.C., THURSDAY, NOVEMBER 6, 2008
 
INDEX OF ARTICLES  ——
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Return to Index by clicking on Return to Index at the end of each article
1.  IMF APPROVES US$16.4 BILLION STAND-BY ARRANGEMENT FOR UKRAINE
News Release: International Monetary Fund (IMF), Wash, D.C., Wed, Nov 5, 2008
 
Agence France Presse, Washington, D.C, Wednesday, November 6, 2008
 
3.  SILVER LININGS
Editorial, Kyiv Post, Kyiv, Ukraine, Thursday, November 6, 2008
 
By Steve Bryant, Bloomberg, New York, New York, Wed, Nov 5, 2008
 
5EXPERTS: GLOBAL CRISIS TO FORCE BADLY-NEEDED REFORMS UPON UKRAINE
Mark Rachkevych, Editor, Kyiv Post, Kyiv, Ukraine, Thu, Nov 6, 2008
 
By Roman Olearchyk in Donetsk, Financial Times, London, UK, Tuesday, November 4 2008
 
White Paper, Embassy of Ukraine to the USA, Washington, D.C., November 5, 2008 
    
By Natalia Nepryakhina, The Kommersant, in Russian, Kyiv, Ukraine, Fri, Oct 31, 2008
U.S.-Ukraine Business Council (USUBC), in English, Wash, D.C. Thu, Nov 6, 2008
 
UNIAN news agency in Ukrainian, Kyiv, Ukraine, Friday, Oct. 31, 2008 
U.S.-Ukraine Business Council (USUBC), in English, Wash, D.C. Thu, Nov 6, 2008
 
10PUTTING THE BLOCKADE IN CONTEXT: A UKRAINIAN PERSPECTIVE
INFORM, BYuT Newsletter #92, Kyiv, Ukraine, Monday, November 3, 2008
 
Interfax Ukraine, Kyiv, Ukraine, Tuesday, November 4, 2008
12ANACOM, INC., JOINS THE U.S.-UKRAINE BUSINESS COUNCIL (USUBC)
Satellite communications equipment manufacturer in California, USUBC member 96
U.S.-Ukraine Business Council, Washington, D.C., Monday, November 3, 2008
 

Mychailo Wynnyckyj, PhD, Director, Kyiv-Mohyla Academy Doctoral School, Kyiv, Ukraine

Marta Farion, President, Kyiv Mohyla Foundation of America, Chicago, Illinois, Nov 2008

Advanced ceramic & metallic coatings for turbine blades – USUBC member 97
U.S.-Ukraine Business Council (USUBC), Washington, D.C., Tuesday, Nov 4, 2008
 
Insight, Magisters law firm, Kyiv, Ukraine, October 2008
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1
 IMF APPROVES US$16.4 BILLION STAND-BY ARRANGEMENT FOR UKRAINE

News Release: International Monetary Fund (IMF), Wash, D.C., Wed, Nov 5, 2008

WASHINGTON, D.C. – The Executive Board of the International Monetary Fund (IMF) today approved a two-year Stand-By Arrangement (SBA) for SDR 11 billion (about US$16.4 billion) to help the authorities restore financial and economic stability and strengthen confidence.

The SBA request entails exceptional access to IMF resources equivalent to 802 percent of Ukraine’s quota in the Fund, and was approved under the Fund’s fast-track Emergency Financing Mechanism. Today’s approval enables the immediate disbursement of SDR 3 billion (about US$4.5 billion).

The authorities’ program is designed to help stabilize the domestic financial system against a backdrop of global deleveraging and a domestic crisis of confidence, and to facilitate adjustment of the economy to a large terms-of-trade shock. The authorities’ plan incorporates monetary and exchange rate policy shifts, banking recapitalization, and fiscal and incomes policy adjustments.

Following the Executive Board discussion, Mr. Murilo Portugal, Deputy Managing Director and Acting Chair, issued the following statement:

“The Ukrainian economy, especially the banking system, is experiencing considerable stress. Falling prices for Ukraine’s major export, steel, have led to a substantial deterioration in Ukraine’s current account outlook.

“This terms-of-trade shock, along with existing vulnerabilities—high inflation, relatively low foreign exchange reserves compared with short-term external debt, significant exposure of banks to foreign funding, balance sheet mismatches, and a weak underlying fiscal position—interacted with the drying up of liquidity caused by the international financial crisis and led to a significant slowdown in capital inflows.

“The authorities’ program, supported by the two-year Stand-By Arrangement with the IMF, aims to restore financial and macroeconomic stability by adopting a flexible exchange rate regime with targeted intervention, a pre-emptive recapitalization of banks, and a prudent fiscal policy coupled with tighter monetary policy. Resolute implementation of the program should help reduce inflation to single digits by the end of the program.

“The flexible exchange rate regime, backed by an appropriate monetary policy and foreign exchange intervention, will help absorb external shocks and avoid disorderly exchange market developments. The recent unification of official and market exchange rates should increase clarity about the regime.

“Recently imposed exchange controls will be phased out as confidence rebuilds. Plans to accelerate progress towards inflation targeting and enhance the independence of the National Bank of Ukraine are important to provide the nominal anchor under the flexible exchange rate regime over the medium term. In the near term, as liquidity pressures diminish, tighter monetary policy will be necessary to guard against inflation.

“A pre-emptive bank recapitalization will alleviate a potential credit crunch that could prolong and deepen the downturn in economic activity. Decisive measures that have been taken to allocate public funds to recapitalize banks and to facilitate bank resolution processes will ensure that problems can be dealt with promptly.
 “Increased oversight, more targeted on- and off-site inspections, and improved cross-border supervisory cooperation will help to strengthen the financial system. A proactive strategy to resolve corporate and household debt problems will also be essential to reduce banking sector vulnerabilities.

“A prudent fiscal stance is planned, consistent with both the financing constraint and the need for recession-related social spending. The target of a balanced budget in 2009 will be kept under review in light of the macroeconomic, financing, and revenue outlooks. The targets would be achieved in part by expenditure restraint, and by a phased increase in energy tariffs.
 “Ukraine’s extensive safety net provides a backstop to protect vulnerable groups, and the program also allows higher funding for unemployment insurance and targeted income support.

“The authorities have developed a strong and comprehensive package of measures to address the challenges Ukraine is facing and the Fund has provided commensurate financial assistance. Decisive measures have already been implemented by the authorities, including the passage of anti-crisis legislation.

Moreover, the authorities’ policy framework is sufficiently robust to adapt to evolving circumstances. The commitment of leaders of the main political parties to the core elements of the program increases the prospects for successful program implementation. All these elements give confidence that the program will succeed in stabilizing economic and financial conditions,” Mr. Portugal said.

ANNEX

RECENT ECONOMIC DEVELOPMENTS

Ukraine’s economy has grown very rapidly since 2000, expanding by more than 7 percent on average. Initially, this reflected the utilization of large excess capacity and increased productivity supported by a series of structural reforms. Since 2005, growth has been propelled by real domestic demand, namely a credit boom driven by strong capital inflows as well as incomes policies that redistributed large terms-of-trade gains to the population.

By mid-2008, the economy was overheating. Credit growth exceeded 70 percent, CPI inflation exceeded 30 percent, wage growth settled in the 30-40 percent range, a buoyant property market pushed valuations to high levels, and imports surged at an annual rate of 50-60 percent. The current account deficit reached 7 percent of GDP in the second quarter of 2008.

The Ukrainian economy also became vulnerable along other dimensions, including high short-term external debt relative to reserves, high exposure of banks to foreign funding, balance sheet mismatches, and a weak underlying fiscal position. Problems came to the fore as commodity prices plunged and the global financial turmoil deepened. These developments have had a considerable impact on the real sector as reflected in the sharp 5-percent contraction of the manufacturing sector in September.

At the same time, a sharp slowdown of external capital flows raised concerns about the ability of banks and corporates to roll over existing credit lines. When the sixth largest bank, Prominvest Bank, was put under receivership, a widespread deposit outflow began with at least US$3 billion—4 percent of deposits—withdrawn during the first three weeks of October.

Confidence in the country’s banking system and currency weakened. Intervention by the National Bank of Ukraine (NBU) mounted in October, reducing reserves from US$38 billion to US$32 billion. In addition to providing liquidity, the authorities also imposed a set of exchange controls to stem outflows.

The combination of weaker demand from Ukraine’s trading partners, falling export prices, rising import prices, and reduced access to international financial markets are expected to weaken growth prospects. Taking these developments into account, Ukraine’s overall financing needs for the next two years are large.

PROGRAM SUMMARY

The authorities’ program aims at restoring confidence in Ukraine’s macroeconomic and financial stability by addressing the financial sector problems, facilitating adjustment to potentially large external shocks, and reducing inflation. The program is designed to respond flexibly to economic developments.

The program is based on projections that assume a global recession and continued deleveraging in international credit markets in 2009, implying a recession in Ukraine with deteriorating exports, limited external financing and a credit crunch. The projected impact on output—a 3 percent decline—is consistent with Ukraine’s experience under similar circumstances in 2004-05.

Under the program, inflation is expected to decrease to 17 percent by end-2009 from the projected 25.5 percent this year. The current account would compress to a deficit level of about 2 percent of GDP from the mid-2008 level of 7 percent.

Assuming a global recovery in the second half of 2009, the Ukrainian economy could be back at its estimated potential growth rate of 5-6 percent by 2011 with inflation at 5-7 percent by late 2011.Current account deficits are projected to remain small in 2010, in light of the weak economy, and to be moderate thereafter, allowing reserves to rise.

The key measures to achieve the objectives of the program focus on the following areas:

[1] MONETARY AND EXCHANGE RATE POLICY
The program supports the implementation of a flexible exchange rate regime to help Ukraine better absorb the external shocks it now faces. Base money will be the near-term anchor for monetary policy until an inflation targeting regime can be implemented.

The independence of the NBU will be strengthened, and in the near term, monetary policy will be tightened to help achieve the 2009 inflation objective of 17 percent. The program envisages eliminating exchange rate controls as soon as possible, and measures to improve the operation of the foreign exchange market, including cancellation of the foreign exchange transactions tax and a more transparent intervention policy.

[2] FINANCIAL SECTOR POLICY
The authorities intend to prepare a comprehensive bank resolution strategy that will include the resolution of problem banks and the recapitalization of viable banks to cushion the real economy from a potential credit crunch. The authorities have already resolved the sixth largest bank, Prominvest Bank, through a sale to a strategic investor.

The program further proposes to ensure that viable banks have access to liquidity; increase deposit insurance coverage to Hrv150,000 (about euro20,000) from the current Hrv50,000, which will cover 99 percent of individual accounts; and strengthen the monitoring of banks, including through enhanced cross-border supervisory cooperation.

[3] FISCAL POLICY
The authorities will adopt a prudent fiscal stance while accounting for the need for recession-related social expenditures, including higher funding for unemployment insurance and targeted income support. Under the program, the deficit would not exceed 1 percent of GDP in 2008, and in 2009, the general government budget would be balanced (excluding bank recapitalization costs).

Even with the substantial increase of 0.8 percent of GDP social spending during the recession, these fiscal targets are deemed attainable. However, given the uncertainties on economic prospects and the availability of financing, the authorities are prepared to adjust the targets as needed.

To achieve their fiscal targets, the authorities are determined to correct the pricing policies in the energy sector and pursue a more balanced incomes policy by adjusting the minimum wage, pension, and social transfer increases in line with the projected inflation in 2009. These measures will help guard against higher inflation and depreciation.

Ukraine has an adequate social safety net in place to protect the vulnerable against adjustment policies, which the authorities are prepared to expand should the need arise.

Ukraine joined the IMF as a member on September 3, 1992. Its quota is SDR 1,372 million (about US$2,049 million).

LINK: IMF news release including statistical charts: http://www.imf.org/external/np/sec/pr/2008/pr08271.htm
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2.   IMF APPROVES 16.4 BILLION DOLLAR AID FOR UKRAINE 

 
Agence France Presse, Washington, D.C, Wednesday, November 6, 2008
     
WASHINGTON  – The International Monetary Fund has approved a 16.4 billion dollar (12.8 billion euro) loan aimed at rescuing Ukraine from a deepening financial crisis, officials said.
The IMF said Wednesday it hoped the two-year agreement for Ukraine would curb inflation to single digits and shore up banks that are suffering in concert with the global credit crunch.
“The Ukrainian economy, especially the banking system, is experiencing considerable stress,” said IMF deputy managing director Murilo Portugal in a statement. “Falling prices for Ukraine’s major export, steel, have led to a substantial deterioration in Ukraine’s current account outlook.”
The IMF approval, made under its “fast-track emergency financing mechanism,” means that 4.5 billion dollars will be immediately disbursed, Portugal said. Some banks have reportedly frozen customers’ accounts while untold numbers of Ukrainians have rushed to withdraw their cash, fearing the worst as job losses spread.
The banking sector has been hit hard due to its increased exposure to foreign loans since the Orange Revolution protests of 2004 brought to power a pro-Western leadership and economic reformers pressed for more European integration.
Portugal said the government plan and the IMF loan “aims to restore financial and macroeconomic stability by adopting a flexible exchange rate regime with targeted intervention.”
On Friday, Ukraine’s parliament approved legislation clearing the way for the IMF loan, and establishing a stabilization fund to help ailing banks and companies unable to service their foreign debts due to the worldwide financial crisis.
Guarantees for bank deposits will be increased so as to bolster confidence in the banking system, and the government will be able to take a stake in lenders if necessary. In addition, Ukraine’s budget will be tightened and spending cut.
Portugal said key parts of the plan include “a pre-emptive recapitalization of banks, and a prudent fiscal policy coupled with tighter monetary policy.”
“Resolute implementation of the program should help reduce inflation to single digits by the end of the program,” he added.
Ukraine has been among the countries hardest hit by global financial turmoil as a plunge in the price of steel, its main export, exacerbates a credit crunch and a sharp fall in stock prices.
At the same time, the downturn has become increasingly politicized, with the president earlier in the week blaming the government for the country’s problems.
Portugal praised the Ukrainian government’s plan, calling it “a strong and comprehensive package of measures to address the challenges Ukraine is facing and the Fund has provided commensurate financial assistance.”
Last month, Olexandre Chlapak, a senior figure with the presidential administration, said Ukraine faced bleak prospects for the coming year.
It could expect “a fall in GDP, a drop of up to 40 percent in foreign demand for Ukrainian products, and zero industrial growth, or in the best case, two to three percent.”
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3.  SILVER LININGS

Editorial, Kyiv Post, Kyiv, Ukraine, Thursday, November 6, 2008

To survive the tough times ahead, everyone will have to adjust including the government policy

Painful as it is, the economic crisis can make Ukraine’s economy healthier and can help plant its citizens more firmly in a market economy. But it will
take better political leadership than has been on display since independence.

The easy credit of the last decade led to unsustainable growth and financial carelessness. Inflation soared and the nation’s trade deficit widened.

Meanwhile, not enough was done to end the elite’s stranglehold on competition or secure a more diverse economy, ready for the global challenges ahead.

To survive the tough times, everyone will have to adjust. Kyiv needs to seize the International Monetary Fund’s offer of a $16.5 billion loan to adopt painful, but badly needed changes. Privatization should be completed, but honestly and openly. Agricultural land should be traded, but anti-monopoly protections strengthened, so that that the oligarchs cannot create cartels in land the way they do in other sectors of the economy.

Done correctly, Ukraine can become a world agricultural powerhouse. Done badly, the elite will speculate on land and Ukraine will become a nation of
sharecroppers.

This economic crisis has shown the dangers of having an economy that relies on commodity exports and easy credit. The nation’s leaders face the choice
of moving in the Kremlin direction of a state-run economy, or more firmly adhering to the Western market-oriented model. As imperfect as life is in
the West, we hope the nation, for the sake of its own prosperity, chooses a well-regulated capitalist system.

If Ukraine’s massive bureaucratic state apparatus is trimmed down, the nation will be better off. If red tape and taxes are cut, rapid growth of small and medium businesses – the engines of most economies – can happen.

But the path will be painful as people lose their jobs. Official unemployment is expected to increase from 6.2 percent earlier this year to 7.7 percent by year’s end. Ukraine’s unregulated labor market allows employers to unceremoniously dump their workers. Job reductions should be undertaken with compassion. Employers and government should help mitigate the human toll, both out of fairness and to prevent social instability.

But politicians will have to adjust their populist rhetoric and wean the populace off the idea that the government can guarantee social benefits when
the money is lacking. The government should focus on smart, long-term investments – improving energy efficiency and independence, for instance – that will pay off handsomely in the future.

A shakeout is inevitable as the speculative excesses come to an end in such sectors as housing and consumer lending. A recession is predicted to last
through the first half of 2009. Nations and individuals who use hard times to advance long-term strategic goals can emerge stronger.

LINK: http://www.kyivpost.com/opinion/editorial/30786

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4.  WORLD BANK SAYS IT’S READY TO JOIN UKRAINE ASSISTANCE PACKAGE

By Steve Bryant, Bloomberg, New York, New York, Wed, Nov 5, 2008
ANKARA – The World Bank is ready to participate in a coordinated international effort to help Ukraine deal with the impact of the world financial crisis, Shigeo Katsu, the bank’s vice president for Europe and Central Asia, said today.
Ukrainian President Viktor Yushchenko said yesterday that he asked for World Bank support to supplement a $16.5 billion loan accord between his country and the International Monetary Fund that’s expected to be approved today.
The World Bank can “step in as part of an internationally coordinated program,” Katsu said in an interview in Ankara. The lender is talking with the IMF and Ukrainian authorities and will “try to do whatever we can.”
 
Ukraine joined other European countries, including Belarus and Iceland, in asking for help from the IMF and other international financial institutions to help stabilize their banking systems and support their currencies.
The World Bank contributed 1 billion euros to the 20-billion euro ($25.8-billion) support package from the IMF and the EU for Hungary that was announced on Oct. 28. Katsu declined to discuss the possible size of any World Bank assistance for Ukraine. (To contact the reporter on this story: Steve Bryant in Ankara at sbryant5@bloomberg.net.)
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U.S.-Ukraine Business Council (USUBC): http://www.usubc.org
Promoting U.S.-Ukraine business relations & investment since 1995.
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5.  EXPERTS: GLOBAL CRISIS TO FORCE BADLY-NEEDED REFORMS UPON UKRAINE

 
Mark Rachkevych, Editor, Kyiv Post, Kyiv, Ukraine, Thu, Nov 6, 2008
  
Short term pains should be rewarded by long term gains if right policy path is chosen

Now everyone knows how to get members of Ukraine’s parliament to do something useful: dangle a lot of money in front of their noses and spell out tough conditions they must agree upon in order to receive the cash.

At least it appeared to work for the International Monetary Fund, which was expected on Nov. 5 to consider a $16.5-billion loan designed to help brace Ukraine’s economy for the hard times ahead. The aid is coming in the nick of time, but with strings attached that will cause economic pain for average citizens.
Still, the loan is seen as an essential prop, especially with the nation’s currency sinking to all-time lows and the country facing debt payments of $100 billion – more than 70 percent of the annual gross domestic product. Nearly half of that amount is due next year.
Getting the fractious group of 450 lawmakers to pass the austerity legislation took no small amount of shouting and cajoling.
“Don’t you understand!” shouted parliament speaker Arseniy Yatsenyuk during parliament’s debate on Oct. 31. “Someone will get $16.5 billion, but it’s not going to be Ukraine if you don’t stop arguing.”
President Victor Yushchenko signed the bill into law on Nov. 3. Kyiv agreed to all IMF conditions, except for a freeze in the minimum wage, according to Oleksandr Shlapak, deputy head of the presidential secretariat. The IMF was expected to consider the 24-month standby loan on Nov. 5 in Washington, D.C.
The stabilization package, which runs to 2011, envisions the creation of a stabilization fund and increased guarantees on bank deposits to Hr 100,000, and will help recapitalize banks.
Plans are also under way for a zero-deficit 2009 budget, which is expected to mean cutbacks in social spending and financial assistance for the poor.
“While the conditions imposed by the IMF will, in some cases, have unpleasant short-term consequences, in the long-term, Ukraine should benefit from the assistance package,” said Arch Puddington, director of research at New York-based Freedom House, a non-governmental organization that promotes economic and political freedoms. “The IMF’s [initial] decision, however, suggests a measure of faith in Ukraine’s long-term economic prospects and in its long-term political future.”
The short-term pains Ukrainians will face are lower wages, 35-percent-higher heating bills starting Dec. 1, less access to credit and a weaker currency – making it difficult to repay loans denominated in other currencies. The sliding hryvnia will also make imports more expensive.
“It’s crucial that wage increases [and other social spending] stop in order to halt spiraling inflation and help stabilize the country macro-economically,” said Ricardo Giucci, leader of the German Advisory Group, a private institute that advises Ukraine’s government.
Giucci said the crisis poses a great opportunity for implementing long-overdue economic reforms. While in the past, foreign capital poured into the country, today foreign investment can only be attracted by improving the investment climate. And given the difficult economic and financial situation, reforms can be passed quicker than usual, as shown by the swift actions of the government and parliament to adopt anti-crisis measures.
In the medium term, a zero-budget deficit could help reign in inflation, said Anastasiya Golovach, an analyst at Renaissance Capital in Kyiv. Golovach said cutting social spending is positive news for the market, since the past three years have seen increases in nominal wages by an average of 30 percent annually (and by about 17 percent in real wages). This happened due to government moves in light of frequent elections, which contributed to inflation.
The newly approved stabilization fund is meant to boost liquidity, replenish bank capital and help finance public investment programs. Funding for the stabilization fund is expected to come from privatization revenues and sale of government bonds.
Infrastructure development can become the first step toward a more-balanced economy if it lays the foundation for more structural economic changes.
“Infrastructure is positive,” said Edward Hugh, a Barcelona-based economist.
 
“But it needs to form part of an ongoing process. Structural export drivers like green-field investments, assembly industries, factories, high-tech clusters, investments for tourism, whatever, need to follow, as well as a more intensive leveraging of the substantial agricultural resources Ukraine undoubtedly has. A financial-services-driven, construction-and-steel-based economy simply isn’t going to pass muster in the current global environment.”
But analysts stress that for this export-led dream to come true, relative prices need to be right, which means businesses in Ukraine need to be competitive. That means undoing all the damage done by the recent inflation and getting the exchange rate on the hryvnia right.
Experts acknowledged that Ukraine’s undiversified economy still puts the country in a very risky situation. The nation is heavily dependent on one export – steel – the value of which has plummeted this year. International demand is so low, Ukraine’s output dropped by half in October, year-on-year.
Ukraine is also heavily dependent on imports of increasingly expensive natural gas from Russia.
The final version of the package provides a boost to the agricultural sector by allowing agricultural enterprises not to pay value-added tax if they use the money to replenish their working capital or make further investments.
And the National Bank of Ukraine tightened trading rules at the interbank currency exchange to reduce the currency volatility and make its desired hryvnia rate more easily defendable.
There are a number of IMF recommendations still waiting to be approved, however. An Alfa-Bank statement said canceling the moratorium on the sale of agricultural lands as advised by the IMF will bring in foreign direct investment to the sector widely believed to be the savior of Ukraine’s still-undiversified economy. Also, strict control over consumer goods imports is required to keep the country’s balance healthy.
The IMF wants Ukraine to have “strong monetary and prudent fiscal policies,” said Ceyla Pazarbasiogan, head of the lender’s mission to Ukraine, on Oct. 29. Specific budget strictures could come after the IMF votes on the Ukraine loan expected on Nov. 5.
 
LINK: http://www.kyivpost.com/nation/30792
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6.  UKRAINE FEELS THE PINCH AS STEEL PRICE DECLINES

 
By Roman Olearchyk in Donetsk, Financial Times, London, UK, Tuesday, November 4 2008
DONETSK – Just like his Russian counterparts, Rinat Akhmetov, a Ukrainian steel billion-aire, is feeling the pinch of the global financial crisis.
His Metinvest holding company has been caught by the global decline in steel prices and demand.
 
Production levels in Ukraine’s vast steel industry are falling and orders are dwindling. Hundreds of thousands of blue- collar employees at factories he and other Ukrainian businessmen own are nervous about losing their jobs.
“These are difficult times,” Mr Akhmetov said during a Financial Times interview in Donetsk, the largest city in Ukraine’s eastern industrial region. Sitting in the restaurant of a luxurious hotel that he owns, he said: “The recession has already arrived.”
He is not the only billionaire to be suffering. Tomas Fiala, the director of Dragon Capital, a Kiev-based investment bank, said, “Ukraine has about a dozen billionaires”, adding that the crisis had cut their net asset value in half. They have leveraged themselves less than their Russian counterparts but have “some $10bn-$20bn in outstanding foreign debt”, he said.
A Donetsk native, Mr Akhmetov became very rich during what is seen as the crony capitalist days that followed the collapse of the Soviet Union.
Reputedly Ukraine’s richest man, he snapped up steel mills, mines, utilities and other assets at fire-sale prices.
In Russia, most wealth is rooted in the export of gas and oil. Wealth in Ukraine is also concentrated on exports, although in its case the focus is on steel. The country ranks as a top 10 world steel exporter. In an April ranking, Dragon Capital valued Mr Akhmetov’s net worth at $31bn (euro24.6bn, pount19.6bn).
 
In a sign that Mr Akhmetov is not alone in suffering, Igor Kolomoisky, another billionaire and co-owner of three export-oriented ferro-alloy plants in Ukraine, halted production on Nov-ember 1.
In 2007, 34-year-old Kostyantin Zhevago floated his Ferrexpo ore company in London. In a gamble, he used a quarter of Ferrexpo as collateral for a loan to fund expansion plans. But its share price has plummeted this year and an investment bank exercised its option to sell the stake to a third party, reducing his stake from 75 per cent to 50 per cent.
Lenders have been more cautious in lending to Ukrainian billionaires because of the country’s relentless political turmoil. The prospect of a recession and low steel prices raises doubts over their ability to service debt. But Mr Akhmetov still has deep pockets, according to Mr Fiala.
Fearful of a recession and lay-offs, Donetsk residents hope billionaires such as Mr Akhmetov will help cushion them from serious trouble. He refused to comment in detail on the impact of the recession butpledged to avoid lay-offs at all costs.
He stressed the need for the Kiev government to bail out troubled Ukrainian banks but insisted: “I need no special treatment.” The Ukrainian government has offered bail-outs in return for equity stakes that could be sold off later.
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7.  UKRAINE’S ANTI-CRISIS LEGISLATION

 
White Paper, Embassy of Ukraine to the USA, Washington, D.C., November 5, 2008 
         
WASHINGTON, D.C. – On October 31, 2008 Ukraine’s parliament adopted a package of legislation intended to secure $16.5 bn standby loan from the IMF. The law was backed by 243 lawmakers in the 450-seat.
 
The parliament approved measures to recapitalize banks, increase guaranteed deposits to 150,000 hryvnias ($25,338) from 50,000 and set up a stabilization fund. All proceeds from the state assets sale and from the state’s bonds sale this year and next year will be injected into the fund. Money from the fund will be used for loans to banks and companies to help them to repay their debts to foreign investors.
The banks are also obliged to use their incomes to raise capitalization. The state will buy stakes in the troubled lenders. The law will expire when the situation is stable but no later than Jan. 1, 2011.
 
The IMF loan and related “anti-crisis legislation” is a key to preventing a financial meltdown, foremost by shoring up confidence in the country’s shaky banking sector – main task now is to overcome the first stage of the financial crisis. The Government and the National Bank of Ukraine has now, with approving this law, all the instruments and enough mechanisms to respond and take measures if the situation in the banking system escalates.
 
The Government while elaborating measures to overcome fallout from the crisis will be guided by principles of “common responsibility, effective coordination and fast response”. Immediate governmental measures are – to control spiraling inflation, reduce its trade deficit and free up its currency from a US dollar peg. 
 
The IMF loan is a key to propping up confidence in the eyes of foreign lenders. GOU and National Bank hope is that lenders will agree to refinance tens of billions of dollars in private sector debt that matures in the next 12 months.
 
The IMF loan might be not fully tapped. It is considered as “psychological credit” – to demonstrate both for local and foreign investors that National Bank of Ukraine has sufficient reserves of national currency and Bank is able to transact intervention in any point and provide local currency market with dollar’s volume as much as needed.
 
Measures to address the financial sector turmoil: The NBU actively supported banking sector liquidity through its refinancing operations. In October, it provided UAH 20 billion (about $4 billion) of liquidity support to a number of banks. To build confidence, deposit guarantees were doubled to $20,000 and are planned to increase further.
Furthermore, the NBU has imposed a six-month freeze on the early withdrawal of saving deposits from commercial banks. It introduced tough limitations on commercial banks credit portfolio growth. The foreign currency loans can be made only to borrowers that have foreign currency income. The NBU strengthened its monitoring of external private debt. In particular, it required commercial banks to supply with data on their and their clients’ external debt obligations maturing each quarter over the next 12 months.
 
The anti-inflationary program relied heavily on monetary measures by the NBU:  switching to a managed float in order to reduce forex interventions – the major source of money growth; tightening bank reserve & capital adequacy requirements; increasing the discount rate; carrying out sizable sterilization operations to slow down credit growth.
 
The Government has approved at the special sitting on October 4, 2008 the Provisional Order of using the Stabilization Fund and an Order on the state’s participation in capitalization of banks.
These are pressing top priority measures of the Government implementation of which will enable protection of the national banking system on normal operating of which the return of the citizens’ deposits and the opportunity to finance the economy depend. If Ukraine succeeds completely to stabilize the national banking system then we can say that Ukraine will return to normal living.
GOU hopes that approval of the mentioned documents will encourage aid attraction from the global financial organizations. All other decisions necessary for preventing the global financial crisis would be considered at the Government’s sitting on October 5, 2008.
National Bank of Ukraine approved unitary hryvnia’s official rate of exchange at the local forex (decree #153 dated of October 5, 2008). All state financial institutions will change over to work with unitary official rate of exchange till the end of this week.
IMF loan is needed as well because of now dozens of factories in Ukraine’s export-oriented economy have announced plans to halt production and warned of possible lay-offs. Ukraine’s economy has grown impressively in recent years due to strong demand for its main export, steel, strong investments and a credit boom that has been fuelled by heavy foreign borrowing, particularly by the country’s banks.
 
Rising consumption of imports and falling demand for steel have widened the country’s current account deficit, in turn putting pressure on the country’s currency, which lost some 20 per cent of its value in October.
 
Ukrainian stock market, with approval of anti-crisis legislation and hope for IMF loan, begins demonstrate rapid growth.
 
The additional social-oriented anti-crisis legislation package could be elaborated soon for compensation of recently approved by parliament unpopular IMF requirements, including a freeze on social expenditures.
 
Ukraine is aware that success of anti-crisis program, described in bilateral Memorandum between IMF and GOU, depends from providing the effective mechanism to control for tapping of credits from IMF and other foreign lenders.
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8.  BYUT, NUNS & LYTVYN BLOC UNITE TO PASS ANTI-CRISIS BILL

 
By Natalia Nepryakhina, The Kommersant, in Russian, Kyiv, Ukraine, Fri, Oct 31, 2008
U.S.-Ukraine Business Council (USUBC), in English, Wash, D.C. Thu, Nov 6, 2008
 
KYIV – The Verkhovna Rada passed the bill aimed to minimize the effects of the global financial crisis on the Ukrainian economy. Lawmakers approved the creation of a stabilization fund to guarantee the repayments of deposits by natural persons and banned a 2-year moratorium on the increase of the minimum wage to the subsistence level.
 
However, experts indicate that the law won’t speed up social payments with regard to inflation rate and express doubt that the stabilization fund will be filled with real money by the yearend. 
 
Following line-item debates on the amendments to the presidential draft, VR passed by 243 votes the draft No. 3309-4 “On priority measures to forestall the negative effects of financial crisis and on some amendments in the laws of Ukraine.” If Pres Yushchenko signs the bill into law, it will be valid till Jan. 1, 2011.   
 
The lawmakers approved the bills major items: the creation of a stabilization fund, banks’ recapitalization, build-up of the Natural Persons’ Deposits Guarantee Fund, and tax breaks for agriculture.
 
The following procedure was established to form the Stabilization Fund: from the sale of state-owned securities and surplus revenues from the privatization (earlier, it was proposed to pay all the revenues from the 2008 privatization). The revenues from the 2009 privatization will go into the fund in full. The distribution of money from the SF is to be done by the cabinet on coordination with VR committees on the budget as well as on finance and banking. 
 
The lawmakers also changed the banks recapitalization procedure. The present owners of banks will get a preemptive right to buy out additional emission stock, followed by investors and the Finance Ministry. The FM can participate in the formation and build-up of banks’ statutory funds by purchasing their stocks for budget money or state securities. The National Bank of Ukraine will have to buy out state securities at their nominal value for the term of the next 5 days for the money of international credits, that is, for the $16.5 billion IMF loan.
 
The lawmakers cancelled a provision whereby UkrExImBank’s capital had to be increased by 1 billion hryvnia to buy out a part of the Prominvest bank stock. 
 
It follows that the actual nationalization of the Prominvestbank will be carried out in accordance with the general procedure.
 
The Natural Persons’ Deposits Guarantee Fund will be built up using 25% of the NBU profits, but not less than 1 billion hryvnia annually. The lawmakers raised the ceiling of guarantees for deposits from 50,000 hryvnia to up to 150,000 hryvnia.
 
However, the lawmakers did not support the moratorium as of Jan. 1, 2009 through the 2010 yearend on raising the minimum wage to the subsistence level. Consequently, given the financial crisis and the need for a deficit-free 2009 budget, the cabinet will have to find 49.3 billion hryvnia for social programs, deputy head of Yushchenko’s office Oleksandr Shlapak said. The ban on the moratorium does not mean that the minimum wage will be raised on Jan. 1, 2009, as envisaged by the 2009 budget draft.
 
“When the cabinet has the funding, it can bring the minimum wage to the subsistence level because the change will affect the tariffs,” Oleksandr Zholud, International Center for Perspective Research analyst says. The Korrespondent’s source in the Finance Ministry admitted that the law does not stop the ministry from indexing wages for the rate of inflation. Premier Tymoshenko repeated the statement on Oct. 31. 
 
The creation of the Stabilization Fund does not guarantee that the fund will be able to operate in 2009. “The fund is an empty shell as in 2008 the State Property Fund earned merely 370 million against its 2008 target of 8.5 billion. Can one speak about surplus revenue from privatization?,” our source in the Finance Ministry said. The only viable source for the SF which can pay for the banks’ capitalization is part of the IMF loan as the other projected source (sales of government bonds) is out of the question in the light of recent failures to sell the bonds via auctions.
 
“That the SF won’t have any sources of funding is a positive development. Due to SF opaque procedures many corrupt schemes may emerge – we know well by whom VR committees are controlled,” says CASE-Ukrayina chief economist Volodymyr Dubrovsky. In a related move, Party of Regions lawmaker Iryna Akimova has insisted that the cabinet and NBU submit to VR a clear-cut mechanism for banks’ recapitalization.
 
The new law is called by lawmakers the first step towards stabilizing the country’s finance and banking system. The next step should be the support of real economy. Thus, Ms Akimova suggested revitalizing the bill of exchange system and raising depreciation rates for the steel-making and chemical sectors.
 
BYUT’s Natalia Korolevska agrees with this proposal as it will simplify administering of taxes and VAT rebates: “In particular, the system is good to tax goods in storage. All present supplies of goods stored are considered by the law as sold and are subject to taxation. It should be stopped.”  
 
LINK: http://www.kommersant.ua/doc.html?docId=1051828
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9.  ANTI-CRISIS LAW PASSED BY UKRAINIAN PARLIAMENT 

 
UNIAN news agency in Ukrainian, Kyiv, Ukraine, Friday, Oct. 31, 2008 
U.S.-Ukraine Business Council (USUBC), in English, Wash, D.C. Thu, Nov 6, 2008
 
KYIV – The bill outlining emergency measures to prevent the negative effects of the financial crisis was passed by Verkhovna Rada. The bill was supported by 154 lawmakers from BYUT, 69 from NUNS, 20 from the Lytvyn bloc. The Party of Regions and Communists abstained. 
The law envisages the creation of a stabilization fund from state property sell-off revenues in 2008 as well as from the targeted placement of government securities. The fund money is to be used by the government in coordination with the VR committee on finance and banking and the budget committee.  
To ensure banks liquidity, the ministry of finance will be authorized to form or increase the banks statutory funds by buying initial emission stock or additional emission stock in exchange for government bonds and/or for budgetary money. The bonds are subject to mandatory buying out by the National Bank of Ukraine. The cabinet will take its decisions on the banks capitalization on the proposals from NBU.  
In addition, the law imposes a moratorium on the distribution of a bank’s net profits earned before Jan. 1, 2011 if a bank shows, within a year for which dividends are calculated, balance losses in the 3 current months. 
Under the law, if NBU’s profits exceed its losses in a current budgetary year, the  bank is to pay its positive balance in the budget of the year following the year for which the report is prepared. 25% of the bank’s profits, but no less than 1 billion hryvnia, is to be earmarked for the “Guarantee Fund for Natural Persons Deposits,” banks capitalization purposes and the state mortgage institution, with the excess of the losses over profits being compensated from the next year’s budget. 
Under the law, natural persons will receive guarantees of repayment of their bank deposits not exceeding 150,000 hryvnia. In addition, in 2008 state guarantees for credits of international financial institutions, amounting to 10 billion hryvnia, shall be provided by the cabinet in line with the budget code.
Under the law, the UkrExImBank is to reinvest in its statutory fund its net profits earned in 2008 and undistributed net profits for the past years, but no less than 500 million hryvnia.
In line with the law, based on monthly reports on the implementation of local budgets, the Finance Ministry will extend 12-month interest-free loans from the state treasury to local authorities. The loans must be used for inter-budgetary transfers to the amount of 2008 local budgets revenue shortfalls. The repayment of medium term loans must be carried out on the results of the year balance report and under the procedure set by the cabinet.  
The law will be valid until it is cancelled by VR after reaching financial and economic stabilization but not later than 2011. 
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10.  PUTTING THE BLOCKADE IN CONTEXT: A UKRAINIAN PERSPECTIVE

 
INFORM, BYuT Newsletter #92, Kyiv, Ukraine, Monday, November 3, 2008
 
KYIV – To western eyes it appeared simple. The country was at the brink, staring into the abyss. Teetering on its edge was the president and prime minister, locked in a very public battle; two leaders more concerned about preserving their political futures than the economic well-being of the nation.
 
One demanded an election in the deluded belief he will play king maker and preserve his presidency, while the other wished to avoid an election which could unseat her as premier. Meanwhile the bronchial cough infecting Ukraine’s financial institutions was about to escalate into a fatal case of economic pneumonia. Something had to give.
 
Just when it looked like a financial meltdown was inevitable, up popped the International Monetary Fund (IMF), throwing the nation a $16.5 billion lifeline. To grab it, all the feuding couple had to do was to pass some legislation – a few laws to balance the books and curb future spending.
 
But the deadlock dragged on. It was then that lawmakers from the Bloc of Yulia Tymoshenko (BYuT) sprang into action, blockading the speaker’s podium to prevent a law from being passed that would approve $76 million to fund a December election.
 
Even the most seasoned western experts rolled their eyes at this subversion of the democratic process, which naturally attracted considerable flak. To all and sundry it looked like BYuT, the last flame bearer of the Orange Revolution, had succumbed to tricks normally associated with Party of Regions.
 
Few will forget how, in June 2006, the latter used this same stalling tactic to devastating effect. That summer an around the clock blockade bought the time needed to convince Oleksandr Moroz and his Socialist Party to cross the floor and join the Party of Regions and Communists in the Anti-Crisis coalition – paving the way for Viktor Yanukovych’s return as premier.
  
Nearly two years on, how can BYuT justify the indefensible? Perhaps it should not try to. What it should do is to provide context and explain the extraordinary circumstances that shaped this “last resort” behaviour.
 
A QUESTION OF NATIONAL PRIORITIES  
[1] Firstly, lawmakers will tell you that the primary driver for this action was to force parliament to focus exclusively on tackling the financial crisis. After all, the situation was dire – a case of all hands on the pump. Dallying with elections at this time would be like rearranging the deck chairs on the Titanic.
  
This view is shared by Volodymyr Lytvyn, leader of his eponymous centrist bloc, which has 20 seats in parliament. Mr Lytvyn was quoted by UNIAN as saying: “If we seriously raise the question of offering resistance to the financial crisis, we should forget about the parliamentary election. But if we nevertheless announce the election, nobody will implement the anti-crisis measures, because the whole executive power will take part in the parliamentary campaign.”
 
ALLURING ELECTIONS 
[2] Secondly, it is assumed that Ms Tymoshenko wants to cling to her premiership. This is true but not for the reasons surmised. Rivals suggest she is desperate to use her position as a springboard for the presidency in 2010. But that argument does not pass scrutiny, not least because the fallout from the economic downturn – which is far from over – will inevitably blight whoever is in office at the time. Indeed, given her strong opinion poll rating versus the president, combined with options for alliances with smaller parties, the prospect of an election appears positively alluring.
 
According to a poll for the National Institute for Strategic Studies (conducted 20-24 October), if a presidential election was held tomorrow, President Yushchenko would not even make the run-off. Only 9.7 percent of respondents said they would vote for him, while 20.7 percent favoured Viktor Yanukovych and 24.2 percent Ms Tymoshenko.
  
Similarly, a recent poll by FOM, to gauge the outcome of a parliamentary election, puts BYuT on 31.1 percent, the Party of Regions on 29 percent and the Yushchenko bloc in fourth place with 4.1 percent, behind the Communist Party with 6.6 percent.
  
Based on these figures BYuT should back elections now! But BYuT has steadfastly maintained that elections are not in the best interests of the country.
 
NEW ORDER VS. OLD ORDER
[3] There is a third factor to consider. Ms Tymoshenko knows that the longer she remains in office the harder it becomes to turn back the clock. Under her watch, huge inroads have been made into rolling back the black economy. Massive sums lost to the state through smuggling and non-payment of taxes are now being paid and the grip of shadowy middlemen on the gas industry is well and truly broken.
  
In addition to taking radical action, BYuT has taken conciliatory steps. The dropping of its legal challenge to the president’s election decree and endorsement of the president’s anti-crisis bill point to a willingness to repair bridges. Indeed, Ms Tymoshenko described the vote on the first reading of the anti-crisis bill, as “a good signal that the democratic coalition can be revived, and parliament can effectively function a lot better than it could in the previous few months.”
  
This determination to not give up on the coalition, when nearly everyone else has, was a contributory factor to the blockade. And whilst BYuT does not endorse an “end justifies the means” philosophy, the stubborn actions of a few will benefit the country. Maybe extraordinary times deserve extraordinary measures. It is at least important to put them into context, and whilst one is not necessarily proud of this last resort tactic, it has focused minds on what is really important.
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Promoting U.S.-Ukraine business & investment relations since 1995. 
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11. UKRAINIAN PRESIDENT EXPECTS IMF ASSISTANCE IN TACKLING FINANCIAL CRISIS

 
Interfax Ukraine, Kyiv, Ukraine, Tuesday, November 4, 2008
 
KYIV – Ukrainian President Viktor Yuschenko has said that he expects the country’s political forces,the International Monetary Fund and other international financial institutions to support measures to tackle the financial crisis. He was speaking at a meeting with IMF mission representatives on Friday,the presidential press service reported.
The effects of the global financial crisis for Ukraine and ways to dampen them were the major topic during their meeting. Yuschenko suggested making a joint evaluation of the risks of foreign and domestic economic processes on the Ukrainian market. He said that the Ukrainian economy had already faced crisis situations and managed to cope with them.
“The situation on the foreign and domestic markets is currently difficult,but I’m a total optimist and I’m sure that if we take comprehensive steps,we will find a right answer for depositors,business,and financial system,” Yuschenko said.
 
He also spoke about the consolidated plan of anti-crisis measures that are being drafted by Ukrainian institutions empowered to conduct economic and financial policies. “We currently need a very important dialogue,” Yuschenko said.
Participants in the meeting included IMF Mission Head Ceyla Pazarbasioglu,her deputy Mark Flanagan and IMF Resident Representative in Ukraine Balazs Horvath. Participating in the meeting from Ukraine were Finance Minister Viktor Pinzenyk,National Bank of Ukraine Chairman Volodymyr Stelmakh,Presidential Secretariat First Deputy Head Oleksandr Shlapak and Presidential Secretariat Deputy Head Andriy Honcharuk.
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12.  ANACOM, INC., JOINS THE U.S.-UKRAINE BUSINESS COUNCIL (USUBC)
Satellite communications equipment manufacturer in California, USUBC member 96
 
U.S.-Ukraine Business Council, Washington, D.C., Monday, November 3, 2008
 
WASHINGTON, D.C. – AnaCom, Inc. of San Jose, California, has been approved for USUBC membership, according to the USUBC executive committee, in an announcement on behalf of the entire USUBC membership. AnaCom, Inc. is USUBC member ninety-six.
 
AnaCom is a worldwide leader in the design and manufacturing of high performance C & Ku Band Transceivers, BUC’s and SSPA’s for VSAT and Satellite Communications applications with a complete satellite IP networking solution to send VoIP, video and data.  AnaCom, Inc. has addressed the Satellite Transceiver and BUC market based on the industry’s increasing need for high performance products that are extremely reliable and available at a low cost.
 
AnaCom’s headquarters resides in a technology park in San Jose, California, in the heart of “Silicon Valley, ” and has several sales offices around the world. AnaCom provides Transceiver, BUC and SSPA products that are sold worldwide to leading satellite communications systems providers, integrators and end-users.
 
AnaCom’s IP networking solution intelligently combines routing, TCP acceleration, advanced satcom modem, DAMA + SCPC capability, frequency-agile bandwidth aggregation, priority for real time applications (e.g. voice, video,) a complete VoIP solution, including a softswitch for call routing, and a complete suite of network management capabilities all in one box.
 
AnaCom’s reputation for reliability and ease of use is well known in the satellite industry, and it is the brand of choice by leading satellite professionals. Quality by design, engineering capabilities, and a strong manufacturing base allow AnaCom to maintain lower product costs. Our transceiver, BUC, and SSPA offerings cover all commercial satellite frequencies over a wide range of power levels.
 
ANGELA V. TLUSTENKO, VICE PRESIDENT
USUBC has been working with Angela V. Tlustenko, Vice President of Sales for AnaCom, Inc., who is now based in Vienna, VA.  Angela attended the USUBC financial and economic briefing in Washington on Tuesday, October 28.  She is originally from L’viv, Ukraine.

 
Angela Tlustenko participated in a Rotary International Education Program that allowed her to spend one year of high school in Overland Park, Kansas. She then returned to the U.S. for her higher education, where she graduated from DePauw University in Greencastle, IN.  Among professional highlights, Angela worked for the U.S. Department of State for several years before joining AnaCom.
 
Angela emphasized that her move to Vienna, VA was part of a larger AnaCom goal to be closer to the U.S. defense industry and to all the embassies located in Washington.  She said AnaCom is not involved directly in Ukraine at this time but wants to be active on the Ukrainian market and is very interested in developing direct contacts with companies doing business in Ukraine. Angela will represent AnaCom on the USUBC board of directors.
 
More information about AnaCom, Inc., can be found on their website at www.anacominc.com.  If you would like to be in contact with Angela Tlustenko about AnaCom, Inc. please contact USUBC. 
“USUBC is very pleased to have AnaCom, Inc. as a new member,” said Morgan Williams, SigmaBleyzer, who serves as president of USUBC.  USUBC has grown very rapidly during the past 22 months and now has a membership base which allows USUBC to provide its members such as AnaCom, Inc., with a full-time operation and a significantly expanded program of work,” according to president Williams.
 
USUBC MEMBERSHIP WILL TOP 100 IN 2008
AnaCom, Inc, 46th new member for 2008, and the 76th new member since January of 2007. USUBC membership has quadrupled in the past 22 months, going from 22 members in January of 2007 to 96 members in November 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), SE Raelin/Cajo, Inc. and AnaCom, Inc.
 
The complete USUBC membership list and additional information about USUBC can be found at: http://www.usubc.org.
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13.  UKRAINE’S FIRST PHD PROGRAM OPENS AT KYIV-MOHYLA ACADEMY

 

Mychailo Wynnyckyj, PhD, Director, Kyiv-Mohyla Academy Doctoral School, Kyiv, Ukraine

Marta Farion, President, Kyiv Mohyla Foundation of America, Chicago, Illinois, Nov 2008

Kyiv-Mohyla Academy officially opened Ukraine’s first Doctoral School on October 8, 2008,  offering the country’s first western-style PhD programs. This initiative is revolutionary for Ukraine’s higher education system, as it represents a radical departure from the legacy Soviet-era system of researcher preparation that still persists in Ukraine.
 
Unlike the traditional Soviet era “aspirantura” which is highly regulated by the Ministry of Education’s Higher Attestatation Council (“VAK”), the Kyiv-Mohyla Doctoral School’s PhD programs represent an embodiment of the principle of university autonomy (independence from the state) which is fundamental to the western system of higher education.
 
In time, it is hoped that the Kyiv-Mohyla Doctoral School will become a model for the enactment of fundamental reform within Ukraine’s post-graduate education system.
 
THE TRADITIONAL “ASPIRANTURA” SYSTEM 
 The fact that Ukraine’s current system of post-graduate education (the traditional “aspirantura” system which culminates in the “candidate of sciences” degree) is in dire need of reform is widely accepted. According to Ministry of Education statistics, only 7% of Ukrainian “aspirants” complete their research degree within the required three year period, and only 25% ever submit their dissertations for defense.
 
This state of affairs reflects serious systemic flaws in the structure of post-graduate training: young “aspirants” are assigned a single supervisor for their research projects, but are provided with minimal institutional support during their three year period of study.
 
Course work is not required, nor do any structures exist for the inclusion of “aspirants” into a global academic community. Upon completion of the three year period, “aspirants” are required to publicly defend their dissertations before a specialized defense committee whose members are chosen according to formal criteria (each must be a “doctor of science”) rather than their real ability to assess the quality of the “aspirants” research.
 
Such a system has led to widespread corruption (buying academic degrees), and to the overall discrediting of Ukraine’s system of post-graduate education. For this reason, many young Ukrainian students who plan to embark on academic careers (especially those returning to Ukraine after studying abroad) do not even consider enrolling in the existing “aspirantura” system.
 
EUROPEAN INTEGRATION AND INTERNATIONAL STANDARDS 
Ukraine became a signatory in 2005 to the Bologna Declaration, a joint declaration of European ministers of education to reform and integrate European systems of higher education.  In so doing, Ukraine committed itself to replacing the flawed Soviet-legacy system by 2010 with a western-style 3rd cycle of education (i.e. the PhD degree) that conforms to the principles of the European Higher Education Area (EHEA).
 
However, in reality, implementation of EHEA-compliant PhD programs has not yet begun in Ukraine. Without creation of a working model of a Doctoral School, there exists a serious risk that in the near future, Ukraine’s Ministry of Education will attempt to superficially conform to its Bologna commitments by simply renaming the “candidate of sciences” degree into a “PhD” without reforming the substance of a system of research training.
 
UKRAINE’S FIRST PHD PROGRAM  
The Kyiv-Mohyla Academy Doctoral School represents a radical departure from the existing system, and hopefully, in time, will become a real model for reform throughout the country. This year, the Doctoral School enrolled its first 16 doctoral candidates into three EHEA-compliant PhD programs: Management in Public Health (an initiative of the Kyiv-Mohyla School of Public Health); Mass Communications (a joint program of the Kyiv-Mohyla School of Journalism and Department of Sociology); Finance (a joint program of the Department of Finance and Kyiv-Mohyla Business School).
 
Each doctoral program was established with extensive international partner cooperation of: Norwegian, American, Spanish, and Dutch academics serving as program experts, research supervisors, and potential dissertation examiners. 
 
Kyiv-Mohyla’s Doctoral School plans to launch three additional Ph.D. programs next year: Transition Studies (joint program of the Departments of Sociology and Political Sciences), Philosophy of Literature (joint program of the Departments of Philosophy and Literature), and Membrane Technologies (joint program of the Departments of Biology and Chemistry).
 
Each program must have the required “critical mass” (including foreign partners, financing, and a sufficient number of qualified Kyiv-Mohyla academics within each field) before being approved for launch.  The university’s goal is to completely transform the current “aspirantura” system at Kyiv-Mohyla (approx. 55 students per year) into EHEA-compliant PhD programs by September 2010.
 
THE DOCTORAL CURRICULUM 
The structure of training at the Kyiv-Mohyla Doctoral School consists of the following: during their first year of studies, in addition to commencing their individual research projects, doctoral candidates enroll in a series of methodological and skills training courses that are organized by the Doctoral School (up to 20 credits), and also partake in thematic courses and seminars organized by each Doctoral program (up to 20 credits).
 
During the second year of studies, the number of structured courses is somewhat reduced (total of 30 credits) with research becoming more central to each PhD candidate’s activities as he/she proceeds through the 4 year doctoral program.
 
A Kyiv-Mohyla doctoral candidate’s training culminates in a dissertation defense before an ‘ad hoc’ thesis committee (not a permanent “rada” whose membership is sanctioned by Ukraine’s “VAK”) organized by the Doctoral School, and composed of five well-known academics from the candidate’s research field – at least one will be from a non-Ukrainian university.
 
Successful candidates will be awarded the Kyiv-Mohyla PhD degree which (for now) is not recognized by the Ukrainian state, but (paradoxically, and in full compliance with western practice) will be recognized by the worldwide academic community as a legitimate PhD degree.
 
DOCTORAL PROGRAM ADMINISTRATION 
The following Kyiv Mohyla professors have been appointed to lead the new program: Mychailo Wynnyckyj (PhD in economic sociology of post-Soviet transition, Cambridge University) as Director of the Kyiv-Mohyla Doctoral School; Dr. Wynnyckyj is currently Associate Professor, Department of Sociology and Kyiv-Mohyla Business School; Volodymyr Morenets (Vice President for Research and Academic Affairs, Chair of the Department of Literature) as Doctoral Program Coordinator for the Philosophy of Literature PhD program, and Tetiana Oharkova (PhD degree in comparative literature, University of Sorbonne, Paris) as Deputy Director of the Kyiv-Mohyla Doctoral School.
 
DEPARTURE FROM PRIOR SOVIET SYSTEM 
The new model of PhD training described above represents a radical change from Ukraine’s existing “aspirantura” system. Whereas the old system was designed by Soviet-era apparatchiks as a means of limiting access for those deemed “unworthy” or “unreliable” for distinguished positions in the USSR’s academy, the Kyiv-Mohyla Doctoral School’s system is designed to aid young Ukrainian post-graduate students to gain access to the worldwide scientific and research communities. In order to accomplish this goal, however, financing is needed.
 
At present, the Doctoral School initiative at Kyiv-Mohyla Academy is limited in resources to scarce internal university funding and small grants, and the project is currently supported by an enthusiastic group of Kyiv Mohyla faculty who see an urgent need for “aspirantura” reform.  Background knowledge and training for this group was obtained through a European Union-funded Tempus project in 2006-7, and a follow-up application to Tempus was submitted for 2009-10. 
 
A grant from the Kyiv Mohyla Foundation of America financed organization and management training of PhD programs at U.S. universities. In addition, the PhD program in Mass Communications obtained a 560,000 hryvni start-up grant from Rinat Akhmetov’s Foundation for the Development of Ukraine.
 
FINANCING THE NEW DOCTORAL PROGRAM 
However, these prior grants are insufficient to implement a full-scale best-practice model of PhD education at Kyiv-Mohyla that can also become an example for wider Ukrainian reform.  Additional funds are required for the Doctoral School’s infrastructure, faculty, journals and books and stipends.
 
In particular, the Kyiv-Mohyla Doctoral School is appealing to the Ukrainian Diaspora for its support of the Philosophy of Literature PhD program – an area of research that finds little support among institutional and private donors, but is of utmost importance to the worldwide Ukrainian community.
 
For more information about the Kyiv Mohyla Academy’s Doctoral School, see: http://www.gradschool.ukma.kiev.ua.  In the United States, tax deductible donations to the new PhD program can be sent to Kyiv Mohyla Foundation, P.O. Box 46009, Chicago, IL 60646-0009. 
 
In Canada, donations can be sent to Canada Ukraine Foundation “UKMA Fund”, 203-952 Main Street, Winnipeg, Manitoba R2W 3P4.  Both organizations will provide receipts for tax purposes.  For more information, see: www.kmfoundation.com.
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14.  PRATT & WHITNEY-PATON JOINS U.S.-UKRAINE BUSINESS COUNCIL (USUBC)

Advanced ceramic & metallic coatings for turbine blades – USUBC member 97
 
U.S.-Ukraine Business Council (USUBC), Wash, D.C., Tue, Nov 4, 2008
 
WASHINGTON, D.C.- Pratt & Whitney-Paton (PW-P), an American-Ukrainian joint venture between the Pratt & Whitney division of the United Technologies Corporation, USA, and the E. O. Paton Electric Welding Institute in Kyiv, Ukraine, has been approved for USUBC membership, according to the USUBC executive committee, in an announcement on behalf of the entire USUBC membership. Pratt & Whitney-Paton (PW-P) is USUBC member ninety-seven.  
 
Pratt & Whitney-Paton (PW-P) has two factories located in Kyiv, Ukraine, with a highly skilled workforce of 165 employees. Since 1993, PW-P has been a center of excellence for coating and repair of airfoils from both aero and industrial engines. PW-P offers their customers the latest solutions in the area of Electron-Beam Physical Vapor Deposition (EB PVD) thermal barrier and metallic coatings for turbine blades and vanes. 
 
PW-P’s long list of customers includes Pratt & Whitney (USA), Siemens (Sweden), Japanese Turbine Technologies (Japan), Turbine Overhaul Services (Singapore), Uker Gas Energo Services (Ukraine) and Perm Motors (Russia). One of PW-P’s goals is working to significantly increase their work with Ukrainian companies.
 
PRATT & WHITNEY-PATON PRODUCTS
PW-Paton products include; application of advanced ceramic and metallic turbine coatings, the development and manufacturing of advanced Electron Beam Coating Equipment, repair of gas turbine components and Research & Development of advanced materials and coatings. 
 
The thermal barrier coating or TBC enables the engine to achieve a level of performance which previously was not attainable because the limits of the metallic super alloys within the turbine section.  The presence of the TBC allows the gas temperature in the turbine to operate above the melting temperature of the super alloys. 

What is novel about the TBC applied by Pratt & Whitney-Paton is that it has a unique crystal structure which allows it to survive in the hostile environment in which it operates (2800 F) and it performs its thermal insulating duty and actually stays attached to the turbine components (blades and vanes) for up to four to five years of continuous service. 
 
Through the method of EB PVD, that is; Electron Beam Physical Vapor Deposition, this coating is created in a vacuum chamber under highly controlled conditions using electron beam guns to generate the intense heat necessary to vaporise ceramic and metallic compounds.  .

JAY MULLOOLY IS GENERAL MANGER OF PW-P
John (Jay) Mullooly is General Manager of Pratt & Whitney-Paton in Kyiv.  Jay flew to Washington recently to attend the USUBC breakfast with Ukrainian President Victor Yushchenko.  Jay will represent the company on the USUBC board of directors. 

 
USUBC started working with PW-P regarding the major issues they face with the extremely bureaucratic and outdated procedures of the Ukrainian customs service.  Ludmyla Dudnyk, USUBC program director in Ukraine and Morgan Williams, USUBC president, visited the PW-P plant in October and reviewed with general manager Mullooly some of the ongoing customs issues that severely slow down and restrict PW-P’s work in Ukraine.
 
To provide their service the joint-venture has to import and export parts from their customers in Europe, USA and Asia.  They receive the parts directly from DHL Express and then process the clearance documents in parallel and have a blanket bond (promissory note) not individual as required by the current procedure. 
 
CUSTOMERS EXPECT QUICK TURN TIMES
Jay told USUBC their international customers need and expect very quick turn times.  With the current process, parts are held for customs clearance on the inbound and outbound making the process extremely arduous and lengthy.  The customs service only works 4 1/2 days per week and they have a plethora of holidays.  All of the customs issues cause unnecessary and costly delays in the turn time.
 
The same problem exists for the required promissory notes as they have to deal with both the banks and the Ukraine tax department.  USUBC is working with PW-P and DHL Express (a member of USUBC) on this issue.
 
For more information on the work of Pratt & Whitney-Paton in Ukraine please go to: http://www.pwpaton.com/.  If you would like to be in touch with Jay Mullooly about the services of Pratt & Whitney-Paton please contact USUBC.
 
“USUBC is very pleased to have Pratt & Whitney-Paton,” said Morgan Williams, SigmaBleyzer, who serves as president of USUBC.  “USUBC has grown very rapidly during the past 22 months and now has a membership base which allows USUBC to provide its members such as PW-P, with a full-time operation and a significantly expanded program of work,” according to president Williams.
 
USUBC MEMBERSHIP WILL TOP 100 IN 2008
Pratt & Whitney-Paton is the 47th new member for 2008, and the 77th new member since January of 2007. USUBC membership has quadrupled in the past 22 months, going from 22 members in January of 2007 to 97 members in November 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), SE Raelin/Cajo, Inc., AnaCom, Inc. and Pratt & Whitney-Paton.
 
The complete USUBC membership list and additional information about USUBC can be found at: http://www.usubc.org.

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[return to index] [Action Ukraine Report (AUR) Monitoring Service]
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15.  UKRAINE JOINS WTO: KEY IMPROVEMENTS FOR INVESTORS

 
Insight, Magisters law firm, Kyiv, Ukraine, October 2008
On May 16 of this year, Ukraine joined the WTO as its 152nd member. Although Ukraine’s economy has been booming for the past decade and foreign investment has been rapidly growing, WTO accession will bring with it a new set of standards for Ukraine, resulting in even higher levels of FDI and further integration into the world economy. WTO countries in the region have seenan approximate doubling of FDI post-accession.
 
The main terms of Ukraine’s accession are market liberalization and non-discrimination in sectors including agriculture, manufactured goods, services trade, intellectual property protection and overall reform of the country’s commercial environment, including mechanisms for dispute resolution and international enforcement procedures.
AGRICULTURE
Open access to Ukraine’s agricultural market is one of the key terms of WTO accession. For foreign investors, a major obstacle to doing business in this sector had been the recent government-imposed export quotas and restrictions on grains, including wheat and rye.
 
These quotas have now been lifted. In addition, minimum export prices have been revised, and tariff rate quotas for grains, sugar, and other agricultural products have been reformed. Finally, Ukraine must now adhere to international standards for imports of beef, pork, poultry, fish, and biotech products.
MANUFACTURED/INDUSTRIAL GOODS
Ukraine has committed to a reduction of average bound tariffs on manufactured goods to 4.6%. In addition, the country joined many of the zero-tariff agreements including the Information Techonology Agreement, and those applying to civil aircraft, chemicals, agricultural equipment and parts, construction products, scientific equipment, distilled spirits, pharmaceuticals, furniture, non-ferrous metals, paper, and toys. Export duties on steel scrap and non-ferrous metals will also be reduced.
SERVICES TRADE
In the service sectors, Ukraine had, for a long time, limited foreign equity rights. With WTO accession, Ukraine’s core service sectors, including: banking, financial services (and within five years, insurance), business and professional services, telecommunications, construction and engineering, transport, education, distribution, energy, environmental, and many other services will be granted open access and 100% foreign ownership rights.
INTELLECTUAL PROPERTY PROTECTION
Ukraine has had a poor track record on protection of intellectual property. With WTO accession, the country has agreed to implement most WTO rules, including on intellectual property rights enforcement, customs valuation, technical barriers to trade, trade remedies, trade-related investment measures, and other requirements.
REFORM OF COMMERCIAL ENVIRONMENT
Perhaps the singlemost important provision for foreign investors of Ukraine’s WTO accession is the country’s commitment to reform its commercial environment.
 
This provision encompasses two major tracks: 1) Reform of the country’s internal commercial regime, including improved transparency and implementation of new laws and 2) Participation in WTO dispute settlement processes and bilateral consultations. Both internal reform and increased participation in and adherence to international enforcement procedures should reassure investors that there is now a lower risk to doing business in the country. 
 
LINK: http://www.magisters.com/insight/2008-1/ukraine-joins-wto-improvements-for-investors/
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[return to index] [Action Ukraine Report (AUR) Monitoring Service]
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Articles are Distributed For Information, Research, Education, Academic,
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HOTMAIL.COM AND YAHOO.COM

We are also having serious problems with hotmail and yahoo servers not delivering the AUR and other such newsletters. If you have an e-mail address other than hotmail or yahoo it is better to use that one for the AUR.
 
ACTION UKRAINE PROGRAM – SPONSORS
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1.  THE BLEYZER FOUNDATION, Dr. Edilberto Segura,
Chairman; Victor Gekker, Executive Director, Kyiv, Ukraine;
Additional supporting sponsors for the Action Ukraine Program are:
2. UKRAINIAN FEDERATION OF AMERICA (UFA), Zenia Chernyk,
Vera M. Andryczyk, President; Huntingdon Valley, Pennsylvania
3. KIEV-ATLANTIC GROUP, David and Tamara Sweere, Daniel
Sweere, Kyiv and Myronivka, Ukraine, kau@ukrnet.net
4. RULG – UKRAINIAN LEGAL GROUP, Irina Paliashvili,
President; Kyiv and Washington, general@rulg.com, www.rulg.com.
5. VOLIA SOFTWARE, Software to Fit Your Business, Source your
IT work in Ukraine. Contact: Yuriy Sivitsky, Vice President, Marketing,
Kyiv, Ukraine, yuriy.sivitsky@softline.kiev.ua; Volia Software website:
http://www.volia-software.com/.
6. U.S.-UKRAINE BUSINESS COUNCIL (USUBC), Washington,
D.C., Promoting U.S.-Ukraine business investments since 1995.
7. UKRAINIAN ORTHODOX CHURCH OF THE USA, Archbishop
Antony, South Bound Brook, New Jersey, http://www.uocofusa.org
8. WJ GROUP of Ag Companies, Kyiv, Ukraine, David Holpert, Chief
Financial Officer, Chicago, IL; http://www.wjgrain.com/en/links/index.html
9. EUGENIA SAKEVYCH DALLAS, Author, “One Woman, Five
Lives, Five Countries,” ‘Her life’s journey begins with the 1932-1933
genocidal famine in Ukraine.’ Hollywood, CA, www.eugeniadallas.com.
10. ALEX AND HELEN WOSKOB, College Station, Pennsylvania
11. SWIFT FOUNDATION, San Luis Obispo, California
12. DAAR FOUNDATION, Houston, Texas, Kyiv, Ukraine.
 
PUBLISHER AND EDITOR – AUR
Mr. E. Morgan Williams, Director, Government Affairs
Washington Office, SigmaBleyzer, The Bleyzer Foundation
Emerging Markets Private Equity Investment Group;
President, U.S.-Ukraine Business Council (USUBC)
Trustee, “Holodomor: Through The Eyes of Ukrainian Artists”
1701 K Street, NW, Suite 903, Washington, D.C. 20006
Tel: 202 437 4707; Fax 202 223 1224
 

Power Corrupts and Absolute Power Corrupts Absolutely.
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