ACTION UKRAINE REPORT -
AUR
An International
Newsletter, The Latest, Up-To-Date
In-Depth Ukrainian News, Analysis and Commentary
Ukrainian History, Culture, Arts, Business,
Religion,
Sports, Government, and Politics, in Ukraine and Around the
World
ACTION UKRAINE REPORT - AUR - Number
901
Mr. Morgan Williams, Publisher and Editor,
SigmaBleyzer
WASHINGTON, D.C., WEDNESDAY, AUGUST
27, 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
UkrInform - Economic News online, Kyiv, Ukraine, Sunday, August 17,
2008
Interfax Ukraine, Kyiv, Ukraine, Thursday, August 14, 2008
Interfax Ukraine, Kyiv, Ukraine, Saturday, July 23, 2008
Interfax Ukraine News, Kyiv, Ukraine, Monday, August 25, 2008
Will meet with members of the U.S.-Ukraine Business Council
(USUBC)
Interfax Ukraine News, Kyiv, Ukraine, Friday, August 22, 2008
U.S.-Ukraine Business Council (USUBC), Washington, D.C., Wednesday,
August 27, 2008
efficiency, liberalize initiatives, and adapt to changing realities
By Shanker Singham, Partner, Squire, Sanders & Dempsey
Business Week magazine, New York, NY, Wed, August 13, 2008
Commentary & Analysis: By Zeyno Baran, Director
Center for Eurasian Policy, Hudson Institute, Washington, D.C.
The Wall Street Journal, New York, NY, Tuesday, August 26, 2008
EDITORIAL: Financial Times, London, UK, Tuesday, August 26 2008
Settle the claim now and open OPIC for Ukraine
U.S.-Ukraine Business Council (USUBC), Washington, D.C., Wednesday,
August 27, 2008
$300 million, Making the
Largest Private Equity Investment in Ukraine
By BusinessWire,
Kyiv, Ukraine, Monday, July 28, 2008
Parsippany, New Jersey, Sunday, August 24, 2008
Opinion: U.S. Senator Lindsey Graham and U.S. Senator Joe
Lieberman
The Wall Street Journal, NY, NY, Tuesday, August 26, 2008; Page A21
New York, New York, Monday, August 25, 2008; Page A13
Op-Ed: by George Woloshyn, Special to Kyiv Post
Kyiv Post, Kyiv, Ukraine, Thursday, Aug 21, 2008
17
. DIVIDED MEANS CONQUERED
Ukraine must overcome a history of in-fighting and debilitating disunity
if it is to resist Russia
Peter Dickinson, Business Ukraine magazine, Kyiv, Ukraine, Monday, August
25, 2008
18
. THE PUTIN DOCTRINE,
COMING TO TERMS WITH UKRAINE'S NEW GEOPOLITICAL REALITIES
Analysis
& Commentary: By Taras Kuzio
BusinessUkraine magazine, Kyiv, Ukraine,
Monday, August 25, 2008
Analysis & Commentary: By James Sherr
Head of the Russia & Eurasia Programme of the Royal Institute of
International Affairs
Zerkalo Nedeli (Mirror-Weekly, Kyiv, Ukraine, # 28 (707) 2 - 8 August
2008
By Jon Boyle, Reuters, Moscow, Russia, Tuesday, August 26, 2008
Ukrainian News -on-line, Kyiv, Ukraine, Tuesday, August 26, 2008
SAYS MINISTER OF ECONOMY BOHDAN
DANYLYSHYN
UkrInform - Economic News online, Kyiv, Ukraine, Sunday, August 17,
2008
KYIV -The July results confirm the fact that the
Ukrainian economy stood the impact of world crisis, energetic, food and
financial, the Minister of Economy, Bohdan Danylyshyn stated, having noted
that the real GDP growth has been accelerated over January-July 2008 and made up
6.5 percent against 6.3 percent over January-June 2008.
Among the types of economic activities, the highest rates of the gross
value added are demonstrated by trade (11.8 percent), agriculture (10.8
percent), processing industry (8.4 percent), transport and communications (8.4
percent). Real growth of industrial production volumes makes up 7.3 percent by
results of January-July.
For the Ukrainian industry high production rates are peculiar to types
of activities, products of which have an investment trend, the minister noted.
Primarily, it is machine building, growth rates make up 28.7 percent. Over seven
months, the machine building sector ensured over half of total industrial
growth, in particular, production of vehicles and equipment increased by 39.2
percent.
Growth of chemical and petrochemical industry deserves a special
attention, taking into consideration dependence of this sphere on a price of
imported natural gas. In total, growth of production volumes was by 5.2 percent
ensured by expansion of the domestic market capacity and a favorable foreign
economic situation.
In July, a trend of growth in the volumes of metallurgical production
continued (by 3.5 percent over January-July against 3.3 percent in January-June
2008 as compared to a relevant period of 2007), which proves that the sector
entered a trajectory of sustainable growth and is a pledge of dynamic
development of adjacent types of industrial activities in the following periods,
Danylyshyn underscored.
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2
. UKRAINE UNLIKELY TO
FACE MORTGAGE CRISIS, SAYS BANKING EXPERT
Interfax Ukraine, Kyiv, Ukraine, Thursday, August 14, 2008
KYIV - Ukraine is unlikely to face mortgage crisis, according to the
press service of Ukrsotsbank (part of UniCredit Group, Kyiv) referring to Iryna
Kniazeva, the bank's deputy board chairman.
According to Kniazeva, the growth in rates on mortgage crediting is
linked not only with the mortgage crisis in the United States, but with the
internal economic situation in the country, in particular, the fall in the US
dollar against the hryvnia and the deficit of banking capital on the market.
"I think that at present there is no prerequisite for a fall in
mortgage rates in our country, as here there is no oversupply, in contrast, for
example, with the United States. The number of those who need new flats
significantly exceeds the quantity of constructed housing. Besides, the current
situation on the market will force developers to build less due to funding
difficulties. Of course, after a time there will again be price hikes," the
press release reads, citing Kniazeva.
Currently, some developers have interrupted projects, cut investment
into construction development, and that will lead to a fall in house
commissioning, an increase in demand, and a rise in house prices in
one-and-a-half to two years, Kniazeva said.
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3
. WORLD BANK CHANGES
FORECAST FOR UKRAINE'S INFLATION IN 2008 TO 21.5%, GDP GROWTH TO 6%
Interfax Ukraine, Kyiv, Ukraine, July 23, 2008
KYIV - The
World Bank has raised its forecast for Ukraine's GDP growth in 2008 from 5.5% to
6%. At the same time, the bank revised its forecast for this year's inflation in
Ukraine from 17.2% to 21.5%, bank expert Ruslan Piontkovsky said at a press
conference in Kyiv on July 18.
"According to our current forecast, GDP will grow by 6% this year… As
it seems to us, Ukraine is on the right track for reining in the pace of
inflation … We forecast that by the end of the current year, it [inflation] will
be 21.5%," Piontkovsky said.
As the World Bank said in a press release, according to its updated
forecast, the inflation forecast in 2009 was increased from 13% to 15.3%,
whereas for 2010 it was cut from 9.9% to 9.8%.
At the same time, the World Bank reduced its forecast for Ukraine's GDP
growth in 2009 from 5% to 4.5%, whereas a projection for 2010 was improved from
4.5%, to 5%.
"Our inflation forecast [for 2008] is also up, since even with food
prices ebbing down as the good harvest is brought to market, macro-policies
remain insufficiently tight for a faster pace of disinflation, and electoral
pressures may prevent a further tightening during 2008," the World Bank
says.
The bank also reviewed the forecast for the balance of the account of
current operations - its deficit in 2008 may hit 8.4% of GDP (former forecasts
had it at 8.7%), in 2009 it will be 11.3% of GDP, and in 2010 it will be 11.1%
of GDP (previously 11.3%).
"…the CA [current account] deficit moves above 11% of GDP, requiring
external financing of some $25 billion," say World Bank expert. "We expect
gradually stabilizing international markets and Ukraine's strong underlying
value proposition to ensure this continues to be met through FDI [foreign direct
investment] and private lending."
According to World Bank Director for Ukraine, Belarus and Moldova
Martin Raiser, the World Bank approves of the National Bank of Ukraine's switch
to the policy of a greater flexibility of the official forex rate of the
hryvnia.
He said the World Bank believes Ukraine has taken the right decision to
shift to a more flexible forex rate. "A fiscally prudent budget and tight
monetary policy are core ingredients for the gradual adjustment to take hold,"
say World Bank experts.
"Absent a further widening of the exchange rate band, the NBU will need to
rely on tightening prudential regulations to further slow the pace of credit
growth and curb short-term capital inflows, whilst monitoring liquidity in the
banking sector.
But the burden of adjustment will remain on fiscal policy, which should
target real income increases in the 2009 budget in line with underlying
productivity growth, implying a modest increase in nominal wages and social
transfers. This would help stabilize inflationary expectations and contain the
further deterioration of the CA."
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4
. U.S. VICE PRESIDENT
CHENEY TO VISIT UKRAINE ON SEPTEMBER 4-5
Interfax Ukraine News, Kyiv, Ukraine, Monday, August 25, 2008
KYIV - Under preliminary agreements, U.S. Vice President Richard
Cheney is to make a working visit to Ukraine on September 4-5, the press service
of the Ukrainian president reported on Monday.
During the visit, the U.S. Vice President and Ukrainian President
Viktor Yuschenko will hold an eye-to-eye meeting and take part in the talks of
the two delegations.
"The state and the prospects of the Ukrainian-U.S. relations will be
discussed, as well as the settlement of the situation in Georgia, issues of
international security and the strengthening of transatlantic ties," Yuschenko's
press service
reported.
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Promoting U.S.-Ukraine business
relations & investment since 1995.
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5
. UKRAINE'S NATIONAL
SECURITY AND DEFENSE COUNCIL SECRETARY, RAISA BOHATYRIVOA, TO VISIT UNITED STATES ON AUGUST
24-30
Will meet with members of the
U.S.-Ukraine Business Council (USUBC)
Interfax Ukraine News, Kyiv, Ukraine, Friday, August 22,
2008
KYIV- National Security and Defense Council Secretary Raisa
Bohatyriova will pay a working visit to the United States on August 24-30, the
Council said on Friday.
She will participate in the International Leaders
Forum in Denver, the State of Colorado, at the invitation of the U.S. National
Democratic Institute for
International Affairs (NDI).
During her
visit, Bohatyriova will have a chance to familiarize herself with the work of
the assembly of the U.S. Democratic Party. A ceremony to
nominate a
presidential candidate from the Democrats will take place during the
meeting.
"The NSDC secretary's visit foresees meetings and talks on a
wide range of burning issues of international and regional security, as well as
bilateral
cooperation in security, economy, energy, and other sectors," the
council said.
Bohatyriova is scheduled to meet with Assistant to the
President for National Security Affairs Stephen Hadley, Deputy Assistant to the
Vice President for National Security Affairs Joseph Wood, Under Secretary of
State for Political Affairs Nicholas Burns, Under Secretary of Defense for
Policy Eric Edelman, as well as U.S. senators and congressmen, and
representatives from political teams of U.S. presidential candidates.
The
program of the visit also includes meetings with influential non-governmental
organizations, particularly the Project on Transitional Democracies, leading
analytical centers in the United States, the US-Ukraine Business Council
(USUBC), and representatives of the Ukrainian Diaspora.
Bohatyriova will
hold a roundtable with U.S. leading political experts and give exclusive
interviews to the BBC and the Voice of America television
companies.
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6
. COMPETITION LAUNCHED FOR
MAJOR NEW RESEARCH & EDUCATION CENTER FOR ENERGY
EFFICIENCY IN
UKRAINE BY U.S. CIVILIAN RESEARCH
& DEVELOPMENT FOUNDATION
(CRDF)
U.S.-Ukraine Business Council (USUBC), Washington, D.C.,
Wednesday, August 27, 2008
WASHINGTON, D.C. - The U.S.
Civilian Research & Development Foundation (CRDF) has announced a
competition to select and establish a major research and education center for
energy efficiency in Ukraine. This center will be the second in a planned
series of new research and education centers in Ukraine that will address key
economic priority areas.
"The CREST (Cooperation in Research and Education in Science and
Technology) centers are jointly funded by public and private sector partners.
CRDF welcomes interest from any members of the U.S.-Ukraine Business
Council (USUBC) or other companies who may wish to consider serving as partners
for future research and education centers in Ukraine, " according to
Morgan Williams, SigmaBleyzer, who serves as president of USUBC.
The new CREST Center for Energy Efficiency, to be selected in late
2008 through a peer-reviewed competition among Ukrainian universities, will
develop innovative solutions and new technologies for energy conservation and
efficiency while educating young scientists in this important field.
The CREST Center for Energy Efficiency has been made possible with the
generous support of the U.S. Agency for International Development (USAID) from
the American people, CRDF, and the Ministry of Education and Science in Ukraine
(MESU).
Modeled on a similar CRDF program in Russia, the goal of
the CREST program is to strengthen research capabilities in science and
technology, promote the integration of research and education, and increase
academic and private sector collaboration in Ukrainian higher education
institutions.
The CREST Center for Energy Efficiency will be the second CREST center
since May 2007, following the establishment of the first CREST center at the
National Mining University in Dnipropetrovsk, focused on mine safety and
environmentally sound mining practices.
CRDF and the MESU have identified several high priority areas of science
and technology in which to establish additional CREST centers, including energy,
agricultural sciences, information and communication technologies, and public
health. CRDF is currently seeking additional support and partners for
these centers.
CRDF is a nonprofit organization authorized by the
U.S. Congress and established in 1995 by the National Science Foundation. This
unique public-private partnership promotes international scientific and
technical collaboration through grants, technical resources and training. CRDF
is based in Arlington, Virginia with offices in Kyiv, Ukraine; Moscow and St.
Petersburg, Russia; and Astana, Kazakhstan.
USUBC president Williams said, "the CREST program is directed and managed
by Dr. Marilyn Pifer, a molecular biologist with more than two decades of
experience in promoting U.S. science and technology collaboration with Eurasian
countries, and who resided in Ukraine from 1998 to 2001. CRDF has been an
active member of the U.S.-Ukraine Business Council (USUBC), Washington,
D.C. (
www.usubc.org) since 2007.
For more
information on how your company can be involved in the CRDF CREST program,
please contact Ashley Dougherty at
adougherty@crdf.org or 703-526-6766,
Arlington, VA or for the CRDF Ukraine office in Kyiv please contact Natalia
Artiukhovskaya at
nartiukhovskaya@crdf.org.ua or
38-044-253-7223. Additional information CRDF is available on their website
http://www.crdf.org/.
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7
. WHAT NEXT FOR TRADE
AFTER WTO FAILURE?
In order to stay relevant, the
World Trade Organization must stress efficiency,
liberalize initiatives, and adapt to
changing realities
By Shanker Singham, Partner, Squire, Sanders & Dempsey
Business Week magazine, New York, NY, Wed, August 13, 2008
The collapse in the Doha round (BusinessWeek.com, 7/30/08) of
trade negotiations has given us cause to take stock of the multilateral trade
agenda and the problems that have dogged it since the failed WTO meeting in 1999
in Seattle. Unfortunately, looking back over the last near-decade in the
multilateral trade negotiations, there have been very few bright spots.
Indeed the only one, the launch of the Doha round in November 2001, has
proven to be a false dawn, resulting as much from a reaction to the horrors of
September 11 as from a realization of the need to liberalize trade by the WTO's
members.
What is clear from the last decade is that trade negotiators have
fallen almost completely under the spell of mercantilism—that exports are good,
imports are bad, and tariff reductions are concessions to be given only when
something else is won from a trading partner. It is true that mercantilism has
been always with us.
In the early days of trade negotiation, however, the fact that tariffs
could be gradually reduced by harnessing this mercantilist impulse for a
positive purpose was part of the genius of the system.
A NEW FRAMEWORK IS
NEEDED
As tariffs have come down and the new barriers become inside-the-border
barriers, regulatory protection, and market distortions, the architecture of the
trading system (at least on the multilateral level) cannot cope with the complex
new reality.
The train of trade in the 21st century is different, but we insist on
driving that train on the old lines. Instead we must change the lines, and
develop a new architecture to frame the real trade issues of the day.
That architecture must now find a way of harnessing the very real
mercantilist impulse in nations, which has always been with us, to ratchet down
internal barriers, distortions, and anticompetitive practices.
Here are a number of ways that this might be
done.
[1] On agricultural negotiations, the historic bugbear of global
trade, reductions in developed-country subsidy programs must be accompanied by a
reduction in the overall global measure of market distortion faced by
agricultural companies in these countries. The goal must be to secure not only
liberalized agricultural trade, but also competitive markets in agriculture.
As we have seen, working only on traditional agricultural tariffs and
subsidies, while neglecting other market distortions such as regulatory bars and
support for state-owned companies, will sink further discussions.
[2] Dealing with market distortions is not a mere add-on to the trade
negotiation process. It is a vital part of discussions and the architecture must
recognize this. Trade negotiators must recognize the role of market distortions.
[3] Willing countries must take the lead in crafting a set of
agreements on public-sector restraints of trade that are uncompetitive or
otherwise unjustified. These kinds of barriers are huge distorters of global
trade and it is simply not rational not to deal with them.
Every step should be taken to encourage other WTO members to join these
disciplines, but their failure to do so should not hold back those who wish to
proceed.
[4] Countries must offer much more liberalization and liberalizing
initiatives in the industrial goods and services area. Services trade is growing
at a tremendous pace, and will soon be the dominant force in global trade.
It is regulatory barriers that distort services trade, and these must be
dealt with comprehensively in negotiations. Those countries that liberalize
these areas and lower their regulatory barriers will benefit enormously from
doing so.
[5] In these days of rising food prices, and rising transportation
costs, we must recognize the role that efficiency plays in solving many of these
problems. China uses much more oil to generate the same level of economic growth
as the U.S., for example.
Anything that would make the Chinese economy more efficient will help
reduce demand to levels that are more sustainable. Competitive markets deliver
efficiency, and will help with some of the world's most pressing problems now.
ADAPTING TO CHANGING
REALITIES
From the days of Adam Smith and David Ricardo, trade liberalization has
been about reducing trade barriers so that the forces of competition could be
liberated to lower prices for consumers and lift the poor out of poverty.
Trade liberalization's goals have not changed. By incorporating the points
noted above, we can more clearly bring into focus for WTO members the fact that
the overarching goal of free trade is to enhance consumer welfare and empower
individual companies and their workers.
Future generations are counting on the trade system to evolve and adapt
to changing realities, and to deal with the most pernicious problems that result
in a lack of efficiency and damage trade.
If we do not make the necessary adjustments now, when we have a chance to
do so, the WTO will find itself increasingly irrelevant to the world's economic
problems. Ultimately it is the poorest among us who will pay the price for our
failure to act now.
NOTE: Shanker Singham is a partner in the economic regulation practice of
the global law firm of Squire, Sanders & Dempsey. Squire, Sanders
& Dempsey is a member of the U.S.-Ukraine Business Council (USUBC),
Washington, D.C. Singham spoke at a recent workshop in Washington sponsored by
USUBC.
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8
. STATE OF THE UNION:
A BEAR ENERGY MARKET
COMMENTARY & ANALYSIS: By Zeyno Baran, Director
Center for Eurasian Policy, Hudson Institute, Washington, D.C.
The Wall Street Journal, New York, NY, Tuesday, August 26, 2008
Along with a rapid military victory in Georgia, Vladimir Putin succeeded
with another weapon in Russia's effort to divide and conquer Europe:
energy.
Despite claims of unity on the crisis in the Caucasus, energy is a
clear dividing line on the Continent.
Countries that have long-term gas partnerships with Russia -- primarily the
West Europeans -- chose the "both sides are to blame" approach to the war in
Georgia. Countries that are more eager to diversify their sources of energy
supply away from Russia -- most of the East and Central Europeans -- evinced the
necessary moral clarity about Moscow's preplanned invasion.
We saw the same fault line at the NATO summit in April that failed to
offer a membership action plan (MAP) to either Georgia or Ukraine, further
emboldening Mr. Putin to provoke the Georgians into an unwinnable war. It is
simply not possible for the European Union to be united in what Russia considers
to be its "sphere of influence" unless the Kremlin's gas leverage over the
Continent is broken.
Russia is Europe's single largest supplier of natural gas. As there is no
global market for gas, the construction of costly pipelines effectively locks
consumers into lengthy contracts with producers. This means that Moscow can (and
does) easily manipulate dependence into political and economic leverage.
Germany, for example, imports almost 40% of its gas from Russia -- the
most of any West European country -- and plans to increase this figure to over
60% by 2020. Six East European countries are entirely dependent on Russia for
their natural gas imports. Yet they are also the most vocal about the EU's need
to diversify away from Russia.
That's because they know Russia can turn off the taps in a second -- as in
Latvia in 2003, Lithuania in 2006 and the Czech Republic in 2008 -- with little
reaction from Brussels. Russia managed to divide the EU by being a reliable
supplier to Western Europe, while continuing to treat Eastern Europe as its
"backyard."
Despite Russia's repeated use of energy as a political weapon in
Eastern Europe, Western Europeans keep repeating the mantra that Russia has been
a reliable supplier to "Europe." They also choose to ignore that natural-gas
giant Gazprom serves as the Kremlin's leading foreign-policy arm.
The company is primarily state-owned, and many members of Gazprom's
leadership are current or former government officials. The Kremlin's present
occupant, Dmitry Medvedev, until recently was the chairman of Gazprom. His
replacement there is former Prime Minister Viktor Zubkov.
The Russian plan is rather simple: Punish countries that refuse to come
under its influence by building new gas pipelines that bypass them, while
rewarding countries and political leaders that cooperate with Russia with
lucrative energy deals.
Maintaining a monopoly over the transport of Caspian gas to Europe is
essential for Moscow to ensure that all those countries that have submitted to a
Russian "partnership" will acquiesce to the return of the former Soviet space to
the Kremlin's control.
Mr. Putin has visited each of the relevant European countries to
persuade them to join his energy projects. Nord Stream is one such example. When
completed in 2011, that pipeline will connect Russia and Germany through the
Baltic Sea, skirting Poland and the Baltic states.
One of the leaders of this politically divisive joint enterprise is
Gerhard Schröder, who extended a €1 billion government credit guarantee to the
pipeline project just prior to stepping down as German chancellor in 2005.
Germany, and especially Foreign Minister Frank-Walter Steinmeier, Mr. Schröder's
former chief of staff and like his old boss a Social-Democrat, opposed the MAP
for Georgia and is reluctant to take a firm position toward Russia.
Just last week, while Finnish Foreign Minister Alexander Stubb was
shuttling between Moscow and Tbilisi in his capacity as chairman of the OSCE,
Nord Stream announced the hiring of former Finnish Prime Minister Paavo
Lipponen.
Moscow also tried to hire former Italian Premier Romano Prodi as
chairman of a second gas pipeline, South Stream. Mr. Prodi turned down the job,
but his successor Silvio Berlusconi is a longtime Putin ally who supports
designating South Stream as a "European project." Once officially accepted by
Brussels, South Stream may even get EU funding. Not surprisingly, the Berlusconi
government has reacted to the Russian invasion of Georgia with moral
equivocation.
The future of South Stream -- which will connect Russia and Bulgaria
via the Black Sea, isolating Ukraine -- will bear heavily on the prospects of a
truly European project, the Nabucco pipeline.
Mr. Putin came up with South Stream to keep Nabucco from being built.
Scheduled to be completed by 2013, Nabucco would transport Azerbaijani and
Central Asian gas to Europe. The two pipelines would follow roughly the same
route, ending in Austria, but Nabucco would bypass Russian control.
So, over the past year Mr. Putin has cut bilateral deals with each country
along the route, undermining Nabucco's viability. Moscow has also been much more
active than Europe in courting the Caspian rim countries that have the gas each
pipeline needs.
If South Stream is built first, it will pull all available Caspian gas
supplies with it. Nabucco could still be built to carry Middle Eastern gas, but
Russia will have ensured continued control over Caspian gas reaching
Europe.
And because Nabucco is being privately funded, its investors would
likely walk away if its gas sourcing is shaky. State-owned Gazprom, though, is
willing to finance a project even if it isn't commercially viable -- so long as
it supports the Kremlin's strategic goals. No Nabucco means no gas
diversification for East Europe, which will continue to be subjected to Russia's
power plays while Moscow caters to their West European brethren.
France took a Russia-first position at the NATO summit and, despite
President Nicolas Sarkozy's strong trans-Atlantic position, brokered a
cease-fire between Russia and Georgia that was very much in the Kremlin's
interest. But Mr. Sarkozy now seems to have understood that he was played.
German Chancellor Angela Merkel, too, is finally giving clear support for
Georgia's NATO membership as Russia's occupation of the country is in its third
week.
Only a united Europe could stop Russia from cutting bilateral deals
that are advantageous for individual countries but disastrous for the EU as a
whole. Only a united Europe could hold Gazprom accountable to transparency and
competition rules, stopping the firm from dictating its terms and playing one EU
country against the other.
The EU correctly points out that Russia needs European energy consumers
just as much as Europe needs Russian energy suppliers. Moscow, though, has
managed to turn this mutual dependence into one-sided leverage. It's time to
reverse this trend.
Ultimately, it all comes down to political will in Western Europe --
and the longer Russian tanks remain in Georgia, the clearer it becomes that such
will is lacking.
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9
. RUSSIA'S GRIP ON
ENERGY
EDITORIAL: Financial Times, London, UK, Tuesday, August 26 2008
Russia has produced some of the world's top chess players - and its
invasion of Georgia is a brutally effective gambit in the new Great Game. It has
prompted the fastest investor pull-out in a decade, but Moscow may care little
about that.
Longer-term strategic goals have been achieved. In one move, Moscow has
reasserted its influence over energy supply routes, and suppliers, from the
Caspian basin and Central Asia.
Russia has re-established a hold over the narrow strategic corridor of
the southern Caucasus. If, as is still possible, Georgia's president Mikheil
Saakashvili is deposed and replaced by a more pro-Russian candidate, its control
will be cemented.
Georgia alleges (though Moscow denies) that during the conflict Russia
attempted to bomb the 1m barrels-a-day Baku-Tbilisi-Ceyhan pipeline - the only
important export route for Caspian oil bypassing Russia.
Russia's ability and willingness to wage war close to the BTC will make
companies, lenders and investors think hard about backing new pipelines through
the region. Nabucco, the gas pipeline plan championed by the European Union,
could well lose out to Russia's rival South Stream.
Among other western-leaning former Soviet states, Ukraine may see the
conflict as a further incentive to embed itself in the Euro-Atlantic community.
But key energy suppliers such as Azerbaijan and Kazakhstan, which flirted with
the US while retaining authoritarian political systems akin to Russia's, are
likely to tilt back towards Moscow.
So may Turkmenistan, which Washington has wooed since the death of its
eccentric dictator in 2006. Uzbekistan has already returned to Moscow's
orbit.
All this follows Gazprom's shrewd courtship of other gas producers from
Libya to Nigeria - aiming if not to form a "gas Opec", then at least to play a
co-ordinating role. For Gazprom shareholders (of whom there are plenty in the
west), that looks positive. For the EU and US, striving to diversify energy
suppliers, it looks a lot like checkmate.
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10
. OVERSEAS PRIVATE INVESTMENT CORPORATION (OPIC)
STILL CLOSED FOR UKRAINE
Settle the claim now and open OPIC
for Ukraine
U.S.-Ukraine Business Council (USUBC), Washington, D.C., Wednesday,
August 27, 2008
WASHINGTON, D.C. - One of the top
issues for the U.S.-Ukraine Business Council (USUBC) over the past several
years has been the closure for Ukraine of the major economic and business
development support programs of the U.S. government's Overseas
Private Investment Corporation (OPIC) (
http://www.opic.gov/). OPIC's
programs ares still not open for Ukraine in July of 2008. The
government of Ukraine should settle the small OPIC claim
immediately and get OPIC programs open for Ukraine. This is a win-win for
everyone.
USUBC has been speaking out about this critical issue at meetings, in
Washington and Kyiv, with every top Ukrainian and U.S. government official
who has some responsibility regarding this major problem for a long time.
USUBC was told directly in several meetings this year by top
officials in the Ukrainian government and in the U.S. government that resolving
the OPIC issue was a top priority. Strong indications were given to
USUBC that the OPIC issue would be solved by late March or certainly by May
2008 at the latest.
But, now in late August 2008 endless meetings are still be
held from time-to-time between the two government about how to resolve the
claim OPIC has with the government of Ukraine. A claim which has been
around since 1999.
USUBC urges the two governments to find a way to settle the issue now and
get the OPIC working once again for the benefit of American businesses and
for Ukraine. The dispute has gone on long enough. Many business
development and expansion programs for Ukraine are on hold because OPIC is
closed...jobs are being lost, tax revenue is not being generated, investment and
economic growth suffer as a result.
An article about the OPIC issue, written by Jim Davis and published by
the Business Ukraine magazine in Kyiv back in February 2008, is still
very
relevant:
UKRAINE'S OUTSTANDING OPIC DEBT: A BARRIER TO
INTERNATIONAL INVESTMENT
By Jim Davis, Business
Ukraine magazine, Kyiv, Ukraine, Monday, February 11, 2008
Amid all the
fanfare that has accompanied the signing of a protocol which will bring Ukraine
WTO membership, it is worth noting that a disagreement over a relatively small
amount of money has made it impossible for Ukraine to enjoy the benefits of an
obscure but extremely important agency of the United States government, the
Overseas Private Investment Corporation (OPIC).
Estimates made by
well-informed persons involved in the process relating to OPIC would suggest
that had the problem could have been resolved when it
first arose in 1999,
Ukraine could have gained an absolute minimum of an additional USD 5 - 10
billion in foreign direct investment - and probably a lot more than
that.
The issue could have been solved years ago, but it was as is so
often the case it is a problem for which no one had primary responsibility on
the Ukrainian side.
All those, i.e. the various ministers, who had parts
of the responsibility within their jurisdictions failed to understand the
overall importance of the issue and therefore guarded their own turf rather than
that of the state as a whole.
The end result has been to deny the
Ukrainian economy one of the tools that could have been attracting investment
into the country ever since, with a
potential opportunity cost running into
the billions of dollars.
A SIMPLE
PROBLEM MADE COMPLEX
The matter involves the non-payment of a
state debt incurred by the Ministry of Defence about ten years ago at a time
when the needs of various ministries were seriously under-funded and ministers
were prone to making deals first and worrying about payment later.
The
debt in question was covered by OPIC political risk insurance. OPIC paid the
claim to the insured U.S. supplier and looked to Ukraine to ultimately
make
good on the original agreement, as was called for in the Ukraine-OPIC
agreement.
The amount of the claim, approximately USD 17 million, is
quite small when viewed in the light of the overall budget of Ukraine. For the
uninitiated, USD 17 million might appear to be a sum that could be dealt with in
a simple meeting among ministers of any government.
However, there is no
single ministry nor any single minister who has ever been tasked with dealing
with the problem in a priority manner, so time and
time again the issue has
been discussed at seemingly high-level meetings between U.S. ambassadors and
embassy staff on one side and various ministers and prime ministers on the
other.
The matter is further complicated by the nature of Ukraine's
budget process. No government has wanted to debate the debt in parliament so it
has never
been made a part of any annual state budget.
With no line
item listing of the debt, some other mechanism would need to be found in order
to keep a payment from being illegal under the existing
legislation of the
state budget act. So far, no creative payment mechanism has been found that
would meet the needs of both sides of the disagreement.
The most recent
top-level discussions came during a visit to the United States by then-Prime
Minister Viktor Yanukovych in late 2006.
At the time Yanukovych promised
U.S. officials during discussions that the matter would have his personal
attention and would be settled in a very short time. However, the Yanukovych
government neither paid the amount owed nor requested or agreed to negotiations
to adjust the amount owed.
ABOUT OPIC
OPIC is an independent U.S. government agency whose mission is to mobilise
and facilitate the participation of U. S. private capital and skills in
the
economic and social development of less developed countries and areas,
and countries in transition from non-market to market economies.
OPIC
assists U.S. companies by providing financing (from large structured finance to
small business loans), political risk insurance, and investment
funds. OPIC
complements the private sector in managing risks associated with foreign direct
investment and supports U.S. foreign policy.
Since its establishment in
1971, OPIC programmes have grown and expanded to encompass the support of
development in over 150 countries. In 2007, OPIC assisted 70 projects in 38
countries and regions involving a wide range of industries. Of all the projects
underway around the world in 2006, 87% or 61 projects involved U.S. small
businesses in 35 U.S. states.
Many OPIC projects involve U.S.
procurements, but it is also small and medium-sized enterprise (SME) projects in
recipient cooperating countries
that receive the greatest benefits. For
example, in Kazakhstan, OPIC provided debt financing for a USD 1.89 million
investment in the Asian Credit Fund (ACF), a non-banking microfinance
institution established by the Mercy Corps.
In Azerbaijan, OPIC provided
financing to SOAKredit LLC (SOA), an independent limited liability non-credit
organisation. SOA's purpose is to
implement an innovative finance programme primarily designed to stimulate
local business growth and facilitate Azerbaijan's transition from a demand
to
a market economy.
In Russia, OPIC is providing financing to ZAO Europlan
(Europlan), the leading leaser of equipment and vehicles to SMEs throughout the
Russian
Federation, to support a planned USD 450 million
expansion.
CREATING CONFIDENCE, OFFERING
SECURITY
Nadir Shaikh, Chairman of the Board of Citibank Ukraine, explained that SME
firms and medium-sized projects are the ones that would benefit most
if
Ukraine settles its dispute with OPIC.
Shaikh has been one of the
persons most active in promoting a settlement with OPIC and as recently as two
weeks ago participated in a meeting with
senior government officials where
this matter was discussed.
"We know from experience that the largest
foreign firms come here fully prepared to finance their own way into the
Ukrainian market. Their investments are based on advice from the most
sophisticated sources in their own companies or from professional advisors such
as investment banks. It is the smaller foreign investors who need the type of
help and risk coverage that OPIC is able to give.
"Making OPIC political
risk insurance available would, for example, would give many smaller foreign
investors the kind of backing that would first
help convince their own boards
of the viability of investments in Ukraine, and would also assist them in
finding financing for projects here or in their home country.
"In
addition, it would help Ukrainian companies to get access to financing that
could be provided by such banks as Citibank, based on OPIC risk coverage
programmes.
"Settling the current dispute requires a firm decision and
political will on the part of government to find a financing mechanism to pay
the current claim. I am optimistic that the efforts of the current
government are more likely to find a solution to this problem," Shaikh
concluded.
A RELATIVELY TRIFLING
DEBT
One of the most interesting elements in the OPIC-Ukraine issue is the
flexibility exhibited by OPIC in attempting to settle the claim. On several
occasions various Ukrainian governments have been told that while USD 17 million
is the amount actually owed, OPIC is willing to engage in negotiations that
could lead to a solution that would mean a substantially reduced
settlement.
Even with the clearest signals possible from OPIC, no
Ukrainian government over the last ten years has been willing or able to find
the will to effect a settlement.
The issue has not been filed away in a
long forgotten filing cabinet, either. Morgan Williams, president of the
U.S.-Ukraine Business Council (USUBC) said that the OPIC issue has been a matter
of discussion between the two governments in every meeting that he has attended
in Washington or Kyiv in recent years.
"On January 31, while addressing a
meeting of the USUBC that included representatives of the American Chamber of
Commerce and U.S. embassy officials, Vice-Prime Minister Nemyrya made a point of
telling the audience that he was fully aware of the problem and that he expects
a solution to be
found soon. We sincerely hope that is correct.
"OPIC
programmes are being used all over the world to spur development and USUBC
thinks that the inability of Ukraine to solve its OPIC problem has
cost the
country at least one billion and perhaps several billions of dollars in lost
investment opportunities. In effect, a failure to solve the OPIC issue has a
negative effect on Ukraine's ability to create jobs and wealth for all of
Ukraine's citizens.
"For example, in the autumn of 2005 OPIC conceived
and was ready to implement a USD 100 million private equity fund programme for
Ukraine.
"I have been told on the back channel by top U.S. government
officials in Washington that the total value of OPIC programmes that could be
implemented here within a relatively short time might have a total value of as
much as USD 500 million.
"However, it is the government of Ukraine that
must turn the key to open what is literally a treasure trove of new investment
and risk guarantee
0pportunities. I hope it will make the effort necessary to find the
solution needed," Williams concluded.
Promoting Ukraine & U.S.-Ukraine
business & investment relations since 1995.
=============================================================
11
. VOLIA CABLE
& SIGMABLEYZER'S REGIONAL CABLE BUSINESS MERGE TO FORM PRE-EMINENT UKRAINIAN CABLE
PROVIDER
Providence Equity Partners Increases Its
Investment in the Combined Entity
to over $300 million, Making the
Largest Private Equity Investment in Ukraine
By
BusinessWire, Kyiv, Ukraine, Monday, July 28, 2008
KYIV, Ukraine - Volia
Cable (Aquorn Limited) and SigmaBleyzer's regional cable operations (Oisiw
Limited) are merging to form Ukraine's pre-eminent
cable provider with
operations in over 15 of Ukraine's largest cities. As a result of the
merger, the combined business, to be named Volia Limited, will
provide
television service as well as high-speed Internet access to over 2.5 million
Ukrainian households.
In a separate transaction, Providence Equity
Partners, the world's leading media and communications private equity firm, is
making an additional
investment in Volia bringing its total investment in
the combined entity to over US$300 million. The transaction has been
approved by the Antimonopoly
Committee of Ukraine.
"We are very
pleased to extend our partnership with Providence, a leading private equity
investor and one of the largest and most experienced owners
of media and
communications companies globally," said Michael Bleyzer, President and CEO of
SigmaBleyzer.
"Merging our two cable businesses makes a lot of strategic
sense and will allow us to provide best in class service from a unified
operating platform
to our subscribers. We see Providence's increased
investment in Ukrainian cable also as a vote of confidence in the Ukrainian
economy."
"The combination of Volia Cable and SigmaBleyzer's regional
cable operations creates a cable company uniquely positioned to meet the rapidly
expanding demand in Ukraine for the most advanced television and broadband
services," said Jonathan M. Nelson, Providence Chief Executive Officer. "We are
pleased to expand our commitment to Volia and look forward to continuing to work
with Michael and Sergey and their teams to build value at Volia over the
long-term."
Sergey Boyko, President of Volia Cable, will be leading the
combined business and said: "I see tremendous potential in the combined
operations. We now have the platform and scale to build a unified cable brand
across Ukraine and bring to the regional cities the same level and quality of
service that our subscribers in Kyiv have come to rely upon." Goldman Sachs
International acted as financial advisor to Oisiw Limited.
ABOUT PROVIDENCE EQUITY PARTNERS
Providence Equity Partners is the leading global private
equity firm specializing in equity investments in media, entertainment,
communications and information companies around the world. The principals of
Providence manage funds with approximately $22 billion in equity commitments and
have
invested in more than 100 companies operating in over 20 countries
since the firm's inception in 1989.
Significant investments include Bell
Canada, Bresnan Broadband Holdings, Casema, Com Hem, Digiturk, Education
Management Corporation, eircom,
FreedomCommunications, Hulu, Idea Cellular,
Kabel Deutschland, Metro-Goldwyn-Mayer, NexTag, Ono, Open Solutions, PanAmSat,
ProSiebenSat.1,
Recoletos, TDC, Univision, VoiceStream Wireless, Warner
Music Group, Western Wireless and Yankees Entertainment and Sports Network.
Providence
is headquartered in Providence, RI (USA) and has offices in New
York, Los Angeles, London, Hong Kong and New Delhi.
ABOUT VOLIA LIMITED
Volia
Limited is the number one cable TV and Broadband Internet provider in Ukraine.
As a result of the merger, the combined entity will have about 2.5
million
homes passed and 1.8 million RGUs. Volia Limited provides services such as
analog cable TV, digital cable TV, high-speed cable Internet access,
VoIP
and data services. New services, such as VoD and PPV, are under development and
will be implemented in the future.
Volia Limited was created through the
consolidation of a number of companies acquired by SigmaBleyzer over the past
few years. Since acquisition, Volia
has worked on integrating and upgrading
the activities of the original cable operators.
ABOUT
SIGMABLEYZER
Operating in the region for over a
decade, SigmaBleyzer is one of the largest and most experienced private equity
investors in Eastern Europe. With the strength of the company's local
infrastructure, western-style management and knowledge of local markets,
SigmaBleyzer has created one of the best investment management companies in the
region.
SigmaBleyzer manages funds and special purpose investment
vehicles with approximately $1 billion in commitments and has made investments
in over
100 companies in Ukraine since 1994.
As a manager of a family of private equity funds currently investing in
Ukraine, Romania, Bulgaria and Kazakhstan, SigmaBleyzer utilizes a hybrid
investment approach developed specifically for emerging markets and focused
on simultaneous value creation at the micro or enterprise level and at the
macro level.
Because of this unique approach and strong on-the-ground
presence in a region where many of its investors could not have invested
directly, SigmaBleyzer brings one of the most attractive pipelines of investment
opportunities found anywhere to its client base.
With offices in Kyiv and
Kharkiv (Ukraine); Sofia (Bulgaria), Bucharest (Romania), Astana (Kazakhstan),
and a back office in Houston, Texas, SigmaBleyzer has the infrastructure in its
countries of operation to successfully manage portfolio companies to help them
reach their full potential, while creating value for the investors,
shareholders, employees and other stakeholders.
NOTE: SigmaBleyzer is a member of the U.S.-Ukraine
Business Council, Washington, D.C.
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12
. RUSSIA’S POTENTIAL
EVOLUTION AND AMERICA’S AND UKRAINE’S NATIONAL
SECURITY
OP-ED: By Victor Basiuk, The Ukrainian
Weekly newspaper, Vol. LXXVI, No. 34
Parsippany, New Jersey, Sunday, August 24, 2008
Henry A.
Kissinger, former Secretary of State, recently visited Russia and wrote a column
in The Washington Post under the title “Finding Common Ground With Russia” (July
8). In it, he raises two issues directly relevant to America’s and Ukraine’s
national security: Russia’s potential evolution towards democracy and Ukraine’s
joining of NATO. Mr. Kissinger’s views on these issues need to be
addressed.
Mr. Kissinger believes that, with the accession of
Dmitry Medvedev to the presidency, Russia has entered “a transition from a phase
of consolidation to a period of modernization.” With the two centers of power
now emerging – Putin and Medvedev – it appears “to be the beginning of an
evolution toward a form of checks and balances,’ and, hence, eventual
democracy.
Mr. Kissinger considers “Russian policy under
Putin as driven by a quest for a reliable strategic partner, with America being
the preferred choice.” He views the Sochi declaration between Putin and Bush as
an emerging partnership between the two countries.
So as not to impede it as well as the evolution of Russia towards
democracy, Mr. Kissinger advocates a postponement of Ukraine’s joining NATO,
since bringing the Western security system close to Moscow “will inhibit the
solving of all other issues.”
The above analysis by Mr. Kissinger
overlooks certain fundamentals of Russia’s evolutionary process and
Russian-Ukrainian relations. The struggle between the Slavophiles and
Westernizers within Russia goes back to the early 19th century. The Slavophiles
believed that Russia is unique, its culture is superior to Western culture, it
is a Third Rome.
The Slavophiles were autocratic supporters of the Pan-Slavic movement,
which sought unification of all Slavic peoples under the domination of
Russia. The Westernizers believed that Russia’s development depended on
the adoption of Western technology and liberalism.
After the
break-up of the Soviet Union, Slavophile thinking was revived in Russia in the
form of culturology. Taught in the former departments of Marxism-Leninism in
secondary schools and universities, culturology has, in effect, become a
successor to communism as an ideology in Russia. It is compulsory in primary and
secondary schools and it is nearly always a required course in the first year of
university.
The Russian Ministry of Education sets up the standards to obtain diplomas
in culturology. including doctoral degrees. Like Slavophile teachings,
culturlogy rejects Western universalism, insists on Russia’s messianic destiny,
and views Russia as “a world apart.”
Culturology is an instrument
of power and it helps the Russian authoritarian regime control its
population. At this point, the principal instrument of Russia’s power, domestic
and international, is oil, and Russia capitalizes on it in a way that strongly
suggests Cold War mentality among Russia’s top leaders. Besides using oil and
gas as an instrument of political power with regard to the “near abroad” and
Western Europe, Russia is converting its oil power into military power.
On July 25 of this year, the commander-in-chief of the Russian Navy,
Admiral Vladimir Vysotskiy, gave an interview to RIA Novosti, where he said that
Russia is significantly expanding its navy. Priority is given to a new
generation of strategic nuclear submarines. Russia is also building advanced
destroyers and aircraft carriers. The naval programs have high priority, are
fully funded, and the first nuclear submarine armed with new ballistic missiles
Bulava-M will soon join the Northern Fleet.
The Russian Navy considers it necessary to have 5 or 6 aircraft carriers,
and not just one aviation cruiser as is the case now. While another oil-rich
country – Saudi Arabia – is investing billions of dollars into building new
cities with multiple industries so as to diversity its economy, Russia does not
seem to be interested in that kind of activity.
Does the above
suggest that, contrary to Mr. Kissinger’s contention, the evolutionary process
is bypassing Russia? This is not so, but we cannot expect that democracy will
come from the top of the present regime – it must come from the bottom, society
itself.
It is too optimistic to hope that a former KGB colonel would anoint as his
successor to the presidency someone who would create a system of checks and
balances to his own power. In a world characterized by rapidly growing
interdependence, societal evolution in Russia has to come from both internal and
external forces.
There is evidence that, culturology
notwithstanding, there is a degree of progression towards closer ties to the
West in Russia, especially in the younger generation. A public opinion poll
conducted in late June 2008 by the All-Russian Center of Appraisal of Public
Opinion indicated that 41% of young people of 18 to 24 years of age consider
that, for the Russians, Europe is a common home. and 48% are in favor of a
European road for the development of the country.
Among the total respondents, 45% believe that Russia is a part of Europe,
and in the 21st century their destinies will be closely intertwined. However,
almost an equal number (42%) consider Russia as a unique Eurasian civilization
whose center of interests in the future will be directed
eastward.
Mr. Kissinger is correct in maintaining that public
exhortations and a continuous pressure on Russia are counterproductive for the
process of societal evolution. Craving for freedom is a very powerful internal
societal mover in the evolution towards democracy; it produced peaceful “color
revolutions” in three former Soviet republics – Georgia, Ukraine and Kyrgyzstan.
It exists in Russian society just as it exists in other societies; it is a part
of human nature.
However, in Russia craving for freedom is laced with a historical baggage:
hundreds of years of autocracy. As a result, many Russians feel more comfortable
when decisions are made for them, when there is a “batyushka” (father) to give
them order and security. Autocracy has almost become a part of the value system
of many Russians. Russian society thus needs more external help than others.
The West must develop policies to unleash the craving for freedom
among the Russians; otherwise the evolution towards democracy will be
significantly slowed down, confined mainly to generational changes. Such
policies might include greater efforts to increase personal contacts of the
Russians with Westerners.
To that end, the U.S. government might encourage Russia to diversify its
economy, which would bring more foreign investment and foreigners to Russia.
Travel and educational exchanges could be increased. Activities that would,
directly or indirectly, stimulate the development of civil society in Russia
need to be supported since such a society creates a fertile ground for freedom.
The free market economy, which now exists in Russia, creates a useful
precondition for the development of a civil society in Russia, although one must
face the reality of the Russian government’s periodic interference with its
functioning as well with other activities that might encourage a craving for
freedom. Removal or relaxation of such interference could be used as a “soft
power” bargaining chip in dealing with Russia.
In the longer run,
the United States could neutralize the control by the Russian authoritarian
government over its population through oil and oil’s use as an instrument of
power in foreign affairs without a direct confrontation with Russia. The United
States at present is developing a strategy to free itself from dependence on
foreign oil.
America could set its goal higher -- replacement of oil as the principal
source of energy by alternative fuels on a global scale. A promising source in
this regard is methane from methane hydrates, which could be commercially
produced within five years.
Methane hydrates, a substance consisting of methane mixed with ice and
found on the continental shelves at the depth of 500 meters and below in most
areas of the world, have a total energy content of nearly twice of that of all
the known deposits of oil, coal, and natural gas combined.
According to present estimates, only 5 to 15 percent of methane hydrates
are commercially exploitable, but even at this percentage the potential is vast.
Methane is readily convertible into gasoline and aviation
fuel.
Only when strong preconditions for democracy develop in
society and become compelling, would the Russian authoritarian government react
to them and move in the direction of reforms.
Mikhail Gorbachev did not come to power and initiate his far-reaching
reforms until it became obvious to the top Soviet leadership that the Soviet
command economy was no longer workable in a highly complex technological setting
and it could not generate adequate resources to meet the armaments competition
initiated by Ronald Reagan. No such compelling conditions exist at
present.
With regard to Ukraine: Mr. Kissinger’s assumption that
the principal reason Russia is strenuously opposed to Ukraine’s joining NATO is
national security overlooks the complexity of Russian-Ukrainian relations and
strategic objectives of the Russian government. Yes, national security is an
important factor, but Russia already has three former Soviet republics – Latvia,
Lithuania, and Estonia – which are on its borders and are members of NATO.
The principal reason Russia does not want Ukraine to join NATO is that, if
Ukraine becomes a member of NATO, Russia will lose forever a chance that
Ukraine, with its very substantial economic and technological resources, will
become its vassal, if not a full-fledged member of the Russian Federation.
Moreover, there are strong socio-political reasons for such
objections.
For hundreds of years, Russian children were taught –
and are still being taught – in schools that “Kyiv is the mother of Russian
cities.” It is difficult for their parents to explain why Kyiv is abroad
and is not even connected with Russia.
It is equally difficult for many patriotic Russians to accept that Russia’s
history starts in 14th century, with the then barbaric Principality of Muscovy,
and not with Kyiv, which three centuries earlier, under Prince Yaroslav the
Wise, was already the capital of a major, economically and culturally
flourishing European country.
The influence of Russia in Ukraine
is strong. At present, the Party of the Regions, headed by the pro-Russian
former Prime Minister Viktor Yunukovych, is the largest party in Ukraine and
holds plurality in the Ukrainian Parliament. When Yanukovych was in power, he
was helping the Russian government and business infiltrate Ukraine economically
and culturally.
Then President Putin was helping Yanukovych to get reelected and
congratulated him before he was actually reelected, but then the Orange
Revolution cancelled the fraudulent election. The present government of Prime
Minister Yulia Tymoshenko has been formed on a very slim democratic coalition in
the Parliament – the margin of only two votes. But two parliamentarians of the
coalition have resigned and, although the coalition formally still exists, it is
in a very precarious position.
Russia’s pressure on Ukraine not to
join NATO is very strong. In February 2008, the then Russian President Putin
said that, if Ukraine joins NATO, Russia may have to target Ukraine with nuclear
missiles. The Russian State Duma appealed to President Medvedev and the
government to consider abrogating the 1997 Treaty of Friendship, Cooperation and
Partnership with Ukraine if Ukraine’s plan to join NATO is approved.
A centerpiece of this treaty is the recognition of territorial integrity of
Ukraine. In interviews and public statements, Yuriy Luzhkov, the Mayor of
Moscow, said that Ukraine “seized” Crimea and it should go back to Russia.
A critical point in Ukraine’s joining NATO is the approval of a
Membership Action Plan (MAP) at the December 2008 NATO summit, which was
rejected at the April Bucharest NATO summit. The MAP merely delineates steps to
join NATO, and not the joining itself.
Quite correctly, Mr.
Kissinger points out that Russia’s expansionist policies in the past were
facilitated by the weakness of nearly all countries on Russia’s border, a
condition which has largely disappeared. And yet Ukraine comprises a potential
window for Russia’s expansion, and a strong motivation for such expansion on the
part of Russia exists.
If Russia is successful in extending its influence – and perhaps more –
into Ukraine, this would embolden expansionist groups and individuals in Russia
and impede its evolution to democracy.
The present Ukrainian
democratic government is trying to close that window by joining NATO and,
eventually, the European Union (EU). I think that, contrary to Mr. Kissinger, it
would be in the best interest of U.S. and Ukrainian national security to
expedite the process.
As things stand, it will take years to join NATO, and many more years to
join the EU. If the process is shortened, it will reduce the period of Ukraine
being a bone of contention and a source of friction between the West and
Russia.
Moreover, as today Ukraine celebrates its 17th Independence Day, Ukraine’s
joining NATO soon would ensure that subsequent celebrations will be real, and
not just a veneer of subordination to its northern neighbor. And this way Russia
will get sooner reconciled to the fact that Ukraine is a part of the West, as it
became reconciled to the Baltic republics and its former East European
satellites to joining the Alliance.
As a member of NATO Ukraine will be more free of the influence of
pro-Russian forces and will develop more rapidly into a mature, vibrant
democracy, potentially becoming an important catalyst in the evolution of
democracy in Russia.
NOTE: Victor Basiuk is a consultant on
science, technology, and national security policy in the Washington, D.C. area.
He taught at Columbia University and in Washington he worked for the White
House, the State Department, and the Department of Defense. Dr. Basiuk is the
author of "Technology, World Politics, and American Policy" and at present he is
writing a book on After World Dominance, Whither America?
LINK: The Ukrainian Weekly Archive:
www.ukrweekly.com
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13
. WANTED: A PLAN FOR
UKRAINE
BRUSSELS BLOG: By Tony Barber, Financial
Times, London, UK, Mon, Aug 25, 2008
Among the lessons to be drawn from
the Russian-Georgian war is that the next flashpoint between the European
Union and Russia may turn out to be Ukraine. There is a particular risk of
trouble over Crimea, the Ukrainian peninsula where ethnic Russians are in the
majority and where Russia's Black Sea fleet has a 20-year lease on bases that is
due to expire in 2017.
To help avert a crisis in Ukraine, the EU badly
needs to come up with a convincing strategy for rescuing the country from the
geopolitical no man's land in which it has languished since the Soviet Union's
demise in 1991.
Russia's military intervention in Georgia underscores the
Kremlin's determination to rebuild its influence in former Soviet republics on
its western and southern borders. Ukraine - with 46m people and a culture and
history intimately connected to that of Russia - is the biggest prize of them
all.
Unfortunately, the EU's plans for Ukraine are at present anything
but convincing. At an EU foreign ministers' meeting in Brussels last month, the
27-nation bloc even found itself debating whether to state the obvious and
call Ukraine a European country. The snag is that to do so would imply that
Ukraine has the right to eventual EU membership, a prospect that some EU
member-states can't stomach.
EU and Ukrainian leaders are due to meet in
the French town of Evian on September 9 and sign an association agreement on
closer relations. But this
accord will be deliberately ambiguous about
whether or not it puts Ukraine on a track leading one day to EU
accession.
A new report by the European Council on Foreign Relations
think-tank argues that the EU cannot afford any more delays in defining and
deepening its ties
with Ukraine. It proposes giving Ukraine access to the
EU's four freedoms (freedom of movement of goods, people, services and capital)
and a roadmap
for visa-free travel.
It advises the EU to commit
itself to consulting and assisting Ukraine in the event of a challenge to the
country's sovereignty and territorial integrity. It recommends support for
Ukraine's efforts to secure the peaceful withdrawal of the Russian Black Sea
fleet from Crimea.
Above all, the report advocates that the Ukraine
should be offered a "clearer perspective" towards a Nato membership action plan,
and states that the EU should recognise Ukraine's right to join the EU. None of
these steps would be intended as a provocation to Russia, whose sheer size and
regional weight leave the EU with no choice but to pursue a policy of long-term
diplomatic and commercial engagement with Moscow.
The report's
recommendations make a lot of sense. However, they may overstate the EU's
ability to apply its famed "soft power" in a country that is right on Russia's
doorstep and permeated with Russian influence. Equally, they may underestimate
Russia's probable response to any hint that Ukraine is drawing close to
Nato.
All in all, one has to fear that a crisis in Ukraine, like this
month's fighting in Georgia, will flare up long before the EU's member-states
have forged a consensus on what they want to do.
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14
. RUSSIA'S AGGRESSION IS A
CHALLENGE TO WORLD ORDER
OPINION: U.S. Senator Lindsey Graham and U.S. Senator Joe
Lieberman
The Wall Street Journal, NY, NY, Tuesday, August 26, 2008; Page
A21
In the wake of Russia's invasion of Georgia, the United States and
its trans-Atlantic allies have rightly focused on two urgent and immediate
tasks: getting Russian soldiers out, and humanitarian aid in.
But having just returned from Georgia, Ukraine and Poland, where we met
with leaders of these countries, we believe it is imperative for the West to
look beyond the day-to-day management of this crisis. The longer-term strategic
consequences, some of which are already being felt far beyond the Caucasus, have
to be addressed.
Russia's aggression is not just a threat to a tiny democracy on the
edge of Europe. It is a challenge to the political order and values at the heart
of the continent.
For more than 60 years, from World War II through the
Cold War to our intervention in the former Yugoslavia in the 1990s, the U.S. has
fostered and fought for the creation of a Europe that is whole, free and at
peace.
This stands as one of the greatest strategic achievements of the 20th
century: the gradual transformation of a continent, once the scene of the most
violent and destructive wars ever waged, into an oasis of peace and prosperity
where borders are open and uncontested and aggression unthinkable.
Russia's invasion of Georgia represents the most serious challenge to
this political order since Slobodan Milosevic unleashed the demons of ethnic
nationalism in the Balkans. What is happening in Georgia today, therefore, is
not simply a territorial dispute. It is a struggle about whether a new dividing
line is drawn across Europe: between nations that are free to determine their
own destinies, and nations that are consigned to the Kremlin's autocratic
orbit.
That is the reason countries like Poland, Ukraine and the Baltic States
are watching what happens in the Caucasus so closely. We heard that last week in
Warsaw, Kiev and Tbilisi. There is no doubt in the minds of leaders in Ukraine
and Poland -- if Moscow succeeds in Georgia, they may be next.
There is disturbing evidence Russia is already laying the groundwork to
apply the same arguments used to justify its intervention in Georgia to other
parts of its near abroad -- most ominously in Crimea. This strategically
important peninsula is part of Ukraine, but with a large ethnic Russian
population and the headquarters of Russia's Black Sea Fleet at Sevastopol.
The first priority of America and Europe must be to prevent the Kremlin
from achieving its strategic objectives in Georgia.
Having been deterred from marching on Tbilisi and militarily overthrowing
the democratically elected government there, Russian forces spent last week
destroying the country's infrastructure, including roads, bridges, port and
security facilities. This was more than random looting. It was a deliberate
campaign to collapse the economy of Georgia, in the hope of taking the
government down with it.
The humanitarian supplies the U.S. military is now ferrying to Georgia
are critically important to the innocent men, women and children displaced by
the fighting, some of whom we saw last week.
Also needed, immediately, is a joint commitment by the U.S. and the
European Union to fund a large-scale, comprehensive reconstruction plan --
developed by the Georgian government, in consultation with the World Bank, IMF
and other international authorities -- and for the U.S. Congress to support this
plan as soon as it returns to session in September.
Any assistance plan must also include the rebuilding of Georgia's
security forces. Our past aid to the Georgian military focused on supporting the
light, counterterrorism-oriented forces that facilitate Tbilisi's contribution
to coalition operations in Iraq. We avoided giving the types of security aid
that could have been used to blunt Russia's conventional onslaught. It is time
for that to change.
Specifically, the Georgian military should be given the antiaircraft
and antiarmor systems necessary to deter any renewed Russian aggression. These
defensive capabilities will help to prevent this conflict from erupting again,
and make clear we will not allow the Russians to forcibly redraw the boundaries
of sovereign nations.
Our response to the invasion of Georgia must include regional actions
to reassure Russia's rattled neighbors and strengthen trans-Atlantic solidarity.
This means reinvigorating NATO as a military alliance, not just a political one.
Contingency planning for the defense of all member states against
conventional and unconventional attack, including cyber warfare, needs to be
revived. The credibility of Article Five of the NATO Charter -- that an attack
against one really can and will be treated as an attack against all -- needs to
be bolstered.
The U.S. must also reaffirm its commitment to allies that have been the
targets of Russian bullying because of their willingness to work with
Washington. The recent missile-defense agreement between Poland and the U.S.,
for instance, is not aimed at Russia. But this has not stopped senior Russian
officials from speaking openly about military retaliation against Warsaw.
Irrespective of our political differences over missile defense, Democrats
and Republicans should join together in Congress to pledge solidarity with
Poland, along with the Czech Republic, against these outrageous Russian
threats.
Finally, the U.S. and Europe need a new trans-Atlantic energy alliance.
In recent years, Russia has proven all too willing to use its oil and gas
resources as a weapon, and to try to consolidate control over the strategic
energy corridors to the West. By working together, an alliance can frustrate
these designs and diminish our dependence on the foreign oil that is responsible
for the higher energy prices here at home.
In crafting a response to the Georgia crisis, we must above all
reaffirm our conviction that Russia need not be a competitor or an adversary.
Since the collapse of the Soviet Union, Democratic and Republican
administrations have engaged Russia, sending billions of dollars to speed its
economic recovery and welcoming its integration into the flagship institutions
of the international community. We did this because we believed that a strong,
prosperous Russia can be a strategic partner and a friend. We still do.
But Russia's leaders have made a different choice. While we stand ready
to rebuild relations with Moscow and work together on shared challenges,
Russia's current course will only alienate and isolate it from the rest of the
world.
We believe history will judge the Russian invasion of Georgia as a
serious strategic miscalculation. Although it is for the moment flush with oil
wealth, Russia's political elite remains kleptocratic, and its aggression
exposed as much weakness as strength. The invasion of Georgia will not only have
a unifying effect on the West, it also made clear that Russia -- unlike the
Soviet Union -- has few real allies of strategic worth.
To date, the only countries to defend Russia's actions in the Caucasus have
been Cuba and Belarus -- and the latter, only after the Kremlin publicly
complained about its silence.
In the long run, a Russia that tries to define its greatness in terms
of spheres of influence, client states and forced fealty to Moscow will fail --
impoverishing its citizens in the process. The question is only how long until
Russia's leaders rediscover this lesson from their own history.
Until they do, the watchword of the West must be solidarity: solidarity
with the people of Georgia and its democratically elected government, solidarity
with our allies throughout the region, and above all, solidarity with the values
that have given meaning to our trans-Atlantic community of democracies and our
vision of a European continent that is whole, free and at peace.
NOTE: Mr. Graham is a Republican senator from South Carolina. Mr.
Lieberman is an Independent Democratic senator from Connecticut.
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15. EASTERN EUROPE CAN DEFEND ITSELF
OPINION:
By Max Boot, The Wall Street Journal
New York, New York, Monday, August 25, 2008; Page A13
Eastern
Europeans are rightly alarmed about the brazenness and success of the Russian
blitzkrieg into Georgia. For many living in Russia's shadow, this is reviving
traumatic memories -- of 1968 for Czechs, 1956 for Hungarians, 1939 for Poles.
It does not help that senior Russian generals are threatening to rain nuclear
annihilation on Ukraine and Poland if they refuse to toe the Kremlin's
line.
Even those states which, unlike Georgia and Ukraine, are already in NATO
can take scant comfort. As Poland's foreign minister, Radek Sikorski, says,
"Parchments and treaties are all very well, but we have a history in Poland of
fighting alone and being left to our own devices by our allies."
Warsaw's response has been to draw closer to the United States, by
rapidly concluding an agreement in long drawn-out negotiations over the basing
of U.S. interceptor missiles on Polish soil. That's a good start, but it's a
move of symbolic import only. The small number of interceptors are designed to
shoot down an equally small number of Iranian missiles -- not the overwhelming
numbers that Russia deploys.
Poland and other states should be under no illusion they can count on the
U.S. in a crisis. In the past we left Poland, Hungary and Czechoslovakia in the
lurch. More recently we haven't done much to help Georgia.
The only thing that the frontline states can count on is their own
willingness to fight for independence. But willingness alone is not enough. They
also need the means to fight, and at the moment they don't have them. We have
already seen how the tiny Georgian armed forces -- with fewer than 30,000 men --
were routed by the Russian invaders.
What gets ignored is that Georgia, although a small country
(population: 4.6 million), has the potential to do far more for its defense.
According to the CIA's World Factbook, Georgia has over 900,000 men between the
ages of 16 and 49. It could easily create a larger military force than it has,
but that would require spending more on defense. By the CIA's estimate, its
defense budget was just 0.59% of GDP in 2005.
Georgia's military spending has grown in recent years, but not Eastern
Europe's. According to the International Institute of Strategic Studies, only
one country in Eastern Europe spends more than 2% of GDP on defense. That would
be Bulgaria at 2.2%. Romania is in second place at 1.9%, followed by Poland at
1.8%.
Nor do these countries maintain large standing forces. Poland has 7.9
million males of military age but only 127,266 active-duty personnel in its
armed forces. Hungary could mobilize 1.9 million men but has only 32,300 in
uniform. Bulgaria has 1.3 million potential soldiers but only 40,747 actual
soldiers. And so on.
There is one exception to this demilitarizing trend. Russia, which has
more than a million soldiers under arms, has been increasing its defense budget
from the lows of the immediate post-Soviet era. Based on official figures it
spends at least 2.5% of GDP on its military. But if you add in expenditures on
paramilitary forces and other items, the total comes closer to 4% -- roughly the
same percentage that the U.S. is spending.
Small states have often shown the ability to humble great powers. In
1920, under the inspired leadership of Marshal Josef Pilsudski, the Poles staged
a brilliant counterattack to save Warsaw and drive the Red Army off their soil.
In the winter war of 1939-1940 the plucky Finns held off Soviet invaders,
forcing the Kremlin to settle for a slice of its territory rather than all of
it. More recently, the Afghan mujahedeen drove the Red Army out of their country
altogether, thereby helping to bring down the Soviet Union.
But if they have any hope of emulating such feats -- or, more
precisely, of deterring the Russians from threatening them in the first place by
making it clear that they could emulate such feats -- today's Eastern Europeans
have to do much more to prepare a robust defense. They should double their
military spending to make themselves into porcupine states that even the Russian
bear can't swallow.
The U.S. can help, as we helped the Afghans in the 1980s and as the
French helped the Poles in 1920. That will require a readjustment in our
military assistance strategy, which has been to create in Eastern Europe
miniature copies of our own armed forces.
Our hope, largely realized, has been that these states will help us in our
own military commitments in Afghanistan, Iraq and elsewhere. But in addition to
developing NATO-style expeditionary capacity, these states need to be able to
conduct a defense in depth.
That means having large reserves ready for fast call-up and plenty of
defensive weapons -- in particular portable missile systems such as the Stinger
and Javelin capable of inflicting great damage on Russia's lumbering air and
armor forces. That's more important than fielding their own tanks or fighter
aircraft.
We should offer to sell them these relatively inexpensive defensive
systems, and to provide the advisory services to make the best use of them. But
the first step has to be for the Eastern Europeans to make a larger commitment
to their own defense.
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16
. NATO IS UKRAINE'S BEST
OPTION
OP-ED: by George Woloshyn, Special to Kyiv Post
Kyiv Post, Kyiv, Ukraine, Thursday, Aug 21, 2008
Russia’s naked aggression against Georgia may very well be a test of a
similar strategy to be applied in the near future against its much bigger prize:
Ukraine. The tiny (population 70,000) “breakaway” (with Russian support)
province of South Ossetia could easily be the Sevastopol or even Crimea of the
future declaring its “independence” from Ukraine.
Russian troops via its Sevastopol naval base would represent themselves as
“peacekeepers” (to “protect” Russian nationals). Russia would hand out
Russian citizenship to whoever asks for it and, lo and behold, a pretext is set
in place for wholesale intervention by Russian forces, including the bombing of
Ukrainian population centers.
The current Georgian scenario may have turned out entirely differently
if Georgia had become a member of NATO. Russia knows that taking on a NATO
member means a direct military challenge to Europe and North America, with
unpredictable consequences for Russia.
That is why it is time for all patriotic Ukrainians, regardless of
their political leanings, to move as quickly as possible for NATO entry.
This is no longer an intellectual exercise. Georgia should convince us that NATO
is essential to the peace, freedom and independence of Ukraine.
NATO is simply a defense alliance of 26 countries which agree to
resolve their disputes peacefully, and to come to each other’s defense when
attacked. The final decision to contribute troops or equipment to a NATOled
operation is left to each member state. All NATO decisions are taken jointly by
member states on the basis of consensus.
NATO does not maintain its own military force but relies on voluntary
contributions by member states. Each member state contributes towards NATO’s
daytoday costs, which are estimated to be 0.5 percent of the total
defense expenditure of NATO countries. In fact, member states generally
enjoy markedly reduced defense expenditures because, rather than stand alone,
each can rely on the support of other states when threatened.
Ukraine, more than any other European country, needs NATO. It is one of
two countries against which Russia has made repeated and direct territorial
claims and threats. (The other is Georgia.) It is one of two countries
that has been the object of a broadbased Russian domestic and international
campaign of unprecedented slander, subversion and intrusion into almost every
facet of its life.
Russian military forces in Ukraine ignore Ukrainian laws, as they ignore
Georgian sovereignty over South Ossetia. Its political leaders openly encourage
and support fragmentation of its territorial integrity, as in Georgia. And its
media has been systematically stoking popular antiUkrainian hysteria.
Russia understands that Ukrainian membership in NATO will – once and
for all – remove Ukraine from its hegemony. Its unreconstructed
imperialists, who still consider Ukrainian statehood to be a transitory
aberration, will have to give up their dreams of Russian domination and
exploitation of Ukraine. Its threats against Ukraine will prove meaningless, as
all such threats will be considered threats against 26 other nations.
Although, in theory, membership in NATO is not a requirement for
eventual entry into the European Union, in reality NATO membership would greatly
facilitate such integration and make it virtually impossible for Europeans to
withhold EU membership.
Both the European public and its political leaders would become comfortable
with the idea of Ukrainian contribution to European security and full Ukrainian
participation in Europe’s economic and cultural life would naturally
follow.
Those who claim that NATO membership will entangle Ukraine in foreign
military operations are either ignorant of the basic terms of the treaty or
intent on disinformation. For example, all 26 NATO members and 14 other
countries (including Ukraine) have been involved in Afghanistan. Afghanistan is
considered an official NATO operation. Yet, each state decides on the extent and
form of its participation.
NATO member states have contributed as few as nine individuals and as
many as several thousands. Half of the member states have fewer than 500
personnel in Afghanistan, hardly the sort of “entanglement” that would pose a
problem for Ukraine. In fact, it may even prove of great value in
providing “real world” experience in military tactics and technology.
Those who fear U.S. domination in NATO should only consider the case of
Iraq. Despite strong U.S. urgings and incentives, only 10 NATO states have
contributed forces to the U.S.led “coalition of the willing” in Iraq.
Apparently, the other 16 members were not very “willing” and have decided to
stay out.
In short, the simple fact remains that NATO membership requires Ukrainian
participation only in the defense of threatened NATO member states….all other
military operations are discretionary with each member state. Although NATO and
the Warsaw Pact are often considered as analogous organizations, they were very
different creatures.
NATO participation is voluntary, based on consensus, and entirely defensive
in nature. Can anyone imagine a communist Bulgaria or Romania insisting on
withholding troops from the Warsaw Pact?
But what about Russian objections to NATO membership for Ukraine?
It’s time for Russians to get over it. They pose the biggest – probably the only
– threat to Ukrainian independence and their concerns should have the least
bearing on Ukraine’s choice of a defensive alliance. Russian foreign policy has
always been that of a pragmatic bully.
They will squeeze those who are vulnerable (like Georgia), but seek good
relations with those who are of equal or greater strength. Ukraine can
only gain their respect as an equal within a defensive alliance such as NATO. A
decision against NATO membership will only exacerbate relations with Russia, not
improve them.
Europe’s and Ukraine’s answer to Russian brutality and aggression in
Central Asia should be expedited and full membership in NATO.
NOTE: George Woloshyn, a native of Kupnovychi, Ukraine, is an American
citizen living in Linden, Virginia.
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17
. DIVIDED MEANS
CONQUERED
Ukraine must overcome a history of in-fighting
and debilitating disunity if it is to resist Russia
Peter Dickinson, Business Ukraine magazine, Kyiv, Ukraine, Monday, August
25, 2008
Throughout its troubled history Ukraine has repeatedly bee
