Sunday, May 24, 2015

Russia Vows 'Tough' Action If Ukraine Defaults On Debt

MOSCOW, Russia -- Russian Prime Minister Dmitry Medvedev said Saturday that his government will adopt a "tough stance" if Ukraine defaults on its debt, which includes a $3 billion loan from Moscow.

Russian Prime Minister Dmitry Medvedev takes a hard line on Ukraine's debt repayments.

Speaking in an interview with state channel Rossiya, Medvedev said Ukraine's failure to repay its debt or a decision to freeze payments could prompt Russia to oppose new IMF loans to the country.

The conflict with pro-Russia separatists in Ukraine's industrial east -- which Kiev blames on Moscow -- has greatly exacerbated economic difficulties in the former Soviet republic.

Medvedev said recent steps by Kiev toward freezing debt payments are "looking like the denial by Bolsheviks to pay the debt of the tsarist government."

"If indeed it will be done this way, that is undoubtedly a default by Ukraine," Medvedev said of the potential debt freeze.

"That will influence the process of their negotiations with the International Monetary Fund. We will take a maximally tough stance in this case and will defend our national interests."

Ukraine's parliament this week voted to give the government the right to delay repaying international creditors if necessary, leading to a furious reaction by Moscow, which is waiting for Kiev to repay a $3 billion loan by the end of the year.

Moscow issued the loan in December 2013, just months before the collapse of the regime of ex-president Viktor Yanukovych, who fled to Russia in the wake of mass protests. 

Kiev's current pro-Western government is racing to agree a debt restructuring deal with its creditors before the next IMF board meeting in June.

It is aiming to reach 15 billion euros ($16.5 billion)  in savings in order to qualify for the next part of the IMF's $17.5 billion loan programme.

But the talks have proven difficult, and Kiev last week criticised its creditors over what it said was a "lack of willingness to engage in negotiations."

Medvedev reiterated that Russia "is not planning to restructure anything" and would oppose new IMF loans if Ukraine defaults.

"We cannot block anything on our own... but naturally we will talk about it," Medvedev said, adding that the recent parliament vote in Ukraine "influences the position of other creditors and other members of the IMF."

Ukraine received the first $5 billion under the IMF rescue programme in March and is under pressure from Western countries to reform its economy after years of mismanagement and corruption.

Source: AFP

Ukraine’s Economy: War-Torn Reform

KIEV, Ukraine -- Even before the Russian invasion of the east of the country last year, the task of reforming Ukraine’s economy was daunting.

Its people are poorer than they were when the Soviet Union ended.

Corruption pervades Ukrainian life.

The traffic police demand bribes at random and newspapers carry advertisements for companies that will forge exam papers for you.

To this set of chronic problems, the war has added acute ones: the destruction of much of the country’s industrial base, spooked investors and a balance-of-payments crisis.

If Ukraine is to build a stable economy, it must fix the public finances, shake up the all-important gas sector and stamp down on corruption against the backdrop of an unresolved conflict.

Ukraine’s public debt is around 100% of GDP, much of it denominated in foreign currency.

Already unsustainable, its debt burden is on an upward path: in the first quarter of 2015, Ukrainian GDP fell by almost 18% year on year.

With nearly $6 billion of foreign debt falling due in the next year, but foreign-exchange reserves of around $10 billion, Ukraine has little room for manoeuvre.

Despite the central bank offering interest rates of 30%—the world’s highest—the hryvnia, Ukraine’s currency, is shaky.

If it falls, servicing foreign debt will become even trickier. 

The IMF, with which Ukraine agreed a bail-out deal in March, has been clear about what is needed to make the country’s debts sustainable.

It assumes that the government in Kiev will write off $15.3 billion of debt and interest by 2018, and that it will have reduced its public-debt-to-GDP ratio to about 70% of GDP by 2020.

The goal is to reduce debt repayments in any given year to no more than 10% of GDP.

To achieve this, Ukraine must cut a deal with the holders of its debt.

Negotiations are going badly.

The creditors are trying to get the government to agree only to maturity extensions.

Ukraine wants to reduce the total amount of debt it owes, as well as pushing back repayment dates.

It looks increasingly likely that Ukraine will fail to reach an agreement by June, which could delay the disbursement of a badly needed $2.5 billion loan from the IMF.

Even in the face of obstinate creditors, says the IMF, all is not lost.

It hopes that tax rises and spending cuts will help make Ukraine’s debt sustainable.

As much as half of the economy operates out of the reach of the taxman: tackling this would boost revenues.

Ukraine’s big shadow economy is partly down to its high payroll taxes (ie, those that are levied on workers).

Low “tax morale” plays a role, too.

People see little point in paying their share, since public services are poor and corruption pervasive.

VAT evasion is rampant.

The government is acting.

It has introduced an electronic VAT system, for instance, which will make evasion more difficult.

Payroll-tax breaks should also help to bring more firms out of the shadows.

The State Fiscal Service reported in April that it had received about 3,000 applications to take advantage of a tax amnesty—whereby people make an honest tax declaration in exchange for a waiver from penalties—though that boosted revenues by just $12m.

Some taxes have risen.

The maximum rate of personal-income tax has moved from 17% to 20%.

This seems to be paying off: overall tax revenues are rising.

The government is also making tough decisions on spending.

Anders Aslund of the Atlantic Council, a think-tank, says that the government has cut the cost of Ukraine’s pension system from 18% to 14% of GDP, mainly by changing the way that payouts rise and removing perks enjoyed by the old Soviet elite.

The biggest reform to pensions, raising the retirement age, has been kicked into the long grass.

Spending on education and health care has seen big drops, and a fifth of civil servants are being fired.

In the first quarter of this year, state spending in real terms was 17% lower than the year before, leading to a budget surplus.

The government can also save money by reforming the gas sector, the second of its big tasks.

It is a huge fiscal hole: in 2014 the state monopoly, Naftogaz, ran a deficit worth 5.7% of Ukraine’s GDP.

An opaque system of subsidies is to blame.

For years, it ensured that Ukrainian households received gas at one-fifth of its cost.

That boosted disposable incomes for many (though not for the very poorest, who are cut off altogether from the gas network), but it was also an avenue for graft.

Many grew rich by buying gas at the household rate, then selling it on at industrial prices.

The current government, in contrast to predecessors, is making a serious effort to shake things up.

On April 9th the parliament passed EU -inspired legislation to “unbundle” Naftogaz—splitting it up into separate production, transit, storage and supply firms.

Once implemented, consumers will be able to choose their gas supplier, a radical change.

To close Naftogaz’s deficit, the government is increasing the household price of gas fourfold.

Ukrainians will not really feel the pain until November, when they see the first bill of the winter.

To offset the hardship, the government and the IMF say that spending on social programmes will see “an increase of 30% compared to 2014”.

These figures are in nominal terms, however; with inflation running at 60%, social spending is probably falling in real (ie, inflation-adjusted) terms.

In other areas, reform is more sluggish.

The stations used by Naftogaz to measure imports are inside Russia, meaning that no one is sure how much gas really enters Ukraine.

Although the Ukrainian authorities insist that the flow is closely monitored, others fear there is huge scope for malpractice.

A senior EU official dealing with energy believes that each year up to €200m ($222m) worth of gas may go astray.

Ukraine’s foreign allies have repeatedly urged it to install meters on the border, so far to no avail. 

Graft is everywhere.

A list of the world’s most corrupt states, compiled by Transparency International, a pressure group, puts the country at 142nd—little better than the Central African Republic.

The government has made much progress in one hotbed of corruption, public procurement, by closing loopholes and making it more transparent.

But another flagship policy, an anti-corruption bureau, worries some.

A 190-country study by Alina Mungiu-Pippidi and colleagues at the Hertie School of Governance, in Germany, shows that dedicated anti-corruption institutions typically fail.

That is usually because the bureau itself ends up becoming a target for corruption and political influence.

Corruption also festers in Ukraine’s legal system.

The courts use a mixture of a modern Western civil code and a Soviet-inspired economic code.

This creates problems, says Daniel Bilak of CMS Cameron McKenna, a law firm, since civil law in general, and commercial law in particular, require certainty and predictability in their application.

Judges can choose which code to apply in business disputes, which makes the law confusing and opens the door to bribes.

Some reform has begun, however, including making land-registry records available online, and judges are being more closely scrutinised.

This government has the most ambitious economic programme in Ukraine’s short history.

But one area beyond its control is the situation in the east of the country.

Vladimir Putin, the Russian president, has the power to heighten the conflict there at any time, doing further damage to the economy.

That is not a comfortable position for any country to be in.

Source: The Economist

Ukraine Crisis: Rebel Commander Alexei Mozgovoi 'Killed'

LUHANSK, Ukraine -- One of the top rebel commanders in eastern Ukraine, Alexei Mozgovoi, has been killed in an attack on his car, Russian and Ukrainian media report.

Alexei Mozgovoi ran a construction company before the conflict began.

Mozgovoi led the "Prizrak" (Ghost) battalion which was based in the Alchevsk area of Luhansk.

Reports said a bomb struck his car, which was then targeted by gunfire that killed Mozgovoi and six others.

Mozgovoi was a critic of the Russian-backed separatist leadership and the Minsk accord signed with Kiev.

He took control of Alchevsk as part of the uprising that began last April in eastern Ukraine's Luhansk and Donetsk regions following Russia's annexation of Crimea.

There are no details on who may have carried out the attack, which was said to have taken place on the road from Luhansk to the city of Alchevsk.

One report said the attack took place near the spot where Mozgovoi had survived another assassination attempt in March.

His press secretary and three security officers were reportedly among the dead.

Last May he allowed the BBC's Panorama exclusive access to his militia's training camp.

Mozgovoi told our reporter the conflict was "in full swing... The east of Ukraine is moving steadily towards Russia, and that's a fact".

Last November Mozgovoi was seen at the head of a summary court system.

He is heard issuing a warning to residents:

"Too many women go to restaurants. What kind of example do they show to their children? From now on, we will arrest all women we find in restaurants and cafes."

The Minsk ceasefire agreement came into effect on 15 February, but there has been regular sporadic fighting and both the pro-Russian separatists and the Ukrainian government accuse the other of preparing a major offensive.

The Ukrainian government and Western leaders say there is clear evidence Russia is helping the rebels with heavy weapons and soldiers - an accusation Moscow denies.

But the rebels are also not a single coherent force in eastern Ukraine and there have been reports of power struggles.

Source: BBC News

Saturday, May 23, 2015

Amnesty Says Torture Of Ukraine War Prisoners Is Rife

KIEV, Ukraine -- Both warring sides in eastern Ukraine are perpetrating war crimes almost daily, including torturing prisoners and summarily killing them, the Amnesty International rights group said in a report Friday.

Amnesty said in a statement that it has heard from former captives of both Ukrainian government and separatist forces who say they faced savage beatings, torture with electric shocks, kicking and stabbings.

Concern about the treatment of prisoners comes as Ukrainian authorities face scrutiny this week for publicly parading two men they say were Russian soldiers captured while fighting alongside separatists.

Hundreds of Ukrainian troops are believed to have been captured by rebel forces in the yearlong war that has claimed more than 6,200 lives.

Both sides routinely accuse one another of mistreating captives.

Under a February peace agreement, all war prisoners had been due for release in early March, but little progress has been achieved.

Amnesty says it interviewed 17 captives of the separatists and another 16 held by government forces for its report.

"In the shadow of eastern Ukraine's still-smoldering conflict, our on-the-ground research shows that accounts of detainee torture are as commonplace as they are shocking," Amnesty International representative John Dalhuisen said.

The mistreatment cataloged in the Amnesty report included instances of prisoners being hung from the ceiling, deprived of sleep for days and threatened with death.

"The Ukrainian authorities must investigate all allegations of war crimes and other abuses, open files and collect evidence of abuses by separatist forces and bring to justice all those responsible for perpetrating such heinous acts," Dalhuisen said.

The group is urging U.N. agencies and experts to visit detention sites in Ukraine to meet those being held by both sides.

Amnesty said the worst abuse tends to occur during the first days of captivity and that groups operating largely outside the chain of command are the most violent.

"The situation on the separatist side is particularly chaotic, with a variety of different groups holding captives in at least a dozen known locations," Amnesty said.

It identified Ukraine's Right Sector nationalist militia as one of the worst culprits on the pro-government side.

"Right Sector has reportedly held dozens of civilian prisoners as hostages, brutally torturing them and extorting large amounts of money from them and their families," the group said.

Amnesty says attempts to get Ukrainian authorities to address complaints over Right Sector have been ignored.

The Ukrainian Security Service said Friday it is open to dialogue with international rights organizations and said it will meet with Amnesty to discuss the report.

Eduard Basurin, a spokesman for rebel forces in the separatist stronghold of Donetsk, refuted Amnesty's findings.

"They constantly make these accusations but they are never able to provide any evidence," Basurin told The Associated Press by telephone.

But Amnesty said it has corroborated the accounts it collected with evidence such as X-rays of broken bones, medical records and photographs of injuries.

Ukraine's security services have been criticized for their public show this week of two men they say are Russian intelligence operatives fighting along pro-Moscow rebels.

The men, who have been identified as Yevgeny Yerofeyev and Alexander Alexandrov, were interviewed by journalists while lying in their hospital beds and showing clear signs of physical discomfort.

The Organization for Security and Cooperation in Europe, which is monitoring a shaky truce in Ukraine, has expressed misgivings over the government's treatment of the two prisoners.

"It's important that very widely subscribed-to human rights standards be adhered to, and that does not include parading them in front of the media," said OSCE spokesman Michael Bociurkiw.

Bociurkiw said both sides in recent days have resumed using highly destructive and inaccurate multiple rocket launchers.

Ukrainian military spokesman Andriy Lysenko said Friday three Ukrainian troops had died and another 12 were wounded in the previous day's unrest.

Lysenko said most casualties were sustained near the eastern rebel-held city of Donetsk, where OSCE has seen intensified rocket fire.

Amid the tensions, representatives of Ukraine, Russia, the rebels and the OSCE held the so-called Contact Group's meeting in the Belarusian capital to discuss various military, political and economic issues related to February's deal but didn't announce any immediate progress.

Speaking after the meeting, OSCE envoy Heidi Tagliavini voiced hopes that several working groups set up to consider various aspects of the February peace deal would help implement it.

The following round of talks is set for June 2.

Source: AP

Ukraine Tries Adapting To Life Without Lenin

BORODYANKA, Ukraine -- In a country where at least 4,000 localities had a main thoroughfare named after Lenin, outlawing remnants of the Soviet era like street names and statues was bound to cause problems.

Pro-Russia separatists pass a Lenin statue during the World War II Victory Day parade May 9 in Donetsk. The tank in the photo is clearly a Russia-supplied tank.

Thousands of municipalities are puzzling over how to respond to just such a mandate, which went into effect Wednesday, without sowing confusion or alienating swaths of voters.

While few outside Crimea and the rebel strongholds of eastern Ukraine want to join Russia, not all Ukrainians are ready to repudiate a joint history that remains dear to many across generations.

“I wanted to tell my child that there was ‘Uncle Lenin,’ and at one point Mama took part in a big celebration in Kiev” in honor of the first Soviet leader, said 37-year-old Svetlana Arshavina, who lives in this suburb northwest of the capital.

“Now what will I tell her? That they took Uncle Lenin and smashed him to pieces?” she asked.

That fate has met Lenin statues across the country since the pro-Western government swept into power in Kiev last year.

The phenomenon is so common now that it has its own name—“Leninopad” or “Lenin-fall,” a phrase that echoes the Ukrainian word for snowfall.

Borodyanka, population 13,000, was already testament to a history in flux, with a Communism Street just a few blocks down from Independence Street, marking the Soviet Union’s 1991 collapse.

Tensions bubbled over when the town’s Lenin statue—already relocated to a square on the outskirts in 2008—went missing twice over the past year.

The original life-size bronze was knocked over in the middle of the night last spring and damaged beyond repair.

Mayor Viktor Trakhun, a former Communist Party member, reached out to local World War II veterans’ groups to help clean up the mess.

Some of them “said they wanted to put it back up,” he said.

So on April 22, “Lenin’s birthday, they drove up with a few television crews” and replaced it with a marble bust.

By early May, though, the bust was missing.

The pedestal is now covered with a green tarp.

Nikolai Zakharchuk, who was responsible for resurrecting the statue, blamed vandals for tearing it down.

Upon further questioning, he abruptly hung up the phone, saying he didn’t trust an American reporter. 

Backers of the law say it is needed to help the former Soviet republic break from Russia’s sphere of influence and move closer to the West.

“Children are already reading in textbooks that Lenin is a criminal, but are walking to school along Lenin streets and walking by Lenin statues every day,” said Volodymyr Viatrovych, head of Ukraine’s Institute of National Memory, who helped write the law.

“We’re fostering schizophrenia.”

Many critics, though, consider it a waste of time and money.

A parliamentary survey in 2012 (before Russia’s annexation of Crimea) found Lenin was the name of the main street in at least 4,000 cities and villages across the country.

That doesn’t count Lenin squares or other Soviet-linked names like Red October.

The law gives the national government authority to step in and change names where locals refuse to do so.

But an official close to the president said it was meant merely as an impetus for change.

Rights activists say the law also faces potential court challenges.

For example, it calls for up to five years in prison for individuals “creating, spreading, or publicly using” communist or Nazi symbols, which could violate freedom of speech laws.

In Kiev, the city has vowed to take down all Communist symbols from government buildings, streets and subway stations by August.

But no one yet knows what to do with the 335-foot-tall Soviet-era “Motherland” statue that towers over the city.

Part of a World War II museum, it depicts a giant warrior woman with a shield bearing the Soviet hammer and sickle.

In Borodyanka, the town council said it would have to change 17 street names.

Mr. Trakhun said he had already been approached by people concerned that they would have to change passports and other documents to update the address, though the government has said nobody would be forced to do so immediately.

“This isn’t the most important thing in our country right now. It’s populism,” said Marina Kovalenko, a 35-year-old Borodyanka resident.

“It’s not statues you need to bring down but people who create all of our problems.”

Source: The Wall Street Journal