Saturday, February 28, 2009

The Case For Ukraine

KIEV, Ukraine -- Pessimists believe that Ukraine is on the verge of default. Fortunately, such a calamity is unlikely, but Ukraine badly needs more international financial support to handle a tremendous external shock.


A year ago, Ukraine’s economy was in sound health after eight years of an average annual economic growth of 7.6 percent. Ukraine has maintained a minimal budget deficit, and its public debt was as small as 12 percent of GDP in 2007.

Ukraine’s mistake, however, was to keep its exchange rate pegged to the US dollar, which encouraged speculative short-term capital inflows, driving up inflation to 31 percent last May and the current account deficit to 6.7 percent of GDP last year.

These flaws were not major, but Ukraine became a prime victim of the freezing of international financial markets after the Lehman Brothers bankruptcy. Without credit, most construction just stopped. Steel is Ukraine’s main export product, accounting for over 40 percent of exports, and both prices and volume of sales plummeted by half.

The blow to the Ukrainian economy has been horrendous. In January, industrial production fell by no less than 34 percent over January 2008, and GDP is estimated to have plunged by 20 percent. Steel production, mining and construction have fallen by half.

In current dollars, Ukraine’s GDP is likely to plummet by 40 percent this year. Exports are likely to drop by half, and imports even more, reducing the current account deficit to an insignificant level. Millions of workers are being laid off, and the stock market has contracted by 90 percent.

No other country has been hit as hard as Ukraine, and it needs all the support it can get to mitigate the social shock. The Ukrainian government reacted swiftly, asking the International Monetary Fund for support last October. Within four weeks, Ukraine and the IMF had agreed on a large, strong two-year standby agreement with $16.4 billion of IMF credits.

The IMF had three key demands: A balanced budget, a floating exchange rate, and bank restructuring. Ukraine has delivered. It has done more on bank restructuring than most Western countries. After some hesitation, the National Bank of Ukraine let the exchange rate float. It has depreciated by about 50 percent and stabilized, endowing Ukraine with new cost competitiveness. The Ukrainian government has maintained the budget close to balance in spite of collapsing state revenues. Inflation has fallen to 22 percent.

The international financial institutions recognize Ukraine’s dilemma and the government’s heroic achievements. The World Bank, the European Bank for Reconstruction and Development, and the European Investment Bank have contributed some $3 billion in new funds.

Their support is sufficient to avert default. Ukraine still has $28 billion in reserves, which reassuringly corresponds to eight months of imports. The only reason for talk about default is the loud, public acrimony between President Viktor Yushchenko and Prime Minister Yuliya Tymoshenko, who accuse each other of treason and corruption.

But we should not complain about open democracy. Apart from the Baltic countries, Ukraine is the only bona fide democracy with free media in the former Soviet Union, and it is committed to Euro-Atlantic integration. Such a country needs support when in peril.

Amazingly, Ukraine has so far seen minimal social unrest, but unemployment is bound to skyrocket, especially in the East with its steelworks and mines. Naturally, the Ukrainian government is anxious to reinforce its social safety net and insists on a budget deficit of a moderate 3 percent of GDP.

The IMF understands the government’s predicament, but it cannot approve a budget deficit of more than 1 percent of GDP without additional financing. The finance gap in this year’s balance of payment amounts to $5 billion, quite a moderate amount.

Seventeen international banks have just given their vote of confidence in Ukraine’s economic policy, by making commitments to invest $2 billion of their own capital in their Ukrainian subsidiaries. Western governments should follow the example of their hard-tested banks.

The European Union has a vital interest in saving its banks that are heavily invested in Ukraine, and for the United States, Ukraine is of major geopolitical importance. The United States and the European Union should stand up and deliver. Ukraine has long been a loyal friend of the West. Now the time has come for the West to prove its friendship toward Ukraine.

Source: UNIAN

Ukrainian Military Might For Sale

ABU DHABI, United Arab Emirates -- State arms exporter Ukrspetsexport showed off its best selling items at a weapons exhibition in Abu Dhabi.

Ukrainian-built BTR-4 armored personnel carrier.

Ukraine’s state arms exporter, Ukrspetsexport, displayed some of the country’s best-selling military equipment on Feb. 22 at the IDEX 2009 arms exposition in Abu Dhabi, capital of the United Arab Emirates.

The Ukrainian-built BTR-4 armored personnel carrier, above, was one of many vehicles, aircraft, anti-aircraft systems and detection equipment showcased.

Some 900 companies from 50 countries are taking part in the exposition which lasted through Feb. 26.

Ukraine has in recent years ranked as one of the world’s top ten arms exporters.

The country is estimated to have exported more than $1 billion worth of military equipment and technologies in 2008.

Most of Ukraine’s arms are modified Soviet-era technologies.

Experts say the biggest customers for military technologies offered by Ukraine are third world countries.

Source: Kyiv Post

Friday, February 27, 2009

Europe Ambassador: We Have Started A Dialog To Ease Visa Regime For Ukraine

SIMFEROPOL, Ukraine -- Head of the Delegation of the European Commission to Ukraine Jose Manuel Pinto Teixeira hopes that the Ukrainian government will manage to meet with the conditions, which will enable relaxation of visa regime between Ukraine and the European Union.

Jose Manuel Pinto Teixeira

"We have started a dialog on the liberalization of visa regime, but there exists a number of conditions the Ukrainian government should fulfill. For example, those concerning the documentation and the issuance of passports as well as a number of other requirements, which are a subject to discussion in such a dialog," head of the European Commission delegation to Ukraine said at a press conference in Simferopol on Friday.

At the same time, he noted that they agree that the final results will be the freedom of movement throughout the EU for Ukrainian citizens as well.

German Ambassador to Ukraine Hans-J├╝rgen Heimsoeth, in turn, has said that the visa dialog, which has been launched between Ukraine and the EU, will ultimately lead to visa-free travel for Ukrainians.

Source: Kyiv Post

IMF Eases Ukraine Loan Conditions

KIEV, Ukraine -- The International Monetary Fund signaled Friday that Ukraine was making progress toward receiving a second crucial installment of a $16.4 billion emergency loan after the aid program was frozen earlier this month.


The IMF said it was ready to reconsider its loan requirements and allow Ukraine to run a bigger budget deficit after the financial crisis grew worse.

The IMF had previously insisted that Ukraine trim the 2009 deficit from 3 percent to 1 percent of the GDP. But Ceyla Pazarbasioglu, the head of the IMF mission to Ukraine, said Friday that a balanced budget was impossible given the economy would contract by 6 percent or more this year and said the country could run a deficit as long it secures external funding.

"A balanced budget given a sharp decline in revenues does not seem feasible at this point in time," Pazarbasioglu told reporters in a conference call. "We are fully supportive of the authorities' efforts to raise additional funding from multilateral and bilateral creditors."

Prime Minister Yulia Tymoshenko, who is reluctant to cut social spending and upset voters ahead of elections this year, has turned to G-7 countries and Russia to help close the budget gap.

The IMF aid is critical to Ukraine, exposed as one of the most vulnerable to the global financial crisis.

Industrial output has slumped by over one-third and Ukraine's currency has lost nearly half of its value against the dollar. The hryvna continued falling Friday, closing at 8.7 to the dollar Friday, down 46 percent from 4.9 in September.

The crisis has been exacerbated by constant feuds among Ukraine's political leaders.

On Friday, however, Tymoshenko, President Viktor Yushchenko, and parliament speaker Volodymyr Lytvyn pledged they would work together to come up with anti-crisis measures and policy changes in the coming days and present them to the IMF.

Pazarbasioglu praised the effort. "The authorities are putting together their own anti-crisis package and measures and that is very encouraging," she told reporters.

Source: AP

American Chamber Of Commerce: Investors Want To See Ukraine's Successful Eurointegration

KIEV, Ukraine -- Foreign and domestic investors want to see Ukraine gaining membership of the European Union, President of the American Chamber of Commerce in Ukraine Jorge Zukoski has said.

AmCham's President Jorge Zukoski

"Both foreign and domestic investors are interested in seeing the successful integration of Ukraine with the European Union. This will significantly increase the competitiveness of Ukraine and help it find its proper place in the global community," he said at a briefing in Kyiv on Friday.

Zukoski said that one of the determining factors in the country's Eurointegration would be "successful talks on its associated membership and joining an agreement on a free trade area."

"The whole business community should have a sufficiently clear intention to provide all of its support to Ukraine to ensure the successful outcome of these talks," he said.

Source: Kyiv Post

Ukraine's Long-Term Prospects Depend On Germany's Relations With Russia, Says Merkel

BERLIN, Germany -- German Chancellor Angela Merkel has said that Ukraine's long-term prospects depend on the development of Germany's partnership and strategic relations with Russia.

German Chancellor Angela Merkel with Russian Prime Minister Vladimir Putin (file photo).

She was speaking with foreign journalists in Berlin, Deutsche Welle reported.

Merkel said that owing to its geographical position, Ukraine is obliged to stay between the European Union and Russia in all senses of the phrase.

"Finally, Ukraine's long-term prospects depend much on how we manage to build our partnership and strategic relations with Russia. This is fully in Ukraine's interests," she said.

Speaking about Ukrainian-Russian relations, she pointed to the domestic crisis in the country and added that Ukraine's political situation is very difficult, and that it is very hard for the country's leadership to take any decisions.

"Of course, we would like to assist Ukraine in becoming more politically stable," she said.

Merkel said that Ukraine is unambiguously in the sphere of Germany's interests, and that it also belongs to countries of the Eastern Partnership initiative.

She said that a special EU summit on eastern policies is scheduled for May 7, 2009. She said that relations with Ukraine and the provision of assistance to the country to tackle the economic crisis would be discussed at the summit.

As reported, EU officials will participate in a conference in Brussels on March 23 dedicated to the modernization of the Ukrainian gas transportation system.

Source: Interfax

Thursday, February 26, 2009

Michelle Kwan To Visit Ukraine

WASHINGTON, DC -- American Public Diplomacy Envoy Michelle Kwan will travel to Ukraine on February 28th where she will visit Kiev, Yalta, Sevastopol, Bakhchisarai and Odessa.

Figure skater Michelle Kwan

This eight-day trip marks the figure skating champion’s fourth tour as an American Public Diplomacy Envoy for the U.S. Department of State’s Bureau of Educational and Cultural Affairs.

As a Public Diplomacy Envoy, Ms. Kwan promotes cross-cultural dialogue with international youth and increases understanding of America by sharing her story and life experiences.

Kwan’s activities during her trip will include participating in a roundtable discussion with university students, visiting high schools, conducting skating clinics and meeting with alumni of other Department of State exchange programs.

Source: US State Department

No Hope To Reconcile Yushchenko And Tymoshenko, Speaker Lytvyn Says

KIEV, Ukraine -- “Unfortunately, I have to admit that there is no hope to reconcile President Yushchenko and Premier Tymoshenko,” Speaker Lytvyn told his voters in the Ternopil oblast. As soon as any decision is taken by the cabinet, a counter decision follows at once. The situation in Ukraine is worsening at a catastrophic speed, Lytvyn admitted.


He stressed that the bitter stand-off [between Yushchenko and Tymoshenko] is explained by their inability to make up and shake hands.

Lytvyn also commented on Pres Kravchuk’s appeal to Yushchenko to step down and call a pre-term presidential election. Kravchuk’s statement “definitely, mirrors the feelings of Ukrainians,” Lytvyn opined.

“I realize that, given the circumstances, it seems impossible to reconcile Yushchenko and Tymoshenko. However, they must be forced to keep working, Lytvyn said, adding that he has always acted on the following principle: if you’re at a loss what to do, go by the law.

The speaker stressed the importance to comply with the constitution. “It is not without faults, but we have to comply with it. One cannot violate it right, left and center.”

The president, premier, Verkhovna Rada and the opposition must be forced to a roundtable to draw up a roadmap for Ukraine, Lytvyn added.

“It is a long way to the presidential election. Calls for Yushchenko’s resignation and snap presidential election will be futile, unless the situation worsens dramatically and [Ukrainians] hit the streets,” Lytvyn warned.

Lytvyn said he has to lean over backwards to keep the legislature going and thus ensure a dialog among the branches of power.

“There is a plan to rock the boat in Ukraine,” he warned.

Source: ZIK

Ukraine's Naftogaz Seeking Changes To Russia Gas Deal

KIEV, Ukraine -- Ukraine's debt-burdened company Naftogaz wants changes in a hard-won natural gas deal with Russia that ended Europe's gas cutoff, officials said Thursday, amid concerns of a renewed dispute between the two neighbours.


Naftogaz has asked Russia's gas giant Gazprom to allow Ukraine to buy less natural gas this year than previously agreed, according to Gazprom and President Viktor Yushchenko's office.

The contract signed in January locks Naftogaz into buying 40 billion cubic metres of gas this year, but the company is asking to buy only 33 billion.

Naftogaz representatives were not immediately available for comment.

The move raises fears of a repeat gas war between Moscow and Kiev as Gazprom is unlikely to yield to Kiev's request. The January dispute left over a dozen European countries cut off in winter after Gazprom halted gas supplies through Ukraine, accusing its neighbour of stealing the fuel.

A spokesman for Gazprom confirmed receiving Naftogaz's request, but declined any further comment.

Naftogaz said last week it may run into arrears with Gazprom because of deep financial problems.

Fresh arrears by Naftogaz could lead to a new conflict with Russia. The deal that ended January's rift stipulates that Naftogaz will have to make advance payments for gas shipments if it runs up arrears — a commitment the debt-laden company may be unable to fulfill.

Naftogaz has long been plagued by financial problems. It is struggling to stay afloat with more than $4-billion (U.S.) in debt. It has twice narrowly averted technical default on its Eurobond obligations.

Source: AP

Wednesday, February 25, 2009

Four Russian TV Channels Allowed To Broadcast In Ukraine

KIEV, Ukraine -- Ukraine's National Council on Television and Radio Broadcasting has granted four Russian TV channels permission to broadcast in the country, the council said Wednesday.


The channels allowed to broadcast are Zoopark, Ocean-TV, Feniks + Cinema and Topshop TV.

Broadcasting by foreign channels whose programs had not been adapted to Ukrainian laws, including Russia's Channel One, RTR-Planeta, Ren-TV and TVts International, was suspended on November 1, 2008.

Channel One and Ren-TV have since been granted temporary permission to broadcast. More than 10 other Russian TV channels were also granted permission to begin work last December.

It was also reported that Ukraine's objections related mainly to advertising aired by the channels. The Ukrainian distributors of certain channels were ordered to bring the broadcasts in line with Ukrainian laws.

Language has been a contentious issue in relations between Russia and Ukraine, where some political groups have opposed the "Russification" of the country.

Russian is still widely spoken in Ukraine, especially in the east, the Crimea and the capital. Many people in the former Soviet republic people have never learnt to speak Ukrainian.

Source: RIA Novosti

UKRAINE: Between The Kremlin And A Hard Place

WASHINGTON, DC -- Ukraine's internal political problems and tensions with Russia threaten its path to stability and its candidacy for NATO and the EU, warns a new Council on Foreign Relations (CFR) report.

Former U.S. Ambassador to Ukraine, Steven Pifer

The report, "Averting Crisis in Ukraine," analyses the country’s difficulties related to both domestic conditions, including its often disorderly politics, and foreign policy, such as issues related to Ukrainian and European dependence on Russia’s natural gas.

The examination concludes that the U.S. needs to improve its dialogue with Ukraine to avert a bigger crisis.

"A more divided Ukraine would be less able to formulate a coherent foreign policy course with which the U.S. government could engage," said report author and former U.S. ambassador to Ukraine, Steven Pifer, a visiting fellow at the Brookings Institution's Centre on the United States and Europe. "It could even be driven to reorient itself on a more Moscow-focused course."

Domestically, Ukraine faces a presidential election, expected in late 2009 or early 2010, and perhaps preterm parliamentary elections in 2009 that will play out against a backdrop of economic recession and financial crisis.

According to the Bloomberg News Agency, inflation in Ukraine soared to 22.3 percent last month, the highest level in Europe. Ukraine’s currency, the hyrvnia, has lost more than 50 percent against the dollar in the past six months, signaling Ukraine’s first economic contraction in a decade.

President Victor Yushchenko and Prime Minister Yulia Timoshenko, who stood side by side during the 2004 Orange Revolution, have since engaged in fierce infighting, delaying decisions needed to revive the economy.

Due to Ukraine’s failure to meet loan obligations, the International Monetary Fund (IMF) withheld a key second part of a 16.4-billion-dollar loan.

The IMF isn’t the only one putting external pressure on Ukraine. In the aftermath of the August 2008 Russia-Georgia conflict, Kiev must cope with an increasingly assertive Russian foreign policy. Ukraine is regarded by the Kremlin as part of its sphere of privileged interests.

Moscow has made clear its unhappiness with Kiev’s desire to integrate into the European and Euro-Atlantic communities, and will attempt to disrupt that course. Moscow, driven by its geopolitical aims, could fan Ukraine’s internal frictions by escalating its rhetoric against the NATO-Ukraine relationship.

"The Kremlin sees a messy Ukraine as a good thing," Pifer told IPS. Moscow portrays the former Soviet state as an inadequate partner for NATO and the EU.

The Kremlin also capitalizes on Kiev’s political chaos in its domestic politics. The criticisms of Russians who, inspired by Ukraine’s struggle for democratic transformation, want to draw closer to the West are deflected by Moscow’s portrayal of Ukraine as an unattractive alternative political model.

By pointing to Ukraine’s political problems and instability, the Russian government is saying, "Look at the turmoil - that’s what democracy is," adds Pifer.

The CFR report speculates that a new gas dispute between Ukraine and Russia, similar to the most recent incident in January, could again transform into a broader European energy crisis.

A Russian decision to more actively oppose Kiev’s effort to integrate into NATO could spark such a dispute, causing Moscow to cut off its gas supply, impose other economic sanctions, or make a demonstrative military move, such as redeploying army units closer to the Ukrainian border.

But Yushchenko is unlikely to back down in the face of Russian threats, which may, anyhow, be in vain.

According to Walter Zaryckyj, executive director of the Centre for U.S.-Ukrainian Relations, there is little Russia can do to prevent Ukraine’s entrance into NATO. "Russia is bluffing," he said. "I think Russia is willing to do a lot, but they are not in a position to."

Zaryckyj contends that Russia, too, is in economic crisis, having spent much of its money on the Georgia conflict and on the recent agreement with Kyrgyzstan to close a U.S. air base in return for more than 2 billion dollars in loans and aid. The West, therefore, has an opportunity to take a hard stance against Russia.

"The West must say hands off (Eastern Europe) - stop playing games with gas and oil," adds Zaryckyj.

Despite Russia’s opposition, NATO has signalled that it will continue to keep the door open to Ukrainian membership. According to the International Herald Tribune, before a closed-door meeting with Ukrainian Defence Minister Yury Yekhanurov and NATO defence ministers, Secretary-General Jaap de Hoop Scheffer said NATO officials were considering "ways in which the alliance can continue to support its preparations for NATO membership" for Ukraine.

Also, EU Commissioner for External Relations and European Neighbourhood Policy Benita Ferrero-Waldner laid fears of the possibility of a new pro-Russian Ukrainian government to rest, telling journalist in Brussels on Tuesday that, "Whoever comes to power [in Ukraine] in the future, they will certainly want to continue the process of Ukraine's integration into the EU."

According to the CFR report, since the early 1990s, the U.S. government has attached special importance to Ukraine. It has applied billions of assistance dollars to facilitate the country’s development.

"What happens to Ukraine will matter to Washington," says the report, recommending that the U.S. administration "should maintain the goal of Ukraine’s development as a stable, independent, democratic, and market-oriented country, increasingly integrated into European and Euro-Atlantic institutions."

The report encourages the Obama administration to adopt certain strategies, including restoring regular high-level dialogue, counselling Ukrainian leadership and increasing technical assistance to promote energy security. It urges the U.S. to support continued Ukrainian integration with NATO, though it recommends waiting to back concrete steps toward membership until Kiev achieves consensus on this point.

Ukraine, however, "falls fairly low on a list of priorities (for the Obama administration)," said Pifer. "The problem I think that Ukraine has as a foreign policy issue is it’s competing with lot."

The report, however, points to a reawakening of the West to a potential problem in Eastern Europe. According to Zaryckyj, "the report’s title mischaracterises it. The debate is just beginning; I don’t think its ending."

Source: Inter Press Service

Standard And Poor's Slashes Ukraine Credit Ratings

KIEV, Ukraine -- Standard and Poor's said on Wednesday it had cut Ukraine's credit ratings to a level indicating vulnerability to default, amid worries over whether Kiev will receive the next slice of a vital IMF loan.


The ratings agency said it had cut the long and short-term foreign currency sovereign credit ratings on Ukraine to CCC+/C from B/B and local currency ratings to B-/C from B+/B.

It said the outlook was negative, which means the ratings could be cut again.

Ukraine risks missing out on the second installment of 1.9 billion dollars (1.47 billion euros) from a 16.4-billion-dollar International Monetary Fund (IMF) loan due to concerns over its ballooning budget deficit.

Standard and Poor's analyst Frank Gill said in a statement the downgrade represented an "intensifying" risk as regards whether the IMF would pay the loan installment.

A downgrading of sovereign debt is a signal that the underlying economic performance of a country, and its capacity to honour payments due on its sovereign debt bonds, are weakening.

According to the Standard and Poor's website, an obligation rated CCC is "vulnerable to non-payment and dependent upon favorable conditions for the obligor to meet its... commitment on the obligation."

Gill complained that there was an "absence of broad political backing for necessary budgetary revisions and banking system reform" ahead of presidential elections scheduled for January 2010.

"We believe the precariousness of Ukraine's fiscal and economic situation is heightened by the absence of readily available external budgetary funding," he added.

The IMF is still considering whether to grant Ukraine the next tranche of the loan and Ukrainian officials have said a team from the fund could hold discussions in Kiev this week.

Ukrainian politics remains paralyzed by a venomous political row between one-time allies Prime Minister Yulia Tymoshenko and President Viktor Yushchenko which has brought decision making to a halt.

Ukraine is one of the countries worst hit by the global economic crisis.

The former Soviet republic's crucial steel sector has suffered from a sharp slowdown in global demand for the metal, its banks have been struck by the credit crunch and its currency has halved in value against the dollar.

Source: AFP

Tuesday, February 24, 2009

First Ukrainian President Kravchuk Urges Yushchenko To Resign

KIEV, Ukraine -- Leonid Kravchuk, the first president of an independent Ukraine, has called on incumbent President Viktor Yushchenko to resign and call early presidential elections.

First president of independent Ukraine, Leonid Kravchuk.

"I see clearly that you are not focusing your attention on Ukraine's problems but thinking how to stay in power and are ready even to take advantage of the global financial crisis to this end," Kravchuk said in an address shown by most Ukrainian television channels on Tuesday evening.

"You apparently see the solution for yourself and your retinue in deliberately bringing the economic situation to the boiling point based on the 'the-worse-is-the-better' principle. Do you really see the imposition of the state of emergency as the best way to stay in power?" Kravchuk said.

He denounced what he sees as Yushchenko's tactic of shifting the blame for all problems to the government.

"As a matter of fact, this is exactly why you, Viktor Andriyovych, are trying to bring the situation to a critical point. However, publicly distancing yourself from the government and from responsibility for the situation in the country, you have refused to perform your constitutional duties," Kravchuk said.

"I see early presidential elections as the only solution. Most people are demanding this. Let me remind you that I agreed to early elections in my time. Did I want to do so? Certainly not," he said.

However, Kravchuk suggested that Yushchenko will act as a true patriot if he thoroughly analyzes the situation and his own position and resigns.

"This step could stop the tide of problems, calm society down, and give the hope for overcoming the crisis," he said.

Kravchuk, who was elected president in 1992, called early elections in 1994 and lost them to Leonid Kuchma, who then served as president for the next 10 years.

Source: Interfax

Lavrynovych: Yushchenko's Impeachment Before Next Presidential Elections Depends On The Parliament

KIEV, Ukraine -- The current parliament may initiate impeachment procedures before the presidential elections, according to the first vice speaker of the parliament of Ukraine, Oleksandr Lavrynovych.

Oleksandr Lavrynovych

"Ukraine needs to hold parliamentary and presidential elections as soon as possible. Does anyone still believe nowadays that the current president can take any decisions that can help Ukraine get out of crisis?" he said on Tuesday in an exclusive interview with the Interfax-Ukraine news agency.

The first vice speaker also said that the impeachment procedure might not last a long time.

"This depends on the political responsibility and qualifications of the people working in the special commission and those who wear the judges' robes in the Constitutional and Higher Courts. It could be really fast," he said.

Lavrynovych said that the law on special, temporary parliamentary commissions, which provides the mechanism for conducting an impeachment of the president, might be enacted in the nearest future.

According to the first vice speaker, after that, this law may be amended to improve its quality.

On January 15, parliament passed a law on temporary investigation commissions and ad hoc temporary investigation commissions.

The law foresees that proceedings to impeach the president for alleged high treason be based on an appeal to be signed by a minimum parliamentary majority of 300 deputies, who would be prohibited from withdrawing their signatures from the document.

The president returned the law to the Verkhovna Rada with his proposals.

Yushchenko believes that the law grants overly broad powers to the parliamentary commissions, including those that pertain only to bodies of pre-trial inquiry.

The head of state noted that the law endows these commissions with powers similar to those of independent law-enforcement bodies, with virtually non-restricted powers.

The president said that according to the Constitution, the goal of investigation commissions is not bringing people to account, but preparing and make a preliminary examination of the issues, and the commission's conclusions don't play the key role in court decisions.

Source: Kyiv Post

Monday, February 23, 2009

EU Urges Members To Provide More Aid To Ex-Soviet Nations

BRUSSELS, Belgium -- The EU Commission has called on EU nations to provide more aid for Ukraine and four other ex-Soviet states as part of a proposed "Eastern Partnership" program aimed at making the bloc's Eastern doorstep more stable.

EU External Relations Commissioner Benita Ferrero-Waldner.

EU External Relations Commissioner Benita Ferrero-Waldner said on Monday, Feb. 23, that the European Union has a "crucial strategic interest" in Armenia, Azerbaijan, Georgia, Moldova and Ukraine.

Unveiled by the European Commission last December, the "Eastern Partnership" foresees granting some 350 million euros ($448 million) in extra help between now and 2013 to the EU's ex-Soviet neighbors.

Speaking on the sidelines of a meeting of EU foreign ministers in Brussels on Monday, Ferrero-Waldner said the bloc's so-called "Eastern Partnership" had gained urgency in the wake of the August conflict between Georgia and Russia and January's gas standoff between Russia and Ukraine.

"The 'Eastern Partnership' is a very timely initiative that needs to be implemented," Ferrero-Waldner said, adding that problems in Eastern Europe "affect us directly."

Eastern Europe has been hard hit by the global slowdown with many countries facing rising popular anger as cash-strapped governments cut spending.

Ukraine, which received billions in aid from the International Monetary Fund last year, has seen widespread demonstrations as its economy crumbles and savers rush to pull out money from banks.

Democratic progress

The plan aims to promote economic and political stability in the countries and reduce Russia's influence in the region. It includes free trade agreements, visa waivers, financial aid and economic integration with the EU.

In return, the eastern neighbors are expected to step up progress toward economic modernization, democracy, the rule of law and human rights.

The "Eastern partnership" scheme is to be approved at an EU summit next month and launched in May.

But some EU member states have expressed reservations about the proposal.

France, which pushed the EU's Mediterranean Union project last year, is reported to fear that increasing funding to the bloc's eastern neighbors would shift the EU's strategic focus away from North Africa and the Middle East.

Source: Deutsche Welle

IMF Warns Ukraine On Possible Credit Halt If Loan Terms Not Obeyed

KIEV, Ukraine -- The International Monetary Fund (IMF) warned Ukraine to keep to previously-agreed loan terms or risk a loss of badly-needed credits, a senior government spokesman said Monday. "The fund is insisting all the money loaned us go to our banking system," said Oleskander Shapak, a top economic advisor for President Viktor Yushchenko.

IMF's Ceyla Pazarbasioglu

"They have told us there can be no (Ukrainian domestic) political games with the loan terms," Shapak said, citing a formal message sent from IMF Ukraine mission head Ceyla Pazarbasioglu to Yushchenko over the weekend.

An IMF team, after a visit to Ukraine earlier this month, failed to approve the issuance of the second tranche of a $16.5 billion dollar loan to the former republic, which had been scheduled for February 15.

Ukraine's parliament had recently refused to pass a balanced budget, and money from the initial $4.5 billion dollar tranche sent Ukraine in November was not being focused on the former Soviet republic's banking sector, IMF officials charged at the time.

The IMF warning sent to Kiev by Pazarbasioglu criticised line items in Ukraine's national budget bill for not specifying IMF loan money be used only to support Ukraine's banking sector, a violation of IMF loan terms agreed to by Kiev, Shapak said.

A long-running feud between President Yushchenko and Prime Minister Yulia Tymoshenko has stymied most Ukrainian efforts to respond to a dramatic economic slowdown, with Yushchenko supporting hands-off monetary policy and reductions in state spending; and Tymoshenko calling for massive government intervention in industry, and state support to the national currency the hryvna.

The pair are deeply divided on Kiev's relations with the IMF, with Yushchenko calling for close Ukrainian adherence to IMF loan conditions; and Tymoshenko supporting redirection of already-received IMF money to social service programmes, and flirting with Russia as a possible creditor in case of an IMF loan halt.

Ukraine has been heavily hit by the world financial crisis, with GDP expected to contract in 2009, along with spikes to inflation and unemployment. Anti-government demonstrations have accelerated as the country's economy has worsened, with 2,000 Communists gathering in the capital Kiev on Monday to demand Yushchenko quit office immediately.

Independent analysts in Ukraine generally agree the government is close to default - a situation that might well go critical were the IMF to refuse further cash infusions.

Ukraine's current account budget deficit is some $5.5 billion dollars. High fuel prices and delayed foreign debt now coming due is likely to worsen the situation, observers said.

Ukraine Finance Minister Viktor Pinzenyk handed in his portfolio on February 12 over the government's programme to control the ballooning budget deficit, saying he "could not continue while abandoning principles of a balanced budget, deficit control, and avoiding living on credit."

Source: DPA

Sunday, February 22, 2009

EBRD Ready To Help Ukraine

KIEV, Ukraine -- The European Bank for Reconstruction and Development is in talks to help recapitalize Ukraine’s banks and is ready to invest a total of 500 million euros in the country, EBRD’s president said on Feb. 17.

EBRD President Thomas Mirow. Chornobyl gets 135 million euro grant, banks will get 500 million euros.

Ukraine’s banks have been hit by the global credit crunch as its hryvnia currency plummeted, with three banks put in receivership last week, including the country’s seventh largest, Nadra Bank.

"We are in negotiations with a number of banks. The names I wouldn’t like to mention before the agreements have been found,"EBRD President Thomas Mirow told a news briefing.

“The sum that is available in principle is high, meaning something like 500 million euros ($639.7 million), which we would be ready to invest in Ukraine.”

There are over 180 banks operating in Ukraine, many of the larger ones foreign owned. The EBRD has said previously it is likely to focus on banks with which it already has relations.

These include a unit of Hungary’s OTP Bank, Raiffeisen Bank Aval, a unit of Raiffeisen, UkrSibbank, majority owned by BNP Paribas and Ukrsotsbank, owned by UniCredit.

Other banks it works with include Kreditprombank, Forum, Ukreximbank, Prosto Finance Ukraine — a consumer finance arm of Societe Generale, Megabank, Procreditbank, International Mortgage Bank, Kredo Bank and SEB Bank’s unit .

Ukraine’s largest bank is privately owned Privatbank, but is then followed by Raiffeisen, UkrSibbank and Ukrsotsbank.

The country’s No.5 bank, Prominvestbank, was bought by Russian state-controlled VEB bank after spending several months in receivership. Officials said a run on its deposits in October was unconnected to the financial crisis.

Three other banks were placed in receivership last week — Nadra, Bank Kyiv — the country’s 39th largest bank, and Zakhidinkombank, No.72 in the country. Analysts have said that the financial crisis should spark consolidation in the sector.

Chornobyl grant signed

While visiting Kyiv on Feb. 17, Mirow signed an agreement with Yulia Tymoshenko, Ukraine’s Prime Minister, allocating 135 million euros as a grant from the EBRD’s 2008 dividends to fund construction of a new shelter over the decommissioned Chornobyl Nuclear Power Plant, site of the world’s worst nuclear disaster in 1986.

The international community has been involved in the transformation of Chornobyl since the 1990s and appointed the EBRD as administrator of its funds. The EBRD is overseeing the Nuclear Safety Account, through which the nuclear decommissioning of Chornobyl reactors 1-3 is being financed, and the Chornobyl Shelter Fund which deals with the damaged reactor 4.

A major milestone was achieved in September 2007 with the signing of two key contracts, one for the construction of the confinement structure that will be built over reactor 4, the second for the completion of a spent fuels storage facility.

The EBRD grant will be used to support the completion of these two key projects which are currently in preparatory stages with design work nearing completion. Upon completion, the confinement will be the largest such project in the history of engineering.

Final designs for both projects are scheduled in 2009 and completion of the construction works is currently planned for 2012. Further contributions, however, remain essential, according to the EBRD, which said preliminary estimates put the total cost for the new shelter alone in excess of 600 million euros.

“The EBRD grant is therefore seen as a catalyst that will give additional momentum to the efforts of the international donor community,” the EBRD said in a statement.

The Chornobyl Shelter Fund has so far received contributions and donations of almost $800 million from Austria, Belgium, Canada, Denmark, European Community, Finland, France, Germany, Greece, Iceland, Ireland, Israel, Italy, Japan, Korea, Kuwait, Luxemburg, the Netherlands, Norway, Poland, Portugal, Russia, Slovak Republic, Slovenia, Spain, Sweden, Switzerland, Ukraine, the United Kingdom, and the United States.

The Nuclear Safety Account has received contributions close to 300 million euros from Belgium, Canada, Denmark, European community, Finland, France, Germany, Italy, Japan, the Netherlands, Norway, Russia, Sweden, Switzerland, the United Kingdom and the United States.

The EBRD, owned by 61 countries and two intergovernmental institutions, is supporting the development of market economies and democracies in countries from central Europe to central Asia.

Source: Kyiv Post

Can Arseniy Yatsenyuk Save Ukraine From Itself

DENVER, USA -- In many ways the locus of Yatsenyuk’s path to victory that stresses ending the political rancor between the Regions Party and the Tymoshenko Bloc, and building a new sense of national unity and purpose mirrors Barak Obama’s road to the White House in the 2008 elections.

Arseniy Yatsenyuk

Unless a transformational figure emerges to capture the imagination and majority of Ukrainian voters in the January 2010 national elections, Kiev’s drift back to Russia will accelerate and the Orange Revolution will tragically perish in its infancy.

Five years after millions of Ukrainians defiantly overturned a fraudulent election orchestrated in Moscow to usher in Victor Yushchenko’s reform movement, corruption is rampant, chaos reigns in government and nostalgia to re-establish bonds of affection with Russia is metastasizing across Ukraine.

While Ukraine has been a strategic battleground between Europe and Russia, it is Kiev’s dysfunctional leadership that has furnished the means of its own nation’s destruction.

Today, the one leader who is uniquely positioned to save Ukraine from itself may be Arseniy Yatsenyuk, whose meteoric rise is altering the political calculus of Ukraine’s upcoming elections.

If Yatsenyuk enters the race, his road to the presidency will be as difficult as it is unlikely. Ukraine’s next president will inherit a nation in the throes of a spiraling economic crisis still searching for the bottom out point.

With the 4th highest debt level on the planet, industrial output plummeting 30 percent last year, inflation at 24 percent and its national currency (the hryvna) in free fall; economic circumstances in Ukraine couldn’t be worse.

The December gas crisis with Moscow that shut off natural gas flows to twenty European countries has exacerbated Ukraine’s problems, and made it an unreliable provider of energy transiting that is so vital to Europe.

While Prime Minister Yulia Tymoshenko tried valiantly to reassure the European community at the recent Munich security conference that Ukraine has the capacity to fulfill its energy transiting responsibilities to the west, plans are moving forward on three natural gas pipelines from Russia and Central Asia that would all bypass Ukraine.

Further, when the IMF conditioned the release of the second tranche of Ukraine’s $16.4 billion package to re-capitalize the banking sector and service its external debt, Ukraine was obligated to submit a plan for a balanced budget.

Prime Minister Tymoshenko’s government presented a plan riddled with account deficits; prompting the resignation of Ukraine’s Finance Minister.

The gas crisis and Ukraine’s embarrassing proposal to the IMF are just two revealing examples of just how deeply Ukraine’s political leaders have been living in a fantasy world since the Orange Revolution.

The Yushchenko-Tymoshenko Orange coalition, disagreed on virtually everything once they took power in 2004. Since Tymoshenko was tossed out after the first eight months in office the two leaders and factions haven’t stopped fighting since.

Worse than the Ukrainian government’s incompetence is the atmospherics of adolescent carnival its leaders exhibit in conducting the nation’s affairs. Their governmental decorum has the dignity of a primary school dining hall food fight.

In short, Ukraine is not ready for rapid ascension into the European Union or NATO. Even Russia has its doubts about its dealings with Kiev. On February 16, Ukrainian leaders threatened to expel Russian Ambassador Chernomyrdin for his recent criticism of the nation’s leadership as totally disorganized.

President Yushchenko’s fight for the supremacy of the Ukrainian language, uniting Ukraine’s Orthodox Church and building international recognition of the 1932-33 Holodomor as Soviet genocide will not do anything to solve Ukraine’s crisis.

That is precisely why his popularity in the polls is down to less than three percent. Prime Minister Yulia Tymoshenko is a far superior administrator of state affairs than Yushchenko or former Prime Minister Yanukovych.

She managed to unite with Yanukovych’s Regions Party in 2007 to form a governing coalition and then defeated the Regions Party’s recent attempt to topple her from the Prime Minister’s post with a “no confidence vote.”

Tymoshenko also deserves credit for negotiating a deal with Russia to end the gas crisis, eliminating energy transit middlemen who were gouging profits and attempting to restore credibility to the nation’s wages and pension system.

But Tymoshenko is not trusted by vast numbers of Ukrainians who view her as part of the problem and are fatigued by her constant fighting with President Yushchenko and with Yanukovych. Thus, she does not have enough parliamentary seats nor the nationwide support to forge an effective coalition government and lead a genuine reform movement.

Yanukovych’s Region’s Party has a slim parliamentary majority but not enough seats to form a governing coalition. He is currently running behind Tymoshenko in the polls by a few points, and is facing a backlash in his party for fumbling the last attempt to depose Tymoshenko from office.

As for President Yushchenko, his spectacular fall from grace has virtually sunk his “Our Ukraine” coalition.

Against the backdrop of Ukraine’s crumbling economy and gross malfeasance in leadership, Arseniy Yatsenyuk has a tremendous opening to break out as a uniting force to save Ukraine’s flagging ship of state.

While Yushchenko, Yanukovych and Tymoshenko fight, Ukraine is sinking and Yatsenyuk’s poll numbers and popularity are rising. As a former banker, Ukraine’s Minister of Foreign Affairs and Speaker of the Parliament, the 34 year-old Yatsenyuk is experienced and conversant in Ukraine’s byzantine politics.

He is young, relatively scandal free and has the best chance to represent the next generation of a new post-partisan Ukrainian leadership.

But can Yatsenyuk be the sober visionary leader who can impart a new sense of realism that implores Ukraine to clean up its own financial house?

Does he have the charisma to inspire Ukrainians to take their destiny in their own hands and not look to Europe or Russia for salvation or blame them when things go wrong?

Can he reign in Ukraine’s oligarchs who have ravaged the country in the same way that Russia’s oligarchs did during the transition from state ownership to free enterprise without Putinizing the system?

Will Yatsenyuk finally craft a sensible forward-leaning Ukrainian energy policy that modernizes its infrastructure and restores its credibility in Europe?

Can he convince Ukraine to diversify its economic platform and start weaning the nation off of costly subsidies?

Will Yatsenyuk try to articulate a vision that bridges the cultural and religious divide between Ukraine and Russian nationals?

And can he lead a parliament to get things done with significant numbers of members from the Tymoshenko Bloc and the Regions Party?

Although Yatsenyuk lacks money, party organization and a program for Ukraine’s resurrection, he has two things working in his favor; the Ukrainian peoples’ desperate thirst for new leadership and his political rival’s incessant infighting that makes him a more attractive alternative.

What Yatsenyuk needs now is a clear and compelling vision of a new Ukraine, and a new theory of nation-building that departs with the failed attempts of the past.

He cannot simply split the political difference between the major parties. He can be a radical pragmatist proposing solutions that benefit all Ukrainians struggling under severe economic conditions, but he cannot be a soft centrist who tries to be all things to all Ukrainians.

The fact that Yanukovych, and most recently Tymoshenko, have started attacking Yatsenyuk instead of ignoring him is an excellent development that provides him greater opportunities to highlight policy differences and new reforms, rather than engaging in personal smears. Yatsenyuk can and will have to be tough in taking on his detractors; he cannot be equally as dirty.

Yatsenyuk has formed a new organization called the Change Front Citizens Initiative. Unlike the Orange Coalition that was powerful enough to overturn a corrupt government in 2004, but too weak and too divisive to govern effectively, Yatsenyuk must build his own independent base of disaffected citizens and Ukraine’s youth early in the process that are anchored to his core vision.

By doing so he can position his campaign to break off sections of Ukraine’s other major and minor parties on principle and policy to forge a winning coalition as the January 17 elections draw near.

In many ways the locus of Yatsenyuk’s path to victory that stresses ending the political rancor between the Region’s Party and the Tymoshenko Bloc, and building a new sense of national unity and purpose mirrors Barak Obama’s road to the White House in the 2008 elections.

Can Arseniy Yatsenyuk be the change that the new Ukraine believes in?

Source: Brooks Foreign Policy Review

How The Financial Crisis Is Affecting Eastern Europe

KIEV, Ukraine -- Russian President Dmitry Medvedev said on Friday officials were working too slowly to ease the economic crisis. Russia's $1.7 trillion economy is set to contract this year for the first time in a decade and unemployment is soaring.


Following are some details of how the financial crisis is affecting Russia and some other countries in eastern Europe:

BULGARIA

Bulgaria's farming industry, once a main stay of the economy, has shrunk to 5 percent of GDP from 25 percent in the past decade. Cash-strapped producers suffered again in 2008 after the EU froze millions in farm aid over graft. The crisis may erase Bulgaria's gains over the past decade because its main export market, the EU has fallen into recession. Trade unions say some 50,000 people are likely to lose their jobs in 2009.

CZECH REPUBLIC

The economy is highly open and dependent on exports, which in gross terms account for about 70 percent of GDP. The financial system has been relatively unaffected by the initial phase of the global financial crisis, but was hit from a collapse in demand. Over 45,000 people lost their jobs in January, bringing the unemployment rate up 0.8 percentage points to 6.8 percent, the highest level since April 2007.

HUNGARY

Hungary, which escaped the crisis by way of a $25.1 billion IMF-led loan in October, planned to cut its budget deficit below 3 percent of GDP and decided on new spending cuts worth 200 billion forints ($835 million) in 2009 to prevent an overshoot. The economy is under pressure from a collapse in demand in the euro zone, its key export market, and the economy is expected to sink into a recession of up to 3.5 percent.

POLAND

Economic growth slowed to 4.8 percent in 2008 from 6.7 percent in 2007 and analysts expect it to slump to 1.4 percent in 2009.

ROMANIA

Decides this month whether it needs to help from the EU or the IMF. The unemployment rate rose to 4.9 percent in January from 4.4 percent the previous month. Several major industrial companies announced job cuts after demand was hit.

RUSSIA

Russia's economy is set to contract this year for the first time in a decade. About 300,000 Russians lost their jobs in January as collapsing commodities prices and months of market crisis hammered the real economy. The number of jobless jumped to 6.1 million or 8.1 percent of the workforce versus 7.7 percent the previous month. The government forecast on Tuesday the economy would contract by 2.2 percent in 2009. Growth in retail sales slowed in January to 2.4 percent year on year and a 16.3 percent increase in Jan. 2008.

SERBIA

Serbia expects to conclude a 2 billion euro ($2.52 billion) loan with the IMF by April as growth is seen falling far short of earlier official estimates, Prime Minister Mirko Cvetkovic said on Friday. He said it will most probably grow between 0.5 and 1 percent after the fall in fiscal revenues since the beginning of the year. By contrast, last week Serbia's central bank said the economy was most probably heading into recession. Serbia's economy grew 5.5 percent in 2008.

SLOVAKIA

Slovak industrial output fell by 16.8 percent year-on-year in December, the sharpest fall at least in 10 years. Slovakia expects its export-oriented economy to be hurt by the crisis as demand for its products slows in the West.

UKRAINE

Industrial output has shrunk by over a third -- the worst drop in over a decade. Machine building and mineral production both contracted by over half year-on-year. Thousands of workers have been put on unpaid leave as a consequence of the drop. Ukraine's banks have also been hit as its hryvnia currency plummeted, with three banks put in receivership last week, including the seventh largest, the Nadra Bank.

Political turmoil has delayed policy making to combat the crisis and has threatened a $16.4 billion loan from the International Monetary Fund, which failed to agree last week on disbursing a second, much-needed tranche.

Source: Kyiv Post

Friday, February 20, 2009

Ukraine Urged To Overhaul Military

KRAKOW, Poland -- NATO members have urged Ukraine's government to persevere with changes to its military that are needed in order for Kiev to join the alliance.

Yuri Yekhanurov, Ukraine's defence minister, attended the NATO talks in Poland.

The appeal by the military alliance on Friday is in spite of the former Soviet nation being severely hit by the economic crisis.

"Allies are aware that the financial and economic crisis that has also hit Ukraine very hard is having an effect on Ukrainian reforms," Jaap de Hoop Scheffer, NATO's secretary general, said after talks with defence ministers in Krakow, Poland.

"Ministers encouraged Ukraine to keep up the effort including with the necessary resources, difficult as that may be, because an inefficient and antiquated defence and security sector will cost Ukraine much more in the long run," he said.

The global economic downturn has seen Ukraine's industrial output sink by a third and its currency plummet in value, while political turmoil has jeopardised part of a $16.4bn loan from the International Monetary Fund (IMF).

The alliance has said that Ukraine and Georgia can one day join the 26-member bloc, amid opposition from Russia over NATO's expansion into former Soviet nations.

Russian opposition

Scheffer said NATO officials were looking at "ways in which the alliance can continue to support its preparations for NATO membership" for Ukraine.

Robert Gates, the US defence secretary, said Ukraine still had a long way to go before it could join the alliance, but that the Obama administration had no "significant quarrel" with its attempt to become a member.

"There is a long path in front, and frankly there has to be greater unanimity of views within the Ukrainian government itself about the next steps," he said.

Bogdan Klich, Poland's defence minister and host of the two-day meeting, said his country would continue to lobby hard for the two countries to join NATO.

But Ulrich Schlie, the German defence ministry's director of planning, expressed his concerns over NATO's continued expansion.

"The larger the alliance gets the more difficult it is to maintain cohesion," he said.

Moscow, which already has strained ties with NATO, has been angered by the alliance's open-door policy in regard to Georgia and Ukraine, which both lie on Russia's southern border.

Source: Al Jazeera

Ukraine's Prime Minister Says She Is Ready To Change Budget Amid Pressure From IMF

KIEV, Ukraine -- Ukraine's Prime Minister Yulia Tymoshenko said Friday she was ready to amend this year's budget to satisfy requests by the International Monetary Fund, which has said spending must be reduced before the country can receive an emergency loan.

Ukraine's Prime Minister Yulia Tymoshenko.

The IMF froze a hard-won $16.4 billion loan earlier this month after the government refused to trim the budget deficit to 1 percent of GDP from the current 3 percent.

Tymoshenko, expected to run for president in an election in January 2010, is reluctant to upset voters by cutting social spending.

Addressing the mayors of Ukrainian cities Friday, Tymoshenko said she was ready to amend the budget, but sounded vague about whether the changes would mean a reduction in the deficit. Her office declined to elaborate.

Tymoshenko asked the mayors to come ahead with proposals to "expand" regional budgets and said the government should continue subsidizing utilities for the public. But she also told the regional leaders to cut corners and "count every last copeck."

Meanwhile, her fierce political rival President Viktor Yushchenko warned that the economy was in a free fall. Yushchenko again urged Tymoshenko to trim the budget in order to continue receiving the IMF aid.

Ukraine is among the countries worst hit by the global financial crisis. The economy is expected to contract by 6 percent this year, according to analysts, after years of impressive growth.

Industrial output slumped by 34.1 percent in January, year-over-year, the biggest fall in the country's history.

The national currency, the hryvna, lost 40 percent since the financial crisis hit in September. It continued sliding Friday, closing at 8.52 to the dollar at the foreign currency exchange Friday. The Ukrainian stock market has hit the lowest point in four years.

Source: AP

The Orange Emperor Has No Clothes

MOSCOW, Russia -- Despite living separately for the last 17 years, Russia and Ukraine are still inextricably intertwined. Events in one country inevitably have an impact on the other. In fact, two of Vladimir Putin's greatest foreign policy failures were linked to Ukraine.

Putin (L) and Yushchenko smile at a photo op.

The first was in 2004, when then-President Putin personally meddled with Ukraine's presidential election process and his preferred candidate, Viktor Yanukovych, lost under shameful circumstances.

The second flop occurred early last month when Prime Minister Putin temporarily halted gas supplies to Europe in the heat of the gas war with Ukraine, a move that will have negative long-term consequences for Russian-European political and economic relations.

At the same time, Moscow's defeat does not signify a victory for Kiev. As President Viktor Yushchenko's term in office approaches its end, Ukraine is poised on the brink of a severe economic and political crisis that will most likely be worse than Russia's.

Ukraine's deep recession stems as much from the global crisis as from the state's inept management of the economy. What's more, Kiev's leadership is constantly mired in political struggles that go deeper than the most visible battle between Yushchenko and Prime Minister Yulia Tymoshenko.

The main political factions have lost credibility with voters and lost respect from the international community. Moreover, the rule of law and independence of the court system has been severely eroded under Yushchenko's presidency.

In addition, few of the foreign policy goals set by champions of the Orange Revolution have been achieved. The hope of joining NATO has amounted to nothing, and the prospects for integration with Europe have all but disappeared.

To make matters worse, Russian-Ukrainian relations have never been as bad as they have been during the past four years.

What are the reasons for these dismal results? Is it because the country's political elite are too inexperienced or inept? Paradoxically, the roots of today's problems can be traced to the 2004 Orange Revolution itself.

The initial euphoria over the "democratic revolution" drew attention away from the election violations surrounding Yushchenko's victory. After the first vote, which was held in November 2004, the Central Election Commission declared Yanukovych the winner.

Then thousands of Yushchenko supporters protested in the streets, alleging that the vote was rigged. In response, the Ukrainian Supreme Court annulled the results and ordered a repeat of the second election, which was held a month later.

Logically speaking, if the first election results were annulled, there should have been a completely new election open to all candidates; under these conditions, perhaps there would be have been people running in the race.

Instead, there was simply a rerun of the old election between Yushchenko and Yanukovych, which Yushchenko won. This is a vivid example of Ukrainian legal nihilism, and to this day Yushchenko is fond of manipulating the Constitution and court system to strengthen his own political position.

In addition, outside forces played an important role in shaping Ukraine's internal political process. It is true that Russia intervened by supporting Yanukovych, but the West's intervention was more powerful, including the support of nongovernmental organizations within Ukraine and developing a global PR campaign in support of Yushchenko.

After Yushchenko became president, the Orange coalition declared their new strategy of aligning with the West. This strong, pro-Western orientation, unprecedented in Ukrainian politics, complicated its relations with Moscow.

With practically no chance of joining the European Union, Ukraine has been left without a well-defined goal. It is now difficult to take seriously the popular slogan of Ukraine's "European integration."

One of Yushchenko's most important political goals was gaining Ukraine's membership in NATO, and this immediately became a source of heated contention with Russia. Moreover, Yushchenko tried to play the Ukrainian nationalism card, but this was clearly a flawed approach in a country with so many different ethnicities and cultures.

According to a recent Public Opinion Foundation-Ukraine Internet rating, if the presidential election were held today, only 1.9 percent of the poll participants would vote for Yushchenko.

In any event, the 2009 presidential election campaign promises to be heated, and this could ultimately complicate relations with the country's neighbors, particularly Russia. The recent gas war with Russia has shown that the Ukrainian president is willing to take risks and that he can skillfully provoke Moscow to make the Kremlin look bad.

The biggest risk would be for Yushchenko to provoke Moscow on the issue of Russia's Black Sea Fleet, based in Sevastopol, but this could lead to a conflict much more serious than the gas war.

Considering Ukraine's important geopolitical position, events in the country have direct repercussions for Russia and Europe. Kiev's politicians, however, do not fully appreciate this fact as they are more caught up in internal battles and the struggle for their own political survival. This shortsightedness will not change until a new, more pragmatic generation of politicians come to power.

For their part, Ukraine's neighbors have yet to figure out how best to deal with Kiev. Moreover, they continue to believe in myths: Europeans like to believe the fairy tale that Ukraine is building a European democracy, and Russians like the myth that Ukraine — or at the very least its Russian-dominated eastern half — will one day return to the Russian empire.

Source: The Moscow Times

Ukraine To Ease Restrictions On Guns

KIEV, Ukraine -- Ukraine's Interior Affairs Ministry has announced a plan to ease restrictions on the purchase of guns that fire rubber bullets, RFE/RL's Ukrainian Service reports.

Makarych gas pistol with rubber bullet cartridges.

The draft law allows any Ukrainian citizen 18 or older, who has no criminal record, and is psychologically stable, to buy such guns.

Experts fear that such guns can be easily turned into regular guns.

The head of the License Board at the Interior Affairs Ministry's Civil Security Department, Valentin Vedmid, told RFE/RL that criminals mainly use unregistered guns, adding that of last year's 311 gun-related crimes, only 34 were committed with registered guns.

Source: Radio Free Europe/Radio Liberty

Gongadze Murder Still Casts A Shadow Over Yushchenko's Presidency

WASHINGTON, DC -- On January 27 the Parliamentary Assembly of the Council of Europe (PACE) issued another damning report about the poor state of Ukraine's investigation into the murder of opposition journalist Georgi Gongadze in the fall of 2000.

Murdered opposition journalist Georgi Gongadze.

The involvement of senior Ukrainian leaders in the murder was made public using tape recordings made in President Leonid Kuchma's office by presidential guard Mykola Melnychenko, who sought asylum in the United States in April 2001.

Four years after the Orange Revolution and Viktor Yushchenko's promise to investigate the Gongadze murder, there has been little progress in the inquiry.

Three lower-ranking policemen have been sentenced for their involvement in the murder, but the organizers have managed to escape justice thus far: Leonid Kuchma remains in Kyiv, then-Interior Minister Yuriy Kravchenko allegedly "committed suicide" under suspicious circumstances in March 2005, and General Olexiy Pukach, who is alleged to have actually murdered Gongadze, supposedly fled Ukraine in 2004.

Gongadze's wife, Myroslava, accused senior Interior Ministry officers of hiding Pukach in a similar manner to that of Ratko Mladic, a Serbian war criminal.

Melnychenko's recordings, which are crucial to any investigation, were ignored by the prosecutor until December 2008, when the tapes and tape recorder were handed over to the Prosecutor's Office, which agreed to organize the first analysis of the tapes by an impartial European organization.

It is no coincidence that after four years of inactivity the Prosecutor's Office, which is constitutionally under the control of the president, has only now become interested in the Melnychenko tapes.

Ukraine will hold presidential elections in December, and progress in the Gongadze murder case could help Yushchenko improve his current dismal 2.4 percent popularity rating.

Three key individuals in the investigation have refused to give voice samples for comparison to those on the tapes: Kuchma, Volodymyr Lytvyn (head of the presidential administration during the Gongadze scandal), and the chairman of the Security Service at the time, Leonid Derkach.

Lytvyn, as speaker of parliament, is the only one of the three who is still a public figure.

Melnychenko suggested that Yushchenko should set an example by voluntarily giving a voice sample: "If Yushchenko states that this affair is a matter of his honor, then he is obliged as a Ukrainian citizen to come forth and set an example and give evidence". The PACE report demanded that the identity of the voices on the tapes be ascertained.

In a visit to Ukraine last month, Melnychenko said that the European analysis of his tapes not only would reveal information about the organizers of the Gongadze murder but would allegedly include details about high-level abuse of office by Ukraine's elites and interaction with their Russian counterparts.

Melnychenko directs much of his criticism at Lytvyn as the agitator who persuaded Kuchma to order the Interior Ministry to "deal" with Gongadze. Any undermining of Lytvyn could potentially unravel the Orange coalition that was reestablished in December only after the Lytvyn bloc had agreed to join.

Without the Lytvyn bloc's 20 deputies, there could not be an Orange coalition, and Prime Minister Yulia Tymoshenko's government could collapse.

A full analysis of the tapes could be problematical for more people than Lytvyn; after all, the majority of Orange leaders (including Yushchenko and Tymoshenko) were either in government or in business, or both, in the 1990s.

Melnychenko's recordings were made in 1999 and 2000 after Tymoshenko had entered parliament in the opposition Hromada but before Yushchenko joined in 2001.

Melnychenko has accused Lytvyn of being protected by Russia in a deal struck in the last days of the Kuchma regime. On January 12 the Russian Prosecutor's Office declined to assist in the investigation because it would infringe on Russia's "national interests."

Melnychenko asserts that "the organizers met and required certain assistance from senior levels of the Russian authorities." Whether this indicates that the Gongadze affair was a "Russian conspiracy," as Yushchenko and his national democratic allies have always believed, or (more likely) that the organizers sought Russian support after the crisis began unfolding remains unclear.

Kuchma re-orientated Ukraine to Russia from 2001 to 2003 after becoming isolated and shunned by the West.

Melnychenko claims that Russia's knowledge of the real details of the Gongadze murder enables it to "blackmail Lytvyn and Kuchma's entourage," something that is more in Russia's national interests than assisting the investigation.

In a BBC Ukrainian service interview, Melnychenko said that as a presidential candidate, "Lytvyn is supported by Russia in the form of Dmitry Medvedev, Vladimir Putin, and FSB Director Oleksandr Bortnikov."

It is very likely that blackmail materials on Kuchma and Lytvyn are in Russian hands (as are similar materials about Russian leaders in Kyiv). Ukrainian and Russian elites, particularly in the energy sector, are said to have operated as a criminal joint venture during the "Wild West capitalism" of the 1990s.

With such blackmail materials, Russia may indeed hope that it would be in a position to manipulate a future "President Lytvyn."

Opinion polls show, however, that this scheme would be farfetched: the two top presidential candidates have long been Tymoshenko and Party of Regions leader Viktor Yanukovych (on whom the Russian leadership might also have blackmail material, as Yanukovych was Donetsk Governor during the "Wild West" of the 1990s). Lytvyn is both trailing and is being out-flanked by the rising star of former speaker Arseniy Yatsenyuk.

The PACE report and Melnychenko's accusations continue to shed light on an episode that is one of the most important in recent Ukrainian history and remains a black spot on Yushchenko's presidency.

As Melnychenko rightly states, "The result we received [from the Kuchmagate crisis] in 2004 was in the form of the Orange Revolution". Other young democracies have managed to investigate similar conspiracies — Peru under Alberto Fujimori and contemporary Turkey — but the Gongadze affair continues to elude a thorough investigation by Orange Ukraine.

Source: Georgian Daily

Thursday, February 19, 2009

One-Way Ticket To US For Yushchenko

KIEV, Ukraine -- Ukraine's Communist party is collecting funds to buy President Yushchenko a ticket to the US. The people behind the move say the mock campaign symbolises the "people's impeachment" of their current leader.


Party members announced the plan during parliament's daily session, bringing turmoil to the meeting. Supporters started throwing paper airplanes and waving posters with the US flag.

After that they brought in a suitcase which they used to collect the money for the president's departure.

“We’ve bought him a ticket with an open date and asked the US president to give employment to George W. Bush’s puppet,” Evgeny Tsarkov, Communist party member, explained.

He said the party is going to award Yushchenko with an order “for giving up the interests of Ukraine to Romanians.”

The communists are also ready to give Yushchenko the suitcase itself so he can pack his things into it.

The event, labelled ‘Yushchenko – suitcase – USA’, started on February 10 in the resort city of Odessa and will continue on February 23 in Kiev.

According to Tsarkov, the communists will pass documents on "the people's impeachment" of Yushchenko to the secretariat on that day.

Ukraine is stuck both in political and economic crises – President Yuschenko is at war with his prime minister, Yulia Timoshenko, and the country’s economy is on the brink of default.

Source: Russia Today

Cracking At Chernomyrdin, Ukraine FM Acted On Stupid Orders From Yushchenko - Taras Chornovil

KIEV, Ukraine -- Parliament foreign relations committee deputy head Taras Chornovil told ZIK that the recent scandal involving the Russian ambassador was a frame-up orchestrated on the instructions from President Yushchenko.

Taras Chornovil

“The foreign ministry has launched a stupid and primitive publicity stunt to boost Yushchenko’s meager rating. The past conflict involving the Tuzla island had the same scenario,” Chornovil stressed.

The lawmaker reminded how President Leonid Kuchma’s rating ballooned in the aftermath of the Tuzla stand-off with Russia.

“Believing he stands a chance for a second term in office, President Yushchenko is eager to beef up his support by jumpstarting risky situations involving the inevitable external enemy and a blue-eyed boy in Ukraine bravely defending his country,” T. Chornovil says.

Yushchenko kicks sand in Russia’s face in the hope of unleashing Moscow on Yulia Tymoshenko, his Enemy #1.

Russia will react to Ukraine FM statement threatening to declare Viktor Chernomyrdin a persona non grata.

“Russia is like a fighter-bulldog. No matter how you coax it or share you bed with it, it remains a fighter-dog. If you give it a kick, it will go for your throat,” Chornovil says.

Source: ZIK

Can He lead?

KIEV, Ukraine -- Since getting fired as parliament speaker, Arseniy Yatsenyuk’s standing has risen in polls. But is this 34-year old ready to be Ukraine’s next president?

Arseniy Yatsenyuk

His could be the easiest presidential campaign imaginable: just sit tight and let his rivals fight.

While President Victor Yushchenko and Prime Minister Yulia Tymoshenko continue to savage each other, as opposition leader Victor Yanukovych timidly barks from the sidelines, former Speaker Arseniy Yatsenyuk is quietly watching his approval ratings rise.

Asked by the Kyiv Post whether he was planning to run for president in 2010, Yatsenyuk said he would make the final announcement in May when he turns 35, the minimum age the Constitution allows for presidential candidates.

Even if he postpones the decision, he can still easily make it to the pool of presidential candidates. In Ukraine the campaign officially lasts 90 days, while the probable election date is Jan. 17. But the Constitutional Court is yet to make the final ruling on the date.

However, some observers are already predicting that the final standoff next year will be between Yatsenyuk and Yanukovych, leader of the Party of Regions, who is expected to run for the second time.

Vicious mudslinging with Yushchenko and the pinch of economic recession are eating away Tymoshenko’s approval ratings. Meanwhile, Yanukovych is holding on to a steady base of support.

“People disappointed with Yushchenko previously tended to support Tymoshenko as they saw no other alternative, but now they have Yatsenyuk,” said Victor Chumak, a political analyst at Kyiv’s International Centre for Policy Studies, a non-government organization.

Yatsenyuk has been gaining an impressive two to three percent of support per month, starting from just three percent in autumn. Two polls this month suggested 10-11 percent of Ukrainians were ready to elect him president. Yanukovych currently leads with 21-23 percent, and 13-17 percent of those polled were ready to vote for Tymoshenko – down from mid-twenties in autumn.

“If the trend [continues], Tymoshenko's presidential prospects will be under threat,” said Volodymyr Fesenko, head of Penta political consulting company.

There are several reasons for Yatsenyuk’s growing popularity.

Apart from a desire by voters to see a fresh face, many Ukrainians do not feel that he is responsible for the economic mess the country ended up in under the current leadership.

Also, many Ukrainians feel his removal from the parliamentary speaker’s seat last November was unjust.

“We sympathize with victims,” Fesenko added.

But it seems it’s not just the voters who are taking on a liking to Yatsenyuk. He has also been spotted by at least some of the former financial and political backers of the current leaders.

Tariel Vasadze, a deputy from Tymoshenko’s parliamentary faction and honorary president of Ukraine’s largest automaker UkrAvto, showed up at a February press conference of Yatsenyuk’s charity foundation Open Ukraine. Yushchenko’s former chief of staff and personal friend Oleh Rybachuk also attended.

If financial backers of his foundation are of any indication, Yatsenyuk will have no problem with the collection box for his presidential campaign. Topping the list of Open Ukraine financiers in 2008 is Victor Pinchuk, Ukraine’s second richest man and son-in-law to ex-president Leonid Kuchma. He donated Hr 4.28 million. Serhiy Taruta, an industrialist who donated Hr 2.95 million.

Yatsenyuk is a frequent visitor and speaker at high-key international events organized by Pinchuk, including annual round table discussions at the World Economic Forum in Davos and Yalta European Strategy. Pinchuk did not explicitly say he would support Yatsenyuk for president, but told the Kyiv Post “it will be transparent” if he does.

Other indicators showed that Yatsenyuk may be the oligarchs' choice, too. Although he is today only a lawmaker holding no high-level posts, he continues to get impressive media coverage, including that of Inter, the most popular television channel allegedly controlled by billionaires Valeriy Khoroshkovksy and Dmytro Firtash.

Firtash co-owns RosUkrEnergo, a Russian-Ukrainian natural gas intermediary that was kicked out of the market by the recent direct deal struck by Tymoshenko and Russian Prime Minister Vladimir Putin. Tymoshenko recently said that Firtash controls Inter and has used his influence over the channel to prop up Yatsenyuk. Both deny the allegations.

Oleksiy Haran, founding director of political analysis school at Kyiv-Mohyla University, says there is no surprise that the nation’s rich are disappointed with unpredictable and petty current leaders, and are betting on Yatsenyuk.

“Business is interested in establishing transparent ‘rules of the game’ and an economy working to market principles, without administrative interference and government manipulations,” he said.

Yatsenyuk is perceived mainly as an economic liberal.

Despite being one of the youngest Ukrainian politicians, he has managed to hold many top positions: central bank chief, economy minister, foreign minister, deputy presidential administration chief and most recently, parliament speaker. He is also a lawyer by training and education.

“Yatsenyuk strikes many chords: he is young, smart, is good at economics and has a good sense of humor,” said Chumak of ICPS.

Should Yatsenyuk claim the presidency, he could use the position as a bully pulpit for his slick oratory skills, winning over more than the support of Ukrainian voters. Unlike the nation's three presidents, Yatsenyuk speaks perfect English. This skill could make him Ukraine's first leader capable of clearly communicating his agenda for the country globally.

But despite these virtues, he still has much work to do to capitalize on his achievements and advance. His weak points include a lack of a political team to back him up, an unclear agenda and few public achievements that demonstrate his ability to manage anything bigger than a ministry.

Referring to the prospects of a Yatsenyuk presidency, one western diplomat questioned if he had ever achieved anything in his previous short-lived posts, adding: “What will his team, or inner circle, be? Can he manage the balancing act … to keep his team together with all the vested interests at play?”

“He is untested. We don’t know what to expect,” the diplomat said referring to Yushchenko’s inability in four years of presidency to keep together a constructive base and avoid infighting.

To answer these big questions, Haran said: “It’s important to know what political force will back Yatsenyuk, what program he will propose and what his relations with leading business groups will be.”

“If we get an answer to these questions, we can talk about his future,” Haran added.

Source: Kyiv Post

Wednesday, February 18, 2009

EU Mulls Action As Ukraine Crumble Triggers Contagion Fears For Europe

BRUSSELS, Belgium -- Europe's institutions are scrambling for ways to prevent financial contagion from Ukraine and the rest of Eastern Europe from setting off a full-blown banking crisis in Austria, with risks of systemic contagion across the eurozone.

Joaquin Almunia, EU's Economic Commissioner.

Joaquin Almunia, EU's economic commissioner, said Brussels is ready to co-ordinate a pan-EU response to contain the crisis before matters get out of hand.

"I share with the Austrian authorities their concern about the situation of these economies. Everybody shares their concern about the risks involved. We are extremely concerned about the difficulties with the Ukrainian government," he said.

West European banks have lent roughly $1.6 trillion (£1.13 trillion) to the region, led by Austrian, Swedish, Italian, Greek, Belgian, and Swiss banks. Almost $400bn must be rolled over this year in hostile markets.

Lithuania's president Andrius Kubilius echoed the warnings on Wednesday. "We are worried about what can happen in Ukraine and Russia. The collapse of one of these markets would have a very negative impact. It would be good to see a more co-ordinated approach," he told the Financial Times.

Ukraine's travails appear to be snowballing out of control after the central bank said the economy contracted 20pc in January year-on-year, with a dramatic 34pc slide in industrial production. Valery Lytvytsky, the bank's top adviser, said the collapse is the worst in recorded Ukrainian history, exceeding the darkest days after the Bolshevik revolution.

The currency has fallen 40pc since the crisis began, a crippling blow to companies with large debts in dollars or euros. Three banks have failed.

Credit default swaps measuring risk on Ukraine's state debt rose to panic levels of 3,500 on rumours of imminent default following the refusal of the International Monetary Fund to disburse the second tranche of its $16.4bn rescue package. The IMF said the government had failed to rein in public spending as agreed.

Premier Yulia Tymoshenko insisted there was no danger of default. "I would like to tell the whole country that the state is paying all its credits," she said.

She appeared unrepentant over the loss of her finance minister, Viktor Pynzenyk, who resigned this week saying he was no longer willing to serve as a political pawn. "Not all government officials are capable of working in difficult circumstances. The weakest ones abandon the battlefield," she said, in comments bordering on political farce.

Neil Shearing from Capital Economics said Eastern Europe as a whole is likely to contract by 5pc to 10pc this year. "It's pretty grim and it creates the risk of a retreat into populism," he said.

The political risks in Ukraine are huge. The country has a large Russian minority, much of it living in oblasts near Russia's frontier, creating an open door for the Kremlin to intervene if the crisis leads to civil disorder.

Lars Christensen from Danske Bank said ex-Soviet bloc had been a casualty of the blanket extension of guarantees to banks across Western Europe. "East Europe's governments are not strong enough to offer such guarantees for their own banks. This has increased relative risk." he said.

The European Bank for Reconstruction and Development said it is mulling $500m in aid to boost Ukraine's banks, but first the country has to restore credibility.

"We see an urgent need for conducive, comprehensive actions by the Ukrainian authorities," EBRD chief Thomas Mirow said.

Source: Telegraph UK

Ukraine's Leaders Bicker As Economy Burns

KIEV, Ukraine -- Rearranging the deck chairs on the Titanic. That's how many Ukrainian observers describe the very public, escalating power struggle between liberal president Viktor Yushchenko and his erstwhile ally in the Orange Revolution, the fiery populist prime minister, Yulia Tymoshenko.

Tymoshenko's political battles with Yushchenko have caused irreparable damage to the Ukrainian economy.

To many observers, Ms. Tymoshenko and Mr. Yushchenko are already fighting presidential elections that are nearly a year away and are using their official positions mainly to undermine any decisions taken by the other.

In recent weeks, both have issued statements blaming the other for the country's galloping financial crisis, which has seen the hryvna plunge in value by nearly 60 percent, Kiev's main stock market fall by 75 percent, and most banks cease lending or even returning depositors' cash.

Dirty political laundry on national TV

In an internal memo leaked to the Ukrainian media late last month, Ukraine's finance minister, Viktor Pynzenyk, warned that the economy is on the verge of collapse: "We have entered an extremely serious and deep crisis. Ukraine's [economic] situation is the worst in the world."

Following the memo's publication, Yushchenko took to the airwaves to blame it all on the "populism" of Tymoshenko, whose 2009 budget incurs a huge deficit to pay public sector wages, pensions, and other social obligations. As a result of her "irresponsibility," Yushchenko charged, "salaries, pensions, and stipends will no longer be paid.... all this can bring about a social catastrophe."

Tymoshenko appeared on TV the next day to accuse the president of spreading "falsehood, panic, and hysteria. Everyone can see that the president is not the kind of leader they need when Ukraine is reeling under the blows of the global economic crisis."

Surveys show that nearly 85 percent of Ukrainians believe there is no government order in the country.

"It's a good thing when they compete in elections, but when they continue competing afterwards, it's disastrous," explains Vira Nanivska, president of the National Academy of Public Administration in Kiev. "It becomes impossible for needed decisions to be taken."

A revolution's bitter aftertaste

In 2004's Orange Revolution, Tymoshenko and Yushchenko worked together to defeat pro-Moscow leader Viktor Yanukovych. During weeks of protests in Kiev's freezing main square it was usually Tymoshenko, a passionate orator, who would warm up the crowds before turning the stage over to the more measured and cerebral Yushchenko.

Following Yushchenko's election as president, the two quickly had a falling out. Within a year, Yushchenko dismissed her from the prime minister's job. Tymoshenko has since clawed her way back to power in parliamentary elections and now leads a fragile majority parliamentary coalition.

"There was a binary charisma between them that won the Orange Revolution, but which has now acquired an equally compelling explosive force," says Dmytro Vydrin, a member of Yushchenko's National Constitutional Council.

Political rumbles remain from gas dispute

Last month, Tymoshenko traveled to Moscow to sign a deal with Russian Prime Minister Vladimir Putin ending a two week pipeline dispute that had cut energy supplies to 18 European countries.

But she was forced to agree to a near doubling of the price for gas. Yushchenko subsequently denounced the accord as a betrayal of Ukraine's national interests, and vowed to overturn it – a threat he later retracted under pressure from nervous Europeans.

Last week, Tymoshenko's parliamentary coalition voted to dismiss the governor of Ukraine's National Bank, a Yushchenko appointee whose job is to save the country's teetering banking system, even though there is no potential replacement on the horizon.

Tymoshenko, who earned a fortune peddling Russian gas to the Ukrainian market in the 1990s, is accused by Yushchenko's backers of selling out to Moscow in exchange for the Kremlin's political support in winning the presidency.

Such heated rhetoric is not unusual in Kiev's current atmosphere, say experts, including Viktor Nebozhenko, director of Ukrainian Barometer, an independent think tank, and a former adviser to the prime minister. "Yushchenko is pursuing a scorched earth campaign to stop Tymoshenko, and even seems willing to take her down with him."

The prime minister has hurled similar invective, describing Yushchenko as a "state criminal," Mr. Nebozhenko says. "The competition between the two of them is highly personal, and deeply dangerous for the country."

A divided Ukraine heads to the polls

Few experts believe allegations that Tymoshenko is in Mr. Putin's pocket, but some say she may be angling for the Kremlin's support in the electoral battle to come. The logic lies in Ukraine's deep cultural split, in which the country's heavily Russified and pro-Moscow east and is pitted against its nationalistic and Europe-leaning west.

The majority of eastern voters back the Russia-friendly Party of Regions, which led the pack with 22 percent support in a mid-December survey conducted by the independent Democratic Initiatives Foundation in Kiev. Tymoshenko follows with 14 percent, while Yushchenko has fallen into the realm of statistical error, with just 2.2 percent, according to the poll.

The trick for Tymoshenko, who has rolled up most of Yushchenko's "Orange" support, is to win votes in pro-Moscow eastern Ukraine, and for that she needs a nod from the Kremlin, says Vadim Karasyov, director of the independent Global Strategies Institute in Kiev.

"The Kremlin wants to remove Yushchenko because he embodies the pro-Western and pro-NATO membership course for Ukraine," he says. "Tymoshenko has shown flexibility on the big geopolitical issues and, unlike Yanukovych, she can win votes all across Ukraine."

Sign of democracy or seeds of dictatorship?

Some observers worry that things might come to a head long before the presidential polls at the end of the year. "The Ukrainian state is in danger of losing control over the situation," says Andrei Yermolayev, director of the independent Sofia Center for Social and Political Studies in Kiev. "The gloves have come off, and each side is fighting for a monopoly of power. One possible outcome of this struggle is the emergence of an authoritarian regime in Kiev."

Other experts believe that after nearly two decades of independence from the USSR, democracy has become firmly entrenched as a means for Ukrainians to settle differences.

"If the economic situation gets really bad, the authorities will let steam out through new parliamentary elections," says Mr. Vydrin. "Because we are a democracy, we have this option to let the population channel their anger in peaceful and creative ways."

Source: Christian Science Monitor