[23.06.03]

Political Developments

Political reform

On June 20 President Kuchma presented to parliament a new version of political reform. In it he gave up three provisions causing the most serious discussions: reduction of parliament's size; setting-up the second chamber of parliament; referendums having direct action. At the same time the president insists on the fourth proposal, which provoked disputes: the presidential and parliamentary elections to be held in the same year.

The reaction of the parliamentary majority to the president's new proposals was positive. On the contrary, the opposition bloc Our Ukraine proposed to put off any changes of the political system till 2006.

Yanukovich visited Moscow last week.

On 12 June Prime Minister Yanukovich traveled to Moscow as an official representative of Ukraine to mark Russia’s independence day. While in Moscow, he was received by President Putin and by his Russian counterpart Mikhail Kasyanov.

Commentary: Prime Minister Yanukovich is considered as a strong proponent of closer Ukrainian-Russian ties.

Former Ukrainian Premier Released On Bail in the U.S.

Former Prime Minister Pavlo Lazarenko has been released on bail pending a California court hearing scheduled for 18 August.

Commentary: Lazarenko has been in a San Francisco jail since 1999 on charges of laundering $114 million through U.S. banks.

• On June 17 Presidents of Ukraine and Romania Leonid Kuchma and Ion Iliescu signed the border regime agreement.

Commentary: This issue darkened the relations between Ukraine and Romania over the last 12 years and was a potential hot spot of danger; a substantial progress has been achieved though part of the problem remains outstanding.

• On June 17-18 general Richard Mayers chairman of the U.S. Joint Chief of Staffs made a visit to Ukraine. Prospects in the development of the U.S.-Ukrainian relations in the field of defense were discussed.

• The experts of the International NATO Secretariat in Defense Review started their work in Kiev.

• The British government extended the list of "safe" countries to 24 having included Ukraine there.

Commentary: To date Great Britain has considered Ukraine as a country where human rights were violated and therefore refugees from it in principle were eligible for asylum. Now Great Britain has changed its position and regards applications for asylum as unsubstantiated.

• The Freedom House report holds that Ukraine remains a country in transition combining features of democracy and autocracy. According to the annual report "Nations in Transit" Ukraine ranks 17 in the list of 27 post-Communist countries.

• On June 18-20 Ukraine was visited by Turkish President Ahmed Necret Sezer.

• Official Warsaw announced the final list of 20 countries, which will take part in international efforts for stabilization of the situation in Iraq having sent its military units to the Polish sector.

The list in particular includes Ukraine, Spain, Bulgaria, Romania, Latvia, Slovakia and Hungary. The Ukrainian contingent will comprise 1800 troops.

• Nina Karpacheva was again elected the ombudswoman for the other 5 years (June 19).

• On June 20 minister of defense Volodymyr Shkidchenko asked for resignation. The reason was pungent criticism of the situation in the Ukrainian army on the meeting of Council of National Security & Defense.

Economic Developments

Ukraine Considers Dropping Grain-Import Duties Due to Anticipated Poor Harvest.

Prime Minister Viktor Yanukovich said on June 14 that Ukraine was going to import grain this year and the government had already allocated funds for grain purchases.

According to Yanukovich bad weather damaged some 60 percent of winter wheat plantations in Ukraine. Minister of agriculture Serhiy Ryzhuk assumed on the same day that Ukraine may cancel duties on imports of some 2.5 million tons of grain in order to ensure a sufficient stock of grain in the country.

Commentary: The government expects that Ukrainian farmers will harvest between 25 and 27 million tons of grain this year compared with 39 million tons in 2002. Despite the anticipated poor grain harvest this year economy will continue to grow with the GDP possibly registering 5 to 6 percent growth in 2003.

International Monetary Fund Warns Ukraine Rising Inflation May Grow.

A mission of the International Monetary Fund came to Kiev. Its task is to determine whether it is worth for the Fund to continue cooperation with Ukraine.

The IMF experts perceive the situation in Ukraine rather critically. They are skeptical about stability of the attained economic growth, they sharply disagree with the NBU's monetary policy, which is allegedly fraught with dramatic acceleration of inflation and financial instability.

The Ukrainian experts in their analysis of Ukraine's relationships with the IMF proceeded from the fact that over the last three years the Fund's forecasts have nothing to do with real dynamics of Ukrainian economy.

In the current year there is a logical substance for negative forecasts: colossal harvest failure, losses incurred by it are still hard to evaluate. Nevertheless, under the most unfavorable conditions the economic growth rates will not go down below 4.5%, while inflation will hardly exceed 7% (this indicator is not at all critical for countries with economy in transition).

One may predict that Ukraine will hardly choose more harsh monetary policy or refuse such bitterly criticized IMF projects as the setting-up of the Bank of Reconstruction and Development or refinancing by the National Bank of Ukraine of commercial banks for implementing investment projects.

One more pause in relationships between Ukraine and the IMF in contrast to the situation of 4-5 years long is not critical for Ukraine.

Ukraine is quite capable of serving its own debt obligations, the IMF credits have rather psychological significance for attracting foreign investments.

Kiev Urged To Use Odessa-Brody Pipeline In Reverse Mode.

Russia's Tyumen Oil Company (TNK) proposed to the Ukrainian government last week the use of the Odessa-Brody pipeline in a reverse mode - that is, for pumping oil from Brody to an oil terminal in Odessa. The TNK proposal apparently was made jointly with British Petroleum (BP), a 50 percent holder of the TNK, during BP Executive Director John Brown's meetings with President Kuchma and other top Ukrainian officials late last week.

Commentary: Kiev has long been promoting the Odessa-Brody pipeline expecting oil from the Caspian Sea to be shipped by tankers from the Georgian port of Supsa to its new oil port of Yuzhnyi near Odessa and then by pipeline to Brody on the Polish border. However, the project backed by the United States and the European Union as a link rivaling Russia exporting Caspian oil to Western markets has suffered from lack of funds.

The use of the Odessa-Brody pipeline for pumping oil in "reverse mode" reportedly could earn Ukraine an estimated $60 million in annual revenues.

The TNK is one of the largest foreign investors in Ukraine and has built the largest network of gasoline service stations in Ukraine, a country of nearly 50 million people.

Ukraine Named World’s Sixth Largest Arms Seller.

The Stockholm Institute of World Research ranks Ukraine sixth among the ten arms exporters in the world. The list is topped by the United States, followed by France and Russia, with Germany in the fourth place. From 1998 through 2002 Ukraine reportedly has earned $2.7 billion in arms sales.

In 2002 export constituted some USD 450 million, which was a bit less than in 2000 and 2001.

According to the data of the Stockholm Institute of World Research the total demand for arms in the world increased due to the U.S. operations to combat world terrorism.

In this situation in Ukraine they predict the increase of exports of arms and services of the military-technical nature.

In particular, recently the North-Atlantic bloc made a decision of using a Ukrainian aircraft An-124 "Ruslan" for military-transport transfers in 12 Alliance member countries (in most European states and in Canada).

According to the decision made the Ukrainian aircraft will be operated until 2010, when a new military-transport plane Aerobus will be put into operation.

Possibly in addition to An-124 its competitor, the American C-17 Globemaster, will be used.

Commentary: The Stockholm Institute of World Research was set up by the Swedish parliament in 1966. The Institute’s research is focused on military technologies and armaments control.