[08.09.03]

The Verkhovna Rada (Ukrainian parliament) began its session on September 2.

A new coordinator of the parliament majority Stepan Havrysh was elected (September 2). Former coordinator Anatoly Tolstoukhov recently has been appointed a minister and left parliament.

A new draft constitutional reform was tabled (September 4) in parliament. Its was supported by the factions of the parliamentary majority and the communists. The factions Our Ukraine (leader: Viktor Yushchenko) and the Yuliya Tymoshenko bloc are in opposition to this draft. The stance of the socialists at this stage is not quite clear.

On September 2-3 President Leonid Kuchma made a working visit to Russia. He met with Russia's President Vladimir Putin.

Comment: Simultaneously summit of a number of countries of Central & Eastern Europe in Poland was held. President Kuchma preferred to meet Putin.

A new minister of foreign affairs was appointed. Kostyantyn Hryshchenko, Ukraine's ambassador to the U.S., became the new foreign minister (September 2).

Hryschenko who is 49 years old, has served as Ukraine’s ambassador to the United States since January 2000. Prior to that, he was ambassador to the Benelux countries and headed Ukraine’s mission to NATO in Brussels.

Former foreign minister Anatoly Zlenko has recently accomplished 65 years and according to the Ukrainian laws he no longer can hold this position.

Completing his mission in the U.S. Hryshchenko met with Secretary of State Colin Powel and President Bush's National Security Advisor Condoliza Rice.

Volodymyr Radchenko was appointed the secretary of the National Council of National Security and Defense (NCSD). The position of the NCSD Secretary remained vacant for more than two months when late in June this year NCSD Secretary Yevhen Marchuk was appointed the Minister of Defense.

A new director of the Security Service of Ukraine was also appointed. Ihor Smeshko occupied this position.

Comment: Radchenko is 54 years old and served as SBU chief twice, in 1995-98 and 2001-03. He also served as the first deputy to the secretary of the National Security and Defense Council from 1999-2001.

US President Sends Letter To His Ukrainian Countepart. A group of U.S. congressional representatives led by Curt Weldon, a Republican from Pennsylvania, traveled to Kiev last month to celebrate Ukraine’s day of independence. During their visit the delegation met with President Kuchma on 24 August and passed to him a letter from U.S. President George W. Bush. Weldon subsequintly told journalists that in his letter Bush thanked Kuchma and the Ukrainian people for their support in combating global terrorism. For his part, Kuchma reportedly said at the meeting thatUkraine is ready for broader cooperation with the United States in all areas.

A delegation of the Naftogaz Ukrainy Company on August 28-29 took part in the international conference "Reconstruction of Iraq" in Arlington (the U.S.). The Ukrainian side was concerned, in the first place, with the possibility of participation in subcontracts for Iraq reconstruction.

The Congress of the Federation of Employers of Ukraine (FEU) elected Anatoly Kinakh to replace Oleksiy Miroshnichenko as their leader (September 4). Now Kinakh will head both the FEU and the Ukrainian Union of Industrialists and Entrepreneurs.

On September 1-4 Minister of Defense Yevhen Marchuk visited Kuwait and Iraq. In Babylon he took part in the procedure of handing over the responsibility area to the Ukrainian peacekeeping contingent.

Consortium Considers Building New Gas Pipeline Across Ukraine. The international consortium for developing and managing Ukraine’s gas transportation system is planning to build a new gas pipeline linking Novopskov in Luhansk Oblast with Uzhhorod in Transcarpatia. That plan was discussed last week at a meeting in Kiev of the consortium leadership. The meeting was attended by Russian Deputy Prime Minister Victor Khristenko, Gazprom deputy heads Aleksander Ryazanov and Yuriy Komarov, Ukrainian Deputy Premier Vitaliy Hayduk, and Naftohaz Ukrainy head Yuriy Boyko. After the meeting, Khristenko told journalists that new 1,500-kilometer pipeline will built within two years and will cost $2 to 2.5 billion.

Comment:This consortium was registered in Kiev earlier this year. The pipeline is expected to increase gas deliveries to Europe via Ukraine from the current 110 billion cubic meters to 131 billion cubic meters.

Polls

The result of the public opinion poll conducted upon our order demonstrated conspicuously greater optimism than all previous polls showed. For instance, compared with June the number of respondents who assessed the past month as successful for their families increased by 8%; there was a 9% decrease in the number of respondents who believed that the economic position of the country was "very bad", etc. The estimates of President Kuchma activities have become much better.

As it turned out the majority of the Ukrainians wished that the country became a member of the European Union (57% pro and 20% con). At the same time 70% of the respondents stood for Ukraine being a member of the Common Economic Space (CES) (with Russia and two more former republics of the former Soviet Union), only 20% were against it. Note, that 40% of Ukrainian citizens gave an affirmative answer to both questions (that is: Would you like Ukraine enter the European Union and: Would you like Ukraine enter the CES?). Actually, this is not a case of a conscientious political option in favor of this or other side (participation in both unions is unreal), it is more likely a hope that Ukraine's participation in this or other political association will be useful for it.

Repayment of Ukraine's debt to the IMF

President Leonid Kuchma instructed Prime Minister Viktor Yanukovich and National Bank Governor Serhiy Tyhypko on early repayment of Ukraine's debt to the IMF.

A main argument for such a decision was a necessity to reduce costs for servicing Ukraine's foreign debt.

Ukraine has been consistently reducing its financial obligations to the IMF since the end of 1999, when the principal amount of the debt reached record SDR 2,045 million.

This year as in the past year Kiev only repays its liabilities to the Fund.

According to the IMF this year Ukraine should repay the other SRD 97.2 million of which SDR 14 million are interest payments.

In the future Kiev's payments will be as follows: in 2004 - SDR 226.1 million, 2005 SDR 222.9 million, 2006 - SDR 294.4 million, 2007 - SDR 288.7 million, 2008 - 219.8 million and in 2009 SDR 57.9 million.

Ukraine has real possibilities for early repayment of indebtedness.

Gross gold and foreign currency reserves of the National Bank currently amount to some US$6.9 billion, net reserves to more than US$5 billion. According to the National Bank information it will take a month to accumulate US$1.8 billion necessary to repay the whole debt and actually complete repayments by the end of 2003.

The majority of Ukrainian analysts believe that early repayment of the debt to the IMF, at least, this year will not take place.

The savings as a result of this debt servicing are not that large: some US$40 million. At the same time the unjustified reduction of the reserves may degrade Ukraine's credit ratings and adversely affect its investment attractiveness. Spokesmen of Ukrainian government in contrast to the NBU management were rather skeptical in assessing the expediency of early debt repayment to the IMF.

It is most likely a political gesture indicating Kiev's desire to demonstrate to the IMF management that the continuation of cooperation with the IMF is not that significant as in the past years.

Some conditions set by the Fund for Ukraine to obtain credits within the framework of the "early stand-by" program (some US$700 million, which the Fund Board of Directors plans to discuss in October) are regarded by many in Ukraine as unfeasible or being fully unacceptable.

If before Ukraine repeatedly agreed to act on the IMF's recommendations, whose implementation later did not justified themselves and were detrimental to economy, then it is obvious enough now that under the present situation it will no go. The implementation of the "early stand-by" program most likely is counted on the psychological effect rather than on the economic one - as a certain positive sign for foreign investors. But, as Ukraine's experience shows, the dynamics of foreign investments in the country in no way is related to Ukraine's cooperation with international financial organization. The most intensive inflow of foreign investments could be observed at the time when there were no loans from the Fund.

Whether Ukraine will repay its obligations to the IMF or not, it is quite obvious that its interest in continuation of cooperation with the IMF declines implacably and it is a logical process.