[17.07.03]

Political Developments

Draft bills on the constitutional reform were sent to the Constitutional Court. On July 14 parliament speaker Volodymyr Lytvyn sent two draft bills on amendments to the Constitution: one proposed by the president and one by parliament. President Kuchma said about his intention to recall from the Constitutional Court his draft.

Commentary. A long struggle around the submission of the draft bills to the Constitutional Court boiled down to the fact that the President and the faction supporting him were trying to submit only the presidential draft bills, while the opposition wanted both drafts to be considered by the Constitutional Court. As the president said the forthcoming rivalry will impede the passing of any of them.

Ukrainian, Polish Presidents Honor Victims of 1943 Volyn Massacre. President Leonid Kuchma and his Polish counterpart Aleksander Kwasniewski attended a reconciliation ceremony in Pavlivka on 11 July to commemorate ethnic Poles murdered by the Ukrainian Insurgent Army (UPA) and local Ukrainians in Volyn in 1943. The ceremony was preceded by a statement aimed at reconciliation that was adopted by both the Ukrainian and Polish parliaments.

Comment: The Ukrainian Parliament adopted the resolution recognizing the tragedy for the Polish people in Volyn only after a sharp and heated debate. Many Nationalist and Rightist lawmakers sought to absolve UPA’s role in the massacre and were attacking Kuchma and his political aides in taking this reconciliation step with the neighboring Poland.

Ukrainian President Urges Greater Vigilance and Effort To Fight Money Laundering. President Kuchma opened a regular meeting of the recently formed Department for Financial Monitoring on 14 July by ordering increased vigilance in the fight against money laundering.

Commentary: Kuchma ordered the creation of an integrated state-information and analytical body late last year in order to thwart dubious financial operations and to spur his government toward greater cooperation with international bodies responsible for combating money laundering. While the United States applauded the formation of this Department, it has expressed doubts about its likely effectiveness. The United States will welcome President Kuchma’s personal efforts to bolster the mission and the work of the new Department.

Ukrainian President Vows Not To Prolong His Term. President Kuchma declared on 10 July that he was not going to extend his term in office "under any circumstances." He added that his ultimate task was to make next presidential elections transparent and in line with the constitution. He called on the opposition lawmakers to stop speculation and rumormongering about his alleged intention to prolong his tenure.

Commentary: Both nationalist and leftist lawmakers use these rumors and speculations as a way to undermine Kuchma’s image outside the country. Last week Kuchma made similar assurances to Deputy Assistant Secretary of State Steven Pifer.

Holiday Season for Ukrainian Politicians Commenced. President Kuchma on July 16 takes his leave and goes to Crimea. According to him he intends to continue his work during his holiday and in particular will take a close look at the situation in Crimea. President’s head of staff Viktor Medvedchuk and a number of members of the Cabinet will start their holidays as well. The Verkhovna Rada went into recesss on July 12.

Commentary: In Ukraine traditionally the political life from mid-July to the end of August because of summer holidays is not too hectic.

US House Fails To Restore Funding For RFE/RL And VOA International Broadcasting To Ukraine. The US House Subcommittee on Commerce, Justice, State Appropriations last week failed to restore $8.9 million in funding for US RFE/RL and VOA international broadcasting to Eastern Europe for fiscal year 2004. The OMB had originally stripped the funding when it submitted the budget to the White House in January of this year.

Commentary: Both the House International Committee and Senate Foreign Relations Committee have adopted language prohibiting the closure of broadcasting to Eastern Europe in the State Department Authorization bill, but without actual funding, the Broadcasting Board of Governors will likely opt to ignore the congressional mandate.

Economic Developments

Kuchma Seeks To Allay Fears Over Alleged Grain Shortage. President Kuchma on 9 July told his countrymen that there no grounds for "panic" in connection with the recent price hikes for grain products. He said there was enough grain for four months in grain reserves. He ascribed current problems on the food markets to mismanagement and political ambitions.

Commentary: Political opposition is clearly trying hard to politically exploit the recent price hikes for grain products. For example, the opposition lawmakers voted against legislation to exempt import duties for food grain apparently to aggravate the situation.

But the problem seems to be abating.

Over the last several weeks, the weather conditions improved which made it possible to raise forecasts of a new harvest to more than 30 million tons, which is more than enough to meet the demands of the market. Import duties for food grain have been exempted, despite the efforts of the opposition. Next year Ukraine will import food grain, but will remain a large exporter of fodder grain.

Economic Outcomes of the 1st Half-Year. The outcomes of the first half-year recorded fast pace of economic development.

The GDP increased by 7.5% compared with a similar period last year, while the industrial production - by 12.4%. In this case, in contrast to most CIS countries, Russia including, economic development in Ukraine is not related with the growth of the extracting industries.

In this case one can observe a sufficiently fast recovery in the positions of Ukrainian engineering whose products over the last half-year grew 28% up.

Growth in construction equalled 22% and the transport turnover increased by 12%.

Such high growth rates of Ukrainian economy were not forecasted by either Ukrainian or foreign experts.

In great measure this growth is related to the fact that there was a decline in the foreign economic activity of Ukrainian goods producers predicted earlier.

Export of goods increased by 27%, while import increased 29%, but in this case export surplus remained positive.

Along the higher pace of the economic growth the financial situation improved as well. The situation with the budget performance over the first half of the current year can be estimated as best over the whole period of Ukraine’s independence.

The National Bank’s gold and currency reserves each week increase by USD several tens of millions and by the end of July’ first week they reached USD 6,230 billions.

It is expected that by the end of the year despite record high repayment of the foreign debt they will amount to at least US 7 billion.

There are number of factors in Ukraine, which may negatively affect the total outcomes in economic development in 2003. First of all, this is bad harvest of grain crops. The stocks of coal in power plants are twice less than in the first half-year of 2002, those of black oil are depleted by 1.5 times. Pumping of gas into underground storages was reduced by 12%.

An inflation jump at the end-year is a real threat although it will hardly exceed 8-9% level, which is quite tolerable for countries in transition.

Nevertheless, there are all the grounds to believe that the year 2003 in economic terms will be the most successful over the whole history of the independent Ukraine.

Foreign Affairs

President Kuchma About Ukrainian-U.S. Relations. President Kuchma answering a question at the press conference on July 15 noted positive developments in the relations between Ukraine and the U.S. He referred to the participation of the Ukrainian peace-keeping contingent in the stabilization forces in Iraq, active cooperation in implementing the strategy of Euroatlantic integration and deepening of the U.S.’s cooperation with the GUUAM association as evidence of this. At the same time, he noted the presence of outstanding issues, first of all, the U.S. refusal to meet commitments taken after Ukraine renounced its nuclear status.

Commentary: On June 10 the U.S. embassy informed about the revision of the projects by the U.S. Department of Defense, which are implemented in Ukraine. In particular, the funding of the project for utilization of solid missile fuel at the Pavlograd Chemical Plant, which was carried out within the framework of the agreement between Ukraine and the U.S. of October 25, 1993. Later the U.S. announced its intention to consider alternative versions for implementation of the utilization program.

Malaysian Prime Minister Visits Ukraine. Prime Minister Hahatir Mohamed arrived in Kiev on July 14 for a four-day visit. He was accompanied by other senior officials including his Foreign Minister, Defense Minister and Economics Minister. Also 30 prominent businessmen were included in the delegation. He was expected to meet with President Kuchma and other top Ukrainian political and business leaders.

Commentary: Malaysia is very interested in purchasing Ukrainian military hardware, particularly air defense equipment.

Arrest of a Ukrainian Aircraft in Canada. On July 1 a Ukrainian aircraft, which brought goods for Italian servicemen in Canada was arrested upon a ruling of a Canadian court for debts. The Court made this ruling based on the decision of the Stockholm of Arbitrage Court of May 30, 2002. The Ukrainian Ministry of Foreign Affairs proposed that the aircraft which are in Ukraine’s government ownership abstain from flights to countries, which recognized the ruling of the Stockholm Arbitrage Court (Belgium, France and the U.S.) and appeal against the ruling of this arbitrage (according to a report of July 16). Two notes to this effect were sent to Canadian Foreign Office.

Commentary: The arrest was made on the claim of the Quebec Power Company, which said the Ukrainian government owed it USD 62 million. The arrest creates a dangerous precedent since a number of other foreign companies may also put forward such claims.

Ukrainian-Brasilian Space Cooperation. On July 6 president Kuhma signed a decree on measures to ensure a Ukrainian-Brasilian project for setting up a missile complex Tsiklon-4 (Cyclone-4). The project total cost amounts to USD 180 million. The shares of the participating parties in it are 50% - 50%. The estimated payback period is four years. Complex commercial operation is expected at the Alcantara space center. The first launch of Tsiklon-4 is planned for 2005-2007. Five to ten launches every year are planned from this space center.

Commentary: As early as in the Soviet time Ukraine was one of leading countries in the space field. Now it is interested in international cooperation and in attracting funds to this sector.