[19.09.03]

New U.S. ambassador John Herbst arrived in Kiev on September 13. In his first statements in Kiev he expressed concern over the draft Common Economic Space and the absence of progress in the investigation into the death of Gongadze. Herbst said that the culprits in Gongadze's death must be indicted as soon as possible. The European Union spokesmen also expressed concern over "Gongadze's case".

The ambassador also said that the U.S. would continue to finance utilization of solid fuel at the Pavlograd plant in the Dnipropetrovsk region in line with the program of collective reduction of threats. (On June 10 the U.S. embassy informed about the termination of project financing).

A parcel with unknown loose matter addressed to John Herbst was found in Lviv. The sender: Al Qaeda of Ukraine, 10 Mokovey Str., Lviv. The parcel was impounded, the criminal probe is underway.

The International Monetary Fund upgraded the forecast for the growth of the real gross domestic product (GDP) of Ukraine in 2003 from 4.5% to 5.3% and from 4% to 4.8% in 2004.

Such an upgraded forecast was contained in the overview of international economy published by the IMF on September 18. The previous forecast was made in April.

A draft budget for 2004 was submitted to parliament. Planned revenues are to the tune of UAH58 billion and expenditures are planned in the amount of UAH60 billion (at the exchange rate of US$1 : UAH5.35).

On September 15 Ukraine was visited by British European Secretary Denis McShane. Simultaneously Ukrainian Minister of Economy Valeriy Khoroshkovsky conducted negotiations in London.

On September 18-19 Livadia (Ukraine, Crimea) was a venue for a meeting of the CIS heads of state. President of Ukraine Leonid Kuchma was presiding the meeting. A wide range of issues was discussed mainly economic ones. Meetings of the heads of government and foreign ministers also took place..

Earlier presidents of Russia and Ukraine Vladimir Putin and Leonid Kuchma met in the Biryuchiy Island in the Azov Sea and held negotiations there.

After the meeting on September 19 the leaders of 4 countries: Russia, Ukraine, Belorus and Kazakhstan signed documents on the formation of the Common Economic Space.

The Polish State Oil-and-Gas Concern PGNiG (Polskie Gornictwo Naftowe I Gazownictwo S.A.) and the National Joint-Stock Company "Naftogaz Ukrainy" reached an agreement on joint implementation of projects for reconstruction of Iraq's economy in the Polish zone of responsibility.

Agreement on the CES signed

On September 19 in Yalta the presidents of Ukraine, Russia, Belarus and Kazakhstan signed the agreement on the establishment of the common economic space.

Vice Premier of Russia Viktor Khristenko said that these documents by their significance could be compared with the Rome Treaty from which the history of the European Union has sprung.

At present it is difficult to predict the fate of a new project between the four CIS states. However it is obvious that this is the most serious attempt of economic reintegration in the territory of the former USSR, which potentially may have far-reaching repercussions than foundation of the CIS.

A rather popular opinion circulates in Ukraine that the agreement is a simple declaration having, first of all, a political nature.

Nevertheless, there is a certain probability that this is a matter of a fundamental decision, which may substantially influence Ukraine's geopolitical preferences.

In great measure the fate of this agreement will depend on whether Russia will go to the length of really creating a free-trade zone and, consequently, whether prices for Russian energy coming to Ukraine are reduced. If the Russian side proves seriousness of its intentions on this matter it may crucially affect Ukraine's attitude toward the CES prospects.

It is not that important how the founders of the CES visualize its future. If the project is economically effective, it is logical that it will create preconditions for substantial deepening of economic integration, in particular, of Ukraine and Russia.

Much will also depend of the West's position. The spokesmen from the EU and the U.S. in sufficiently unequivocal terms expressed their negative attitude toward the CES. At one of his first press conference new U.S. ambassador to Ukraine John Herbst answering the question "How the U.S. assesses Ukraine's decision to joint the CES?" said "I believe that it is not in the interests of Ukraine to harm integration in Europe".

Gunther Verheugen, Commissioner for EU Expansion, during his visit to Ukraine, which specially dealt with the issues of establishing the CES, in sufficiently definitive terms expressed dissatisfaction with the plans of Ukraine's accession to the CES. According to him if the concept had the features of the customs union, it may seriously affect relations between Ukraine and the EU and the prospects of its joining the WTO.

However, in Ukraine they very well remember G.Verheugen's words that it was equally irresponsible to talk about Ukraine's accession to the EU just as about Mexico's accession to the U.S. Therefore G.Verheugen's concern over Ukraine's European integration prospects cannot be taken seriously.

Ukraine to date has not received any clear-cut signals even in principle about a possibility of entering the EU within a few nearest decades.

It should also take account of the fact that the talks of the West's representatives about expediency to see Ukraine as part of united Europe are actually accompanied by the construction of a new "iron curtain" on Ukraine's western borders (in particular, introduction of a visa regime with its neighboring countries). No doubt, a vague position of the West concerning prospects of Ukraine's European integration plays in the hands of the supporters of tighter integration with Russia and other CIS countries. In addition, the Ukrainian authorities should reckon with the fact that 70% of Ukrainian citizens support the formation of the CES (and the fact that V.Yushchenko, leader of the Our Ukraine bloc, stood against the establishing of this agreement and thereby seriously undermined his chances at the presidential elections).

Therefore, although at present the signing of the CES Agreement is a formal act of little significance, potentially it may become an impetus for real economic and political reintegration in the territory of the former USSR.

So far there is no unity in the Government of Ukraine regarding the CES: several ministers, including Minister of Economy and European Integration Valeriy Khoroshkovsky, expressed serious doubts in respect of this project. At the same time Ukrainian parliament after hectic debates on September 17 approved by large majority (291 against 13, with the total number of lawmakers 450) the declaration expressing support for the CES.