[24.04.03]

Domestic Developments

President Kuchma Urges Constitutional Changes. President Kuchma delivered his annual address to the Parliament on 15 April, in which he restated his argument for political change. In his political speech, which was broadcast live on Ukrainian radio, Kuchma stressed the need to transform Ukraine in a parliamentary-presidential republic, as proposed in a draft bill he submitted to the parliament last month. In particular, Kuchma said parliament should be given the constitutional power to form a coalition government, while the president needs the power to dissolve parliament, parliamentary seats should be allocated on a proportional basis and nationwide referendum should be legally binding under a constitutional provision. Referring to his proposal to introduce a bicameral legislature, Kuchma said he does not rule out such a step being taken only after implementation of administrative territorial reform in 2006-10. Regarding his other political-reform proposals, Kuchma stressed that they should be introduced before the end of 2004 to allow for a formula in which the new president stands for a new political system.

Comment: The parliament is highly divided on Kuchma’s proposed political reforms.

While the United Social Democratic Party and the National Democratic Party back Kuchma’s proposed reforms, Victor Yuschenko of "Our Ukraine" instead favors the stronger Presidency.

The Communists and the Socialists favor only proportional representation but reject the rest of the reform proposals. Yulia Tymoshenko’s bloc is not united, with her rejecting Kuchma’s political reform proposals in toto, while her second in command Anatoliy Matvienko is in favor of proportional representation in the Parliament.

Kuchma Restates His Foreign Policy Priorities. Also in his 15 April address to the lawmakers Kuchma expressed hope that Ukraine might enter the World trade Organization (WTO) in 2004. He added that his chairmanship of the Commonwealth of Independent States is an opportunity to increase Ukrainian influence in creating a free-trade zone in the post-Soviet area. Kuchma stressed that Ukraine should develop a constructive dialogue with United States aimed at strengthening the principles of strategic partnership and removing barriers to bilateral cooperation. As to the Iraq conflict, Kuchma said Ukraine could not remain indifferent. He added that sending a Ukrainian chemical and biological decontamination battalion to Kuwait, was a gesture of a civilized nation and its commitment to universal values.

Kuchma said that "common position in the struggle with the threat of world terrorism and spread of mass extermination weapon" makes Ukraine & U.S. "reliable partners and continuous allies".

Comment: Although the Parliament approved President Kuchma’s decision to provide a battalion of experienced Ukrainian troops to assist in Kuwait against possible chemical attacks, there was lots of opposition to his decision among the lawmakers. Various polls in Ukraine have also shown that nearly 90 percent of the population did not support U.S. action against Iraq.

Ukraine Opens Criminal Case Against Media. The Ukrainian Prosecutor General’s Office has opened a criminal case against a number of media outlets regarding the publication of certain articles criticizing the president. Presidential press secretary Olena Hromnitskaya stated last week that these "insulting and defamatory materials are aimed at creating obstacles to the president’s execution of his duties and at undermining the president’s reputation." For example, Prosecutor General’s Office opened a criminal case against Tamara Prosyanik, editor-in-chief of Information Bulletin, an opposition daily, concerning last year’s article entitled "One Million Dollars for the Head of Gongadze."

Comment: Many observers believe that the criminal accusations might be legally weak but there some publications that might provide enough ground for stronger anti-defamation cases.

The Ukraine-U.S. Business Council President Kempton Jenkins Voices Concerns Of His Member Companies to Ukraine’s Ambassador to the United States Over Private Agricultural Markets in Ukraine Coming Under Attack. The letter to Ambassador Grischenko in part stated "For the past three years, we have been heartened by the re-birth of the historically powerful Ukrainian agricultural market, known universally as the breadbasket of Europe...President Kuchma and the Parliament combined to re-establish private ownership of farmland, Ukraine’s farmers responded with dramatic results-record harvests...As a result, foreign direct investment in the sector also grew rapidly. A critical factor in this agricultural revolution was the privatization of the sector and withdrawal of the Government from the delicate but productive market process. All of a sudden, over the past month we have seen a series of actions by Ukrainian Government which indicate a decision to re-intervene in the grain market...Presidential press secretary has announced some 300 legal actions against grain market participants, while calling for the reintroduction of Government control over the grain markets...your government should be aware that reintroducing centralized control of the grain market would have a severe chilling effect on all foreign investors in Ukraine...We hope that this effort to turn back the clock to Soviet-style management of Ukraine’s critical sector will soon disappear and allow Ukraine’s dramatic to productivity and prosperity to resume."

Comment: Ukraine’s Council of Ministers responded promptly to Jenkins’ letter stating that Ukraine had no intentions to reintroduce Governmental controls over grain markets.

First Vice Premier Mykola Azarov restated his Government’s position the next day at a public forum in Washington D.C.

Last Week Ukrainian Delegation Headed By First Deputy Prime Minister And Finance Minister Mykola Azarov Came To Washington To Take Part In Meetings Of The International Monetary Fund And World Bank. While in Washington, Azarov also held talks with top officials at the Treasury and State Departments. Azarov said that he and his U.S. interlocutors have managed to settle virtually all controversial issues with regard to Ukraine’s accession to the World Trade Organization (WTO). The Americans have not imposed any additional conditions on Ukraine’s WTO accession, Azarov said. Also during Azarov’s visit, the U.S. has decided to lift sanctions imposed against Ukraine in line with the Paris-based Financial Action Task Force on money-laundering recommendation.

Comment: Ukraine has already signed bilateral protocols on access to the markets of goods and services with half of the 22 member states of the working group on Ukraine’s WTO accession.

It is expected that the Treasury Department’s decision to lift FATF sanctions against Ukraine will become effective within the next two weeks.

President Kuchma took part in the Athens European summit

In his speech on April 17 Kuchma declared that Ukrainian position was realistic, so it did not raise a question on the accession to the EU in the foreseeable future, but would like to retain this prospect. He expressed a wish that Ukraine should obtain a status of an associated member. This proposal was backed up by French President Jacques Chirac. (Earlier he was bolstered by leaders of other countries in particular Germany and Poland). Kuchma conducted negotiations with German Chancellor G. Schroeder in particular on issues of setting up a tripartite gas-transport consortium (Russia - Ukraine - Germany).

On April 14 leaders of 4 opposition factions in parliament Victor Yushchenko (Our Ukraine), Julia Tymoshenko (BYuT), Petro Symonenko (Communist Party) and Oleksandr Moroz (Socialist Party) signed the joint memorandum (the memorandum of unity). The memorandum criticized the presidential draft for the constitutional amendments, but at the same time it supported the majority's proposals to the effect that if substantial provisions were implemented this draft will transform Ukraine into a parliamentary-presidential republic. It is significant, that V. Yushchenko who earlier had balked at the necessity of constitutional changes joined the memorandum.

Next day the President in his speech in parliament by and large approved the substance of the memorandum. Political analysts believe that there is an opportunity for a tradeoff on reform's pivotal provisions.

On April 16 the government submitted its plan of actions to the Verkhovna Rada, and on the following day it was approved by 335 votes (out of 450). The majority voted pro unanimously, and the factions of the Socialists, the BYuT and a part of Our Ukraine also voted in favor. The Communists voted against.

Thus, under Ukrainian laws, within one year parliament will have no right to raise a no-confidence vote to the government. However, the President retains the right to dismiss it.

Right after that voting on the government program the voting on the new election law was held (the voting was on the introduction of only the proportional system of elections; at present the mixed system of elections is in place). 217 lawmakers voted in favor (when 226 votes were needed), so the law did not pass.

The opposition voted pro (almost everyone, 189 out of 202), plus 23 legislators from the majority and 5 legislators out of any factions.

After that a scandal flared. The opposition maintained that it agreed to vote for the governmental program only in exchange for a support by some portion of the majority of the election law and therefore, they alleged, the Prime Minister made a trick on them. Some representatives of the majority denied the arrangement. They said, in particular, that the government would survive even without of the opposition's votes (the majority provided about 230 voices whereas at least 226 voices were needed). Nevertheless, one may assume that actually the arrangement did take place.

Some observers thought that the hurly-burly similar to December ones will start once again, but on the following day the opposition had second thoughts about going on with the scandal.

The President dismissed (April 16) Oleksandr Bondar as the head of the State Property Fund and appointed Mykhailo Chechetov to replace him. Parliament already endorsed the replacement on April 3.

On April 16 The Congress of Local and Regional Authorities was held in Kiev.

On 14.04 President Kuchma signed the law to fight terrorism (April 14). Parliament approved the law on March 20.

On April 17 U.S. Ambassador Carlos Pascual visited the KCPCS (Kiev Center for Political and Conflict Studies) office. The main subjects of the discussions were: events in Iraq and political reform in Ukraine.

The 5^th Congress of the Party of Regions of Ukraine (PRU) was held on April 19. It changed its leader. Head of the government Viktor Yanukovich was unanimously elected as head of the party. First Deputy Prime Minister and Finance Minister Mykola Azarov was elected the head of the party's political council. Former leader Volodymyr Semynozhenko remained a member of the party's leadership.

The party has more than 500,000 members. Still the experts believe that the party's real membership is much lower.

In the 1^st quarter Ukraine will experience fast economic growth

The GDP in January-March 2003 compared with an analogous period last year increased by 7%; industrial production rose 10.7% up; construction products went up 12.4%; volumes of freight transportation increased by 8.9%; and passenger traffic - by 5.9%.

Negative tendencies include high quarterly inflation: 3.7% and severe agricultural problems making it possible to predict a bad grain harvest in the current year.

The U.S. cancelled sanction against Ukraine imposed on the FATF recommendations

The U.S. will no longer regard Ukraine as a country having high likelihood of money laundering following the relevant FATF's decision, however it will maintain close monitoring over the transactions with Ukraine.

This is reported in a joint statement of the U.S. Treasury Department and the Financial Crimes Enforcement Network..

According to this document the U.S. financial agencies should conduct the intensified monitoring of the accounts and transactions together with the Ukrainian counterparts since Ukraine is still on "the black list" of the countries that do not cooperate with the FATF on issues of laundering "dirty money".

In addition to this statement it was emphasized that Ukraine had made a headway in adopting the legislation to combat money laundering.

The document stressed that the Treasury Department was happy with Ukraine's actions aimed at improving the fight against money laundering and expects the effective enforcement of the new laws,.

Earlier similar recommendation were given to the financial institutions by Britain's Joint Money Laundering Steering Group.