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  UKRAINE

REPUBLICAN REFERENCE

Area (sq.km)
603,700

Population
48,760,474

Principal
ethnic groups

Ukrainians 72.7%
Russians 22.1%
Jews 0.9%

Capital
Kiev

Currency
Hryvnya

President
Leonid Kuchma

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Background:
Richly endowed in natural resources, Ukraine has been fought over and subjugated for centuries; its 20th-century struggle for liberty is not yet complete. A short-lived independence from Russia (1917-1920) was followed by brutal Soviet rule that engineered two artificial famines (1921-22 and 1932-33) in which over 8 million died, and World War II, in which German and Soviet armies were responsible for some 7 million more deaths. Although independence was attained in 1991 with the dissolution of the USSR, true freedom remains elusive as many of the former Soviet elite remain entrenched, stalling efforts at economic reform, privatisation, and civic liberties.

Update No: 259 - (25/07/02)

Easier relations with the West
The Ukrainian regime is benefiting a good deal from the post 9:11 mood. There has been a general relaxation of Western vigilance about human rights abuses and the like among the "emerging market" countries.
This is most notable for the Central Asian and Caucasus states, vital for the campaign against terrorism and in forging a new world energy map. But Ukraine is benefiting too. It is too large a country to ignore. To single it out for harsh treatment on this front is not deemed wise by the Republicans now in charge in Washington.
Denmark took over the EU presidency on July 1st and marked its debut with the EU Summit with Ukraine on July 4th. There is a feeling that Russia is getting better treatment from the EU, being granted market economy status recently, than Ukraine from which it is withheld. Yet is has a less regulated economy than Russia.
The summit followed a state-of-the-nation address by President Leonid Kuchma in which he urged the lawmakers to pursue the "European choice," which he defined as a movement towards democracy, socially-oriented market economy, the rule of law and human rights.

Humbug of a president
The trouble with this statement by Kuchma is that it is the purest hypocrisy. On all four counts his regime is not taking the European choice at all. He was re-elected president in October 1999, in a blatantly rigged election.
The 'socially oriented' market economy has been implemented in a very special sense, feathering the nests of certain social groups all right, the crony capitalists who dominate parliament along with the ex-communists. 'A market economy for societies of corrupt officials and outright crooks' would be a better designation.
The rule of law can hardly be said to prevail in a country where journalists critical of the above state of affairs and courageous enough to say so, just 'disappear.' These disappearances are not exactly in accordance with human rights. The president's address was a tissue of falsehoods from beginning to end.

Peculiarities of Ukraine
But then Ukraine is not a normal country. It would be a great mistake to heap all the blame upon Kuchma. He is just typical of a corrupt political culture of decades of communist mendacity and of a decade of unrivalled opportunities for self-advancement.
Virtually the entire elite in Ukraine has enriched themselves in an untoward manner in the last decade. A former premier, Pavel Lazarenko, languishes in a Californian jail for pilfering millions from the state coffers.

Successor being groomed
Kuchma has two options of going quietly without embarrassment, (à la Yeltsin one might say). One is to groom Premier Anatoly Kinakh, as his successor doing a deal with him as Yeltsin did with Putin, letting by-gones be by-gones.
The second would be to give a new turn in office to ex-premier Victor Yushchenko, former head of the central bank and a widely respected figure. Yushchenko presided over an economic recovery in the early 2000s then saw GDP growth of 5.9% in 2000 and 9.1% in 2001. He lost the support of the president in the summer of 2001 and was replaced by Kinakh, the head of the parliamentary faction for the entrepreneurs and businessmen, a brilliant networker if ever there was one.
Yushchenko has scrupulously refused to denigrate Kuchma, saying "respect is owed to the president." This is hoping that Kuchma is keeping his options open and that a deal with Yushchenko is one of them. If the Kuchma machine, which won the presidency in 1999, were thrown behind Yushchenko next time it would be a shoo-in for him.
Indeed, an amnesty all round, not just for Kuchma may be on Yushchenko's mind. There is the embarrassing fact of US$ one million going missing from an IMF loan during his watch at the central bank. Everybody has a skeleton or two in the cupboard in Ukrainian public life. It is the general complicity with venality that will probably allow Kuchma a discreet exit.

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FOREIGN ECONOMIC RELATIONS

Kuchma upbeat about Greece supporting Ukraine's EU path

Ukrainian President, Leonid Kuchma, pins great hopes on Greece's support of his country's intention to integrate into Europe. Greece will preside at the European Union next year. "We feel the Greek support and its future chairmanship in the EU is of great importance for Ukraine," he said after his talks with Greek Prime Minister, Costas Simitis, reports New Europe.
Kuchma expressed confidence that Ukraine's European and Euro-Atlantic oriented course, accelerated after the former Soviet republic's parliamentary elections, is absolutely right. "There is no alternative to this way," he said. Simitis and Kuchma discussed Ukraine's accession to the World Trade Organisation and free market economy issues. Shipbuilding and energy projects, including the construction of the Odessa-Brody pipeline, were also discussed, Anna Tishenko, the press secretary of the Ukrainian embassy in Athens, told New Europe.
Simitis was accompanied by Foreign Minister, George Papandreou, and Deputy Foreign Minister, Andreas Loverdos. The Greek Prime Minister also met with his Ukrainian counterpart, Anatoly Kinakh.

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FOREIGN INVESTMENT

VTB to invest in aircraft building, defence, aluminium

Russia's Vneshtorgbank (VTB) plans to invest in the Ukrainian industrial sector, including the aircraft building and aluminium industries, as well as the military industrial complex, Interfax News Agency quoted the Chairman of VTB's Executive board, Andrei Kostin, as saying recently. He discussed these investment projects with Ukrainian President, Leonid Kuchma, who welcomed the role of Russian financial institutions in promoting Ukraine's economic development, the banker noted. Kuchma said Ukraine wants to obtain a larger credit line from Vneshtorgbank.
Kostin also announced that after Vnesheconombank's merger with Vneshtorgbank, VTB will not repay Vnesheconombank's debts to Ukrainian enterprises. "The merger scheme only means the transfer of the commercial business that Vnesheconombank ran after 1996. Vnesheconombank will remain a debt agency and will continue talks with Ukraine on all problems inherited from the former Soviet Union," the News Agency quoted Kostin as saying.
He said that Vnesheconombank has already made a number of important steps and partially repaid its debt to individuals. Vneshtorgbank is one of the leading universal banks in Central and Eastern Europe. In April, it opened its office in Ukraine.
According to a preliminary, unaudited consolidated report, drawn up according to international standards, the bank's assets amounted to US$6.1bn as of January 1st, 2002, and its net profit for 2001 was US$310m. VTB has 39 branches in Russia, subsidiaries in Switzerland, Austria, Cyprus and Luxembourg, an associated bank in Germany, and representations in Italy and China.
By January 1st, 2003, Vnesheconombank's clients are to be passed over to VTB. In July 2002, Vnesheconombank transferred the last major tranche of US$2.18m in repayment of Soviet-era debt on individual accounts and deposits in its outlets in Ukraine.
However, the problem of repaying debts to Ukrainian enterprises, whose foreign currency accounts worth around US$600m were frozen in the Soviet Union's Vnesheconombank, still remains unsettled.

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FOREIGN LOANS

EBRD finances first malt deal in Ukraine

The European Bank for Reconstruction and Development is providing an €8.5m loan and €20m revolving working capital facility to Malteurop Ukraine and Malteurop Eastern Ukraine, subsidiaries of the largest malt producer in the European Union, Malteurop SCA of France. Of the total €13.7m has been syndicated to Nederlandse Financierings-Maatschappij Voor Ontwikkelingslanden N.V. (FMO) and Credit Lyonnais.
The seven-year loan will enable Malteurop to expand its Desna Malt house in Chernigiv, in northern Ukraine and to construct a second malt house in Kharkiv, in northeast Ukraine. It will also provide working capital for the purchase of malting barley, especially at harvest. Both malt houses will supply Sun Interbrew Ltd, the largest brewery group in Ukraine.
The deal will help to expand high-quality domestic malt production capacity and significantly decrease reliance of the Ukrainian brewing industry on imported malt, said Hans Christian Jacobsen, the EBRD's Director for Agribusiness. A related farm assistance programme, designed by Malteurop, will provide pre-financing, agronomic assistance and training to farmers to improve the quality and yields of barley, he added. 
Daniel Huvet, General Manager of Malteuroop, said the deal is part of Malteurop's expanded presence in Eastern Europe, which it considers a market with great potential. "We are also pleased to be extending our business relationship with Interbrew through the supply agreement with Sun Interbrew Ltd," Mr Huvet added.
The successful syndication of the long-term loan shows that there is an appetite from the market to fund well-structured transactions alongside the EBRD in the more difficult countries in the region, said Lorenze Jorgensen, the EBRD's Director of syndications. For more information contact Anton Usov, EBRD, tel: +38 044 464 0132; e-mail: usova@ebrd.com.

Italy restructures debt on Paris Club terms

Italy and Ukraine have signed a bilateral agreement to consolidate and restructure Ukrainian state debt of 44.85m Euros and US$36.19m on Paris Club terms, Interfax News Agency reported. The agreement was signed by Ukrainian Finance Minister, Ihor Yushko, and Italian Ambassador to Ukraine, Iolanta Brunetti. The deal calls for restructuring the debt over 12 years with a three-year grace period, and 18 semi-annual coupon payments at an interest rate equivalent to the six-month LIBOR plus 0.5 percentage points.
The news agency quoted Yushko as telling reporters that the restructuring of Ukraine's debt to the Paris Club of creditors would be finalised in July, when the two remaining bilateral agreements are signed with France and Japan.
Last December Ukraine signed a bilateral agreement with Germany, and in June a similar agreement was signed with the United States.

US bank to aid Ukraine business 

The US Export-Import Bank plans to provide up to tens of millions of dollars in loans to Ukrainian banks and agricultural and construction businesses interested in developing business in the United States, the bank's deputy president said recently, the Associated Press has reported.
Jeffrey Miller said there was no upper limit for the loans, which could range from US$250,000 to tens of millions of dollars. The loans are aimed at acquiring US products that may be of interest to Ukrainian enterprises.
"We'd like to see more American products here in growing economies," Miller told reporters in the Ukrainian capital Kiev. "We also want to focus on small and medium enterprises."
He said the bank views Ukrainian agriculture, the construction sector and banking as the most promising fields for cooperation. Other attractive sectors are food processing and telecommunications.
Miller arrived in Ukraine to assess ways to develop Eximbank's activities in Ukraine. The bank has provided loan guarantees to support US investments in Ukraine since it won independence from the Soviet Union in 1991. 

EBRD lends Toepfer Group US$80m

The European Bank for Reconstruction and Development (EBRD) is providing an US$80m revolving credit facility to Alfred C. Toepfer International, a subsidiary of the Hamburg-based agricultural commodities trading company, Alfred C. Toepfer International Group. Of the total, US$32m is being syndicated to commercial banks Hamburgishe Landesbank, Rabobank, Raiffeisen Zentralbank Osterreich AG and Vereins und Westbank.
The financing will help Toepfer Ukraine to expand its growing grain business in Ukraine and to develop Ukrainian exports of agricultural commodities. The company will also implement a seasonal supply-chain financing scheme with one of Ukraine's leading food processors, Chumak.
Moreover, the project is expected to support the EBRD's long-term institutional dialogue with the Ukrainian government to introduce a system of grain warehouse receipts, which will crease the availability of post-harvest financing to Ukrainian farmers and food processors.
Hans Christian Jacobsen, the EBRD's Director for Agribusiness, said the project is the first between the Toepfer Group and the EBRD, and that the Bank hopes Toepfer's commitment will attract other prominent international agribusiness companies to Ukraine.
The EBRD has now signed 159 investments in the agribusiness sector totalling more than €2.7bn, of which €310m was in Ukraine. Overall in Ukraine, the EBRD's cumulative investments stand at €1.3bn through 41 projects.
For more information contact Anton Usov, EBRD, tel: +38 044 464 0132 or e-mail: usova@ebrd.com.

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