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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: 263 - (26/11/02)

Kuchma clings on
The Ukrainian regime is somehow surviving, President Leonid Kuchma is the target of an opposition campaign to oust him that has even taken to the streets. But recent demonstrations have been less numerous and vociferous than before.
The president has demonstrated a remarkable staying power through scandal after scandal. The defections of his bodyguard, and the subsequent revelation of innumerable felonies and misdemeanours on tapes he took with him, are Ukraine's equivalent of Watergate. But it lacks the strong independent media of the US that brought Nixon down.

Journalists continue to disappear
One of the gravest charges made by opposition forces concerns, indeed, the persecution of journalists who have a tendency to disappear. In mid-November the latest of a series of mysterious deaths by journalists came to light. The chief of a Ukrainian financial news agency, Mikhail Kolomiyets, went missing in October; his body was found in neighbouring Belarus, where he was hanging from a tree. "On the day he disappeared he had had lunch with someone," Mikhail Kukhar, a friend and fellow journalist, said, "Who, we don't know. But then he came back to work, erased everything from his computer, took his contacts book and just went without saying anything to anyone, within ten minutes. We think this behaviour suggests that he was afraid of something." Indeed.
Another friend, Lyubov Ruban, is reported to have stated that Kolomiyets had called her, saying that he intended to commit suicide; although other friends he contacted say that they had no inkling of anything of the sort. The Ukrainian and Belarussian authorities have launched an investigation, both working on the assumption of suicide.
It is of course a convenient assumption for them to make. But even if true, why did he kill himself and why in Belarus? An easier place to fake a suicide handing for an inconvenient journalist than Belarus cannot be imagined, where such things happen all the time.
Last year Igor Alexandrov, a director of a television company, was found beaten to death in the Donestsk region of Ukraine, in the Russian-speaking east of the country. Belarus and the coal-mining Donestsk region are the old haunts of Sovietism, not unlikely places for free-thinking journalists to meet their end. But nothing is really known about the deaths of Kolomiyets and Alexandrov and nothing connects them with the regime.
This is not true of one particular journalist. The body of an investigative reporter, George Gongadze, was found two years ago after Kuchma was heard on the tapes calling for him to be "wiped out." He had been beheaded, so strictly only his torso was found, perhaps in an attempt to prevent identification. But there is no doubt that it was his torso.
Naturally the president denies the authenticity of the tapes; but few credit his denials.

Other Shenanigans 
Equally convincing are remarks in which Kuchma ordered his minions to rig his re-election in October 1999. Now it is revealed by US intelligence sources that he gave orders to sell four Kolchuga radar systems to Iraq that can be used against US and UK pilots. A US firm hired by the FBI says that an alleged recording of Kuchma agreeing to the sale is genuine, which means that the other recording concerning Gongadze is highly likely to be so as well.
The US has suspended US$55m in bilateral aid after the news of the sales came out. Kuchma is now in bad odour in the campaign against terrorism, which had been a welcome distraction for the regime.
One leading opposition figure, Ms Yulia Timoshenko, has called for Kuchma to stand down, while agreeing to his immunity from prosecution should he do so. But he still retains enough support in parliament to prevent impeachment. Half of the seats are chosen on a party list, half on a district one. The latter is easy to manipulate with loyal district officials making sure that pro-regime candidates win, as indeed they did in elections in March.

End-game approaches
The opposition, which dominates the party list, is itself deeply divided, ranging from nationalists to communists and socialists. That of course strengthens Kuchma's hand. The main opposition force, the centre-right, Our Ukraine, is led by the most popular politician in the country, Viktor Yushchenko, the premier in 2000-2001 when the economy began to pick up. He is admired in the West, being beforehand a successful central bank chief who tamed inflation.
Yushchenko's strategy seems to be to wait out the expiry of Kuchma's term in October 2004 and stand for president then, which Kuchma is barred from doing by the constitution. Yushchenko is a sparkling operator on the media, unlike the leaden Kuchma or the staid premier, Anatoly Kinakh. But the latter has the enormously powerful Union of Industrialists and Entrepreneurs behind him, which he founded. It is the main backing for the regime in parliament. 
The one thing that Kuchma has to fear is that these allies turn on him. But that is not so likely given the skeletons in their own cupboards, concerning shady privatisation deals. He should see out his term. But whether he can ensure Kinakh succeeds him is another matter. 

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BONDS

Extra 2000 Eurobonds on the cards


The Ukrainian government may issue an additional 2000 Eurobonds at the end of 2002 - beginning of 2003 if there are budget complications, Finance Minister, Ihor Yushko, said. The government adopted a resolution at the end of September increasing the maximum volume of a second additional issue of 2000 US dollar-denominated Eurobonds from US$250m to US$650m, New Europe reported. 
The circumstances may be such that the government will have to immediately issue bonds to ensure payments that are due in February, Yushko said. The government hopes to receive the second tranche of a World Bank programmatic adjustment loan (PAL) of US$250m before the end of the year, which is written into the 2002 budget. Foreign borrowing totalled US$24.8m in the first half of 2002, or just 9% of the annual budget target. The Finance Ministry expected to raise another US$406.4m before the year end, including the US$250m World Bank loan and 50m Euro in a third tranche loan from the European Union. The Ukrainian government on July 25th adopted a resolution on a second additional issue of 2000 Eurobonds totalling US$250m in exchange for obligations held by investors that did not take part in the restructuring of commercial foreign debt in 2000-2001.

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ENERGY

IMF urges electricity industry privatisation


On November 4th, the International Monetary Fund expressed its regret concerning the delayed privatisation of regional electricity companies in Ukraine. Emanuel van der Mensbrugghe, the leader of the IMF mission to Ukraine, voiced the regret while talking to reporters at the end of a two-week visit to Ukraine. 
He also suggested that Ukraine put together a plan to restructure arrears in its electricity industry as a way to make privatisation in the sector easier and faster. The Ukrainian government needs to give a signal to potential investors that privatisation is well underway, Interfax News Agency reported him as saying. He also said that the state target to raise 2.1bn hryvnias via privatisation was overoptimistic, but added that the goal was achievable with strong political will.

Ukraine to help move Iranian gas to Europe

Ukraine is prepared to make its territory available for the transportation of Iranian gas to the European Union, Ukrainian Foreign Minister, Anatoly Zlenko, told the press, following talks with Iranian President, Mohemmad Khatami. "Ukraine and Iran are currently discussing a plan to lay a gas pipeline from Iran to Armenia and further," Interfax News Agency reported Zlenko as saying. "The construction of a gas pipeline is being intensively discussed by Iran and Armenia. But these countries are short of resources and Armenia would like to secure a credit for implementing this project," he said. "Discussions have just begun," he said.

Odessa-Brody pipeline extension

Ukrainian Prime Minister Anatoly Kinakh, his Polish counterpart, Leszek Miller, and European commission officials will probably hold talks in December on the possibility of extending the Odessa-Brody oil pipeline to the Polish port of Gdansk. Interfax News Agency quoted Ukrainian First Deputy Prime Minster, Oleh Dubyna as telling reporters that he discussed this proposal with Faouzi Bensarsa, the coordinator of the INOGATE (Interstate Oil and Gas Transport to Europe) programme and representative of the EC Energy Group Directorate-General, at a meeting in Kiev. Bensarsa will now go to Poland, where he will discuss further plans for the development of the Odessa-Brody pipeline with the Polish prime minister, Dubyna said.
He said strong consideration is now being given to bringing the Caspian region into the Odessa-Brody corridor, an effort supported by the European Union. Positive steps in this direction include the Azerbaijan decision to ship oil via the pipeline, Dubyna said.

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FINANCIAL NEWS

EBRD releases new strategy

The European Bank for Reconstruction and Development (EBRD), the largest investor in Ukraine, released its new strategy for the country. The EBRD said it will offer foreign investors a wider range of risk-sharing products.
The Bank will continue to devote attention to the development of the banking sector as the demand for financial services grows and is keen to continue its dialogue with Ukrainian authorities on energy sector reform and privatisation. Besides the financial and energy sectors, the strategy envisages active involvement in road, rail and air transportation projects, where the EBRD can have an impact on tariffs, procurement practices, sector consolidation and further privatisation.
The EBRD will also play an active role in Ukraine's agribusiness sector, which it considers to be the country's largest potential comparative advantage. Following the record grain crop yields and recent changes in agribusiness legislation, the Bank intends to introduce seasonal working capital finance for farmers and grain traders through warehouse receipt credits. The strategy notes that the level of the EBRD's future investments will depend on the extent to which Ukraine can make progress towards a consistently implemented tax regime, properly managed regulation and a truly independent judiciary.
This includes the implementation of concrete steps to combat corruption. The EBRD noted that it will continue its efforts to improve nuclear safety though the Nuclear Safety Account and Chernobyl Shelter Fund. The Ukrainian government had withdrawn in December 2001 from a final Board decision on the project to complete the nuclear reactors known as K2 and R4. The project awaits an indication from the Ukrainian authorities on whether they will seek financing under the original loan conditions.

Government signs debt restructuring deal with Japan

Ukrainian Finance Minister, Ihor Yushko, and Japanese embassy official, Shusuke Watanabe signed an agreement to restructure about US$60m in Ukrainian debt within the context of the Paris Club of creditors. The debt of 60.6bn Japanese yen (US$601m) will be restructured over 12 years with a three-year grace period, at 2.55 per cent annual interest.
This agreement concludes the process of restructuring part of Ukraine's foreign debt to Paris Club creditors, Yushko said at the signing. He also said "there is hope and feeling" that Ukraine's debt to Turkmenistan will also be restructured by the end of this year. The completion of the Paris Club debt restructuring will allow Ukraine to return to foraging debt markets, the minister said. "We have a good chance of entering foreign debt markets. The markets are ready for this," he said, but could not give a possible timetable for when this happen.
The agreement will allow the Japanese government to resume financial support for Ukraine if interesting projects come along, Watanabe said. The two countries need to step up trade and economic cooperation, he said. Ukraine and the Paris Club of creditors on July 13th last year signed an agreement to restructure part of the country's foreign debt. The documents covers about US$580m in debt on loans for agreements that were signed before December 31st 1998. This amount includes principal debt and debt payments that Ukraine was supposed to have made between December 19th 2000 and September 2nd 2002. Ukraine reduced its direct state debt by US$175.lm in the first half of 2002 to US$13.90bn as of June 30th. 

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FOREIGN LOANS

Ukraine planning new loan strategy, says Beskrovny

Ukraine has determined the government's objectives which will require the World Bank's assistance in 2003-2008. The objectives were submitted to the World Bank's mission in Ukraine during a seminar on the new cooperation strategy, Interfax News Agency quoted Ukrainian deputy prime minister's spokesman, Vitily Beskrovny, as saying.
Ukraine reduced its debt to the World Bank by US$42.1m in the first half of the year. Ukraine owes US$2.3bn or 29.2% of its direct foreign debt to the World Bank. The Systematic Transformation Facility loan for a total of US$750m is the backbone in the World Bank's strategy for assistance to Ukraine in 2001-2003. The strategy was endorsed in September 2002. Ukraine will receive about US$250m this year in the framework of the loan.

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TELECOMMUNICATIONS

Ukrainian communications provider taken over by Russian investors

The Golden Telecom telecommunications holding had increased its stake in the Ukrainian open joint stock company Golden Telecom [JSC Golden Telecom] to 100 per cent, the holding said in a press release. Golden Telecom's stake in JSC Golden Telecom used to be 69 per cent, Interfax-Ukraine News Agency has reported.
The US-registered Golden Telecom is part owned by Russian oligarchs of the Alfa Group.
"We have purchased the remaining 31 per cent stake in JSC Golden Telecom, thus becoming the sole owner of our enterprise in Ukraine," Golden Telecom president, Aleksandr Vinogradov, said in the press release.

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