[Ohio UZO News] Ukraine: NYT; FT

[Deychak, Orest]

The New York Times

November 4, 2008


As Ukraine Staggers, Its Leaders Quarrel 


By SABRINA TAVERNISE

KIEV, Ukraine — Four years ago this month, hundreds of thousands of people took to the streets of this capital city to take back an election they saw as stolen. That outpouring, called the Orange Revolution, brought fresh hopes for freedoms and for a release from the country’s Soviet past that few other former republics had ever experienced. 

The early promise of those days frayed in recent years, but economically times were good, and the country always seemed to manage. 

But now, confronted by the global financial crisis, the new Ukraine is facing the single biggest test of its stability, and its leaders, by most accounts, seem to be close to failing. 

Yulia V. Tymoshenko, the prime minister, and Viktor A. Yushchenko, the president, onetime political allies, are now locked in a bitter power struggle that has paralyzed the state, leaving it without a leader at precisely the time it most needs one. 

Even as the West bends to help it, with the International Monetary Fund pledging an emergency $16.5 billion loan last month, it barely pulled itself together to meet the conditions for the money. Mr. Yushchenko, intent on getting rid of Ms. Tymoshenko, is trying to force early elections for December. To make sure the elections come off, his party spent most of last week trying to slip a campaign finance clause into the legislation that was required for the loan. 

On Monday he relented and signed the crisis legislation into law without the clause. But his administration continued to insist that the elections proceed. 

“It is a crime to conduct elections in this situation,” said Yulia Mostova, a prominent writer at Dzerkalo Tyzhnya, a weekly newspaper published in Kiev. “The chain of authority in Ukraine is broken. It’s at war with itself.” 

Ukraine’s paralysis raises difficult questions for the West. It is a country of 46 million in a strategic spot between European Union countries and Russia, and its stability is crucial to the region. 

Mr. Yushchenko has taken a combative approach toward Russia, which demonstrated a new willingness to settle disputes by force in Georgia this summer. He has pushed for Ukraine to join NATO, an agenda not particularly popular among Ukrainians, 17 percent of whom are ethnic Russians. And he has vowed not to renew a contract that allows Russia’s Black Sea fleet to dock in a Ukrainian port. On Saturday, a ban on Russian cable television programming took effect.

For Ukrainians, the fears are more about their immediate future. At one point last week, their currency hit its lowest point since it was introduced in 1996, and securities that insure Ukrainian government debt are trading at near-default levels. But perhaps their greatest disappointment is over their leaders, whose energies are focused not on ways to lift the country out of crisis, but instead on what is widely seen as a selfish struggle over power. 

“People feel let down to the point of tears,” Ms. Mostova said. “Many feel they’ve been used. Ukraine had a chance for a qualitative, civilized jump forward, but it wasn’t taken.”

Ukraine’s economy is particularly vulnerable. About 40 percent of its foreign currency earnings come from the sale of industrial metals, which have plunged in price in recent weeks. And while its government has borrowed responsibly, its banks have not, having taken billions of dollars in foreign currency loans. With global credit markets drying up, those loans will be difficult to refinance. Ukraine’s central bank has already had to bail out one, Prominvestbank, the country’s sixth largest. 

Despite the turmoil, Mr. Yushchenko’s main focus in recent weeks has been on attacking Ms. Tymoshenko. He has issued presidential decrees blocking the majority of her decisions since she became prime minister for the second time in December. When a judge in Kiev ruled that his decree to dissolve the Parliament and call elections was illegal, Mr. Yushchenko disbanded the court. 

“Yushchenko thinks he is God,” said Mikhail Pogrebinsky, a political analyst at a research and polling center in Kiev, pointing to Mr. Yushchenko’s visit last week to Istanbul, where he gave Patriarch Bartholomew I of the Eastern Orthodox Church a specially minted coin with his image on it, while at home his country’s currency plummeted. 

Ms. Tymoshenko is also capable of political magic tricks. Last year she colluded with Mr. Yushchenko, withdrawing all her deputies from Parliament to give him legal justification for dissolving it and calling new elections.

Neither has ever liked the other. Ms. Tymoshenko, a former gas industry executive whose head is wreathed in a signature blond plait, is Ukraine’s political celebrity. 

Mr. Yushchenko, a former banker whose own popularity has plunged, has lashed out. There are even hints of the political fight in Mr. Yushchenko’s infamous poisoning episode, which left his face pockmarked and ravaged in 2004: His political opponents have been called in for questioning in the case.

Ms. Tymoshenko came from Ukraine’s business world, where quick wits and bare knuckles made fortunes in the 1990s. But her aim appeared to be less money than power, and she later joined the government. She and Mr. Yushchenko led the revolution in 2004 with the motto, “bandits to prisons,” but they soon grew beholden to yet another set of wealthy men.

Oleg O. Zarubinsky, a member of Parliament from an opposition party, put it bluntly: “Our political parties aren’t funded by membership fees.”

Oleksandr S. Donii, a Ukrainian lawmaker who led a popular student movement against the Soviet regime in 1990, compared Ukraine’s first-generation businessmen to divers dizzy with the bends. “The Ukrainian business elite was born too quickly,” he said, adding that “there was no sense of social responsibility.”

The country’s current predicament is not entirely the fault of its leaders. It runs much deeper, into the roots of Ukrainian society. Communism pitted citizens against one another, leaving people distrustful and incapable of the collective action that holds governments accountable in developed countries. 

“We trust our brother, son, father, mother and godfather, but no one else,” said Ms. Mostova, the writer. “That’s our problem.”

That is why the Orange Revolution was so important: It seemed to break that pattern. 

“People found their backbones,” Ms. Mostova said. “They cried in front of strangers.”

But after the protests ended, there was little follow-up. The crowd came together and then broke apart. 

Still, the fact that it happened at all was a big step forward for Ukraine, which has been independent for only 17 years, and is now going through a period that Mr. Pogrebinsky compares to the tumultuous late 18th century in the United States, during the ratification of the Constitution. 

The economic crisis, for all its pain, may also be a catalyst. Financial turmoil has swept out governments in Indonesia, Turkey and Russia in recent history, and even, many argue, the Soviet Union. Today’s Ukraine may be similarly susceptible. 

Ms. Tymoshenko seems to realize this. In a television talk show about the economic crisis on Friday night, she extended a hand to Mr. Yushchenko. “Let’s for once not get into these political dogfights and come together as a national team with a united program, like the president said,” she declared. “Be a team in the face of this big global challenge.”

Mr. Yushchenko did not return the favor. He accused Ms. Tymoshenko’s government of accumulating debts from energy purchases “like fleas on a dog,” and of allowing inflation to rise. 

“Who did it?” he railed. “The world crisis? Lies! The crisis is sitting right here.”

Ukraine feels the pinch as steel price declines

 

Financial Times 

Ukraine feels the pinch as steel price declines

By Roman Olearchyk in Donetsk 

Published: November 4 2008 

Just like his Russian counterparts, Rinat Akhmetov, a Ukrainian steel billionaire, is feeling the pinch of the global financial crisis.

His Metinvest holding company has been caught by the global decline in steel prices and demand. Production levels in Ukraine's vast steel industry are falling and orders are dwindling. Hundreds of thousands of blue- collar employees at factories he and other Ukrainian businessmen own are nervous about losing their jobs.

"These are difficult times," Mr Akhmetov said during a Financial Times interview in Donetsk, the largest city in Ukraine's eastern industrial region. Sitting in the restaurant of a luxurious hotel that he owns, he said: "The recession has already arrived."

He is not the only billionaire to be suffering. Tomas Fiala, the director of Dragon Capital, a Kiev-based investment bank, said, "Ukraine has about a dozen billionaires", adding that the crisis had cut their net asset value in half. They have leveraged themselves less than their Russian counterparts but have "some $10bn-$20bn in outstanding foreign debt", he said.

A Donetsk native, Mr Akhmetov became very rich during what is seen as the crony capitalist days that followed the collapse of the Soviet Union. Reputedly Ukraine's richest man, he snapped up steel mills, mines, utilities and other assets at fire-sale prices.

In Russia, most wealth is rooted in the export of gas and oil. Wealth in Ukraine is also concentrated on exports, although in its case the focus is on steel. The country ranks as a top 10 world steel exporter.

In an April ranking, Dragon Capital valued Mr Akhmetov's net worth at $31bn (€24.6bn, £19.6bn).

In a sign that Mr Akhmetov is not alone in suffering, Igor Kolomoisky, another billionaire and co-owner of three export-oriented ferro-alloy plants in Ukraine, halted production on November 1.

In 2007, 34-year-old Kostyantin Zhevago floated his Ferrexpo ore company in London. In a gamble, he used a quarter of Ferrexpo as collateral for a loan to fund expansion plans. But its share price has plummeted this year and an investment bank exercised its option to sell the stake to a third party, reducing his stake from 75 per cent to 50 per cent.

Lenders have been more cautious in lending to Ukrainian billionaires because of the country's relentless political turmoil. The prospect of a recession and low steel prices raises doubts over their ability to service debt. But Mr Akhmetov still has deep pockets, according to Mr Fiala.

Fearful of a recession and lay-offs, Donetsk residents hope billionaires such as Mr Akhmetov will help cushion them from serious trouble. He refused to comment in detail on the impact of the recession butpledged to avoid lay-offs at all costs.

He stressed the need for the Kiev government to bail out troubled Ukrainian banks but insisted: "I need no special treatment."

The Ukrainian government has offered bail-outs in return for equity stakes that could be sold off later.

 

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