[Ohio UZO News] Ukraine: Reuters; FT; WP

[Deychak, Orest]

Reuters

Ukraine, IMF move closer on releasing credits 

11 March 2009

KIEV, March 11 (Reuters) - Ukraine and the International Monetary Fund
said on Wednesday that new government measures had narrowed differences
in talks on releasing the suspended second tranche of a $16.4 billion
loan to the ex-Soviet state.

Deputy Prime Minister Hryhory Nemyrya, speaking during a cabinet
session, said ministers had taken necessary measures on altering the
budget and refinancing commercial banks, in line with IMF requirements.

The IMF noted "significant progress" in talks.

"Today at the government meeting we adopted decisions as agreed which we
believe will allow us very soon to achieve practical results for the
return of the IMF mission and, within a certain time, a decision on
releasing the second tranche," Nemyrya told reporters.

He provided no further details on the changes.

Credit rating agencies have downgraded Ukraine's debt on concerns that
political infighting will derail the loan, needed to help the economy
through a deep recession brought on by a collapse in demand for its
steel exports.

The IMF's resident representative in Kiev, Max Allier, said: "What is
important here is that we are making significant progress. And the
resolutions adopted today by the cabinet of ministers ... bring our
positions much closer."

Also present at the cabinet meeting was the representative of the local
office of the World Bank, another major creditor.

Prime Minister Yulia Tymoshenko had earlier promised to alter policies
to "set down initial measures so that the IMF mission can return." The
mission's return is vital to secure the release of the second tranche,
estimated at $1.84 billion.

The IMF suspended its release after disagreement over implementation of
the programme, with one of the main disputes centring on the size of the
budget deficit.

The office of President Viktor Yushchenko, the prime minister's former
ally but now her arch rival, on Tuesday said the IMF was still at odds
with Ukraine, mainly over the deficit.

Yushchenko, Tymoshenko and central bank chief Volodymyr Stelmakh were to
meet later to discuss a resumption of talks with the IMF. They and other
senior figures sent a letter to the Fund last week setting aside
longstanding policy differences and pledging to implement the agreement.

Top politicians have suggested that the Fund is willing to accept a gap
greater than 1 percent of gross domestic product.

Government officials have before said that while the IMF demanded a
smaller deficit, that referred to a cut to 3 percent from a real deficit
identified by the Fund as being 6 percent.

The IMF initially demanded a deficit-free budget, but has since said a 1
percent or even higher gap was acceptable, provided Ukraine could
finance it without fuelling inflation.

Ukraine has already received the first $4.5 billion tranche under the
IMF programme. It hopes the remainder will help offset reductions in its
foreign currency reserves, capital outflows and shrinking world markets
for its steel and chemical exports. (Reporting by Natalya Zinets,
writing by Ron Popeski; Editing by Ruth Pitchford)

Financial Times

www.ft.com

Kiev spy welcomes Nato's Moscow overture

By Roman Olearchyk in Kiev 

Published: March 10 2009 

Ukraine's top spy has welcomed Nato's decision last week to resume
high-level ties with Russia, suspended after Moscow's military standoff
with Georgia last year. 

In a Financial Times interview, Valentyn Nalyvaichenko, head of
Ukraine's SBU state security service, said Kiev also sought better
relations with Russia, but would continue to crack down on "Russian
politicians" who interfered in the country's domestic politics. 

"Good relations are when a neighbour does not stretch across the fence
into your yard," he said, referring to Russian support for pro-Russia
political groups in Ukraine, including separatists on the Crimean
peninsula, home to Russia's Black Sea fleet.

Mr Nalyvaichenko insisted his own service was apolitical as he defended
its recent raid on a state-owned energy company involved in the power
struggle between President Viktor Yushchenko and the prime minister,
Yulia Tymoshenko.

The former diplomat, who was put in charge of the SBU three years ago by
Mr Yushchenko, also argued that Ukraine had made big gains in democracy
since the 2004 Orange Revolution, despite its continuing economic and
political upheavals. "The risks are now more economic in nature," he
said referring to the financial crisis, which has driven Kiev to take an
emergency loan from the International Monetary Fund.

Kiev, an aspiring Nato member and rare Western ally on post-Soviet turf,
strongly backed Georgia in the war, sparking fears of potential conflict
between Moscow and Kiev in Crimea. Some nationalist Russian politicians
openly want Moscow to annex the peninsula but late last year Vladimir
Putin, the Russian prime minister, said publicly it was Ukrainian
territory.

Moscow is also much involved in Ukraine's politicised and lucrative
energy sector. Fears resurfaced last week that Russian natural gas
supplies via Ukraine to Europe could be cut off again after SBU guards
raided state gas company Naftogaz, controlled by Ms Tymoshenko. The raid
marked an escalation of tensions between the two leaders after they
buried their differences to secure financial support from the IMF. 

Mr Nalyvaichenko claimed that Naftogaz, on the orders of the government,
had illegally stripped away ownership of more than $2bn worth of gas
from Rosukrenergo, a gas trading intermediary, owned jointly by Russia's
Gazprom and Ukrainian businessman Dmytro Firtash. 

Deputy SBU chief and billionaire Valery Khoroshkovsky headed the
investigation despite admitting to joint interests in television
channels with Mr Firtash, Gazprom's partner in Rosukrenergo. Mr
Nalyvaichenko ruled out a conflict of interest, but said another
official would take charge of the investigation. 

Mr Nalyvaichenko disputed allegations by Ms Tymoshenko that Ukraine's
president had lobbied on behalf of Rosukrenergo for it to regain the
disputed gas supplies at the centre of last week's raids. 

He said he had offered to provide proof of Mr Yushchenko's innocence to
Russia's Accounting Chamber, a public audit office, which was
investigating Rosukrenergo's Ukrainian shareholders.

Since then, Mr Khoroshkovsky appeared on his own TV channel to warn that
the security services could next target government offices in a
continued quest for documents to prove that gas was illegally
transferred from Rosukrenergo to Naftogaz.

The west has repeatedly raised concerns about Rosukrenergo's lack of
transparency, not least because the intermediary has featured in the
disputes between Kiev and Moscow that have periodically cut off energy
supplies to the rest of Europe.

Mr Nalyvaichenko stressed however that the body was established by
leaders in Ukraine and Russia before Mr Yushchenko became president.
Gazprom has not publicly backed Rosukrenergo and Mr Putin described last
week's gas dispute as a "domestic" Ukrainian affair.

The Washington Post

www.washingtonpost.com

 

A Section

Financial Blows Batter Ukraine; Last Year's Thriving Economy Is One of
Those Hardest-Hit 

John Pancake 

Special to The Washington Post

7 March 2009

FINAL

A07

The financial crisis here is also a crisis of confidence.

Five years ago, hundreds of thousands ignored freezing cold to join
demonstrations in Kiev's main square, convinced that their Orange
Revolution could make an exemplary democracy of this former Soviet
republic.

Today, people's concerns are more mundane. On Artema Street, in front of
one of the city's beleaguered banks, 70 protesters gathered this week to
vent their anger. Most have been told they can't touch their money for
six months. Similar protests are often seen in the city.

The people on Artema don't trust banks, bank regulators, the economy,
the currency, the government or politicians. President Viktor Yushchenko
-- the man whose orange banner led the revolution -- has an approval
rating below 3 percent.

Few countries have been hit harder by the global economic crisis than
Ukraine, which is the second-largest nation in Europe, with the
sixth-largest population.

Until September, it was one of Europe's fastest-growing economies, with
growth of more than 7 percent a year for eight years. Then the roof fell
in. The crisis dried up foreign loans, crippled banks with defaults and
triggered massive layoffs.

Yushchenko's pro-Western government still hopes to join NATO and the
European Union. But some think this country, once seen as a keystone of
a revived Eastern Europe, is on the verge of a meltdown.

"If the banking system collapses, and I think it will, we will produce
nothing," said Alexander Dubinsky, chief correspondent for the
Ekonomicheskie Izvestia newspaper. If production stops, he said, the
situation could resemble the economic tumult of the 1990s.

In the chilly morning on Artema Street, bank customers lashed out at
Yushchenko and other leaders as they grumbled about their finances.

An office manager who lost her job four months ago said she has a
daughter in the hospital and needs money from the bank to get by. "It's
impossible to find a job," she said.

An engineer said he can't go to work because his company didn't pay its
electricity and Internet bills. One man said he desperately needs money
for his wife's operation. "What if she dies?" he asked.

The crowd was mostly middle-aged and carefully dressed. Many were
pensioners. Some clutched files of letters and telegrams to bankers and
bank regulators, all unanswered. They spoke together about possible
corruption on the part of the country's leaders, who are locked in an
acrimonious power struggle.

"Even if they rob the people, they don't care," said Vjacheslav
Karpenko, the unemployed engineer. A barrel-chested man in a black cap
with fur earflaps, he stood on the front steps of the bank and snarled
into a bullhorn, urging the crowd to chant angry slogans so the
employees inside could hear them.

Some in the crowd said their only hope lies with the World Bank and the
International Monetary Fund, if those global institutions make sure that
relief money coming to Ukraine finds its way to Artema Street.

At the World Bank's offices above the thawing Dnieper River, Martin
Raiser, director of the bank's programs in Ukraine, said, "I understand
the sentiment." He added, "The fundamental problem here is the lack of
trust in state institutions."

Ivan Lozowy, president of the Institute of Statehood and Democracy, said
the banks have not only not failed to use cash infusions from the
government to help their customers, but they have also misused the money
by buying dollars. That drives down the Ukrainian currency, the hryvnia.
As confidence in the currency sags, people attempt to unload it.

Many people are withdrawing money from banks that are still healthy,
which weakens the banks. And people who get money are changing it into
dollars and hoarding them.

Last May, a dollar traded for about five hryvnia. In recent weeks, the
dollar has been worth almost 10 hryvnia. And because 70 to 80 percent of
consumer loans are in dollars or other foreign currencies, the amount of
hryvnia that borrowers must scrape together each month to repay loans
has ballooned.

The banks find themselves pinched between depositors who want out and
borrowers who can't repay their loans. A dozen banks are in some form of
receivership.

"The blow to the Ukrainian economy has been horrendous," Anders Aslund,
a former economic adviser to the Ukrainian government and a senior
fellow at the Peterson Institute for International Economics in
Washington, wrote in an article recently published by the institute.
Construction has all but stopped, gross domestic product could drop 40
percent, the steel industry has been decimated by falling world demand
and millions are being laid off. "No other country," Aslund concluded,
"has been hit as hard as Ukraine."

Meanwhile, he wrote, the outlook for international assistance is clouded
by the public acrimony between Yushchenko and Prime Minister Yulia
Tymoshenko, "who accuse each other of treason and corruption."

The president and prime minister were allies in the Orange Revolution
but have become bitter enemies. There had been signs of cooperation in
the face of the crisis recently, but on Wednesday, security forces who
report to Yushchenko raided the national gas company, which reports to
Tymoshenko. The exchange that followed included accusations of
"corruption" and "evil."

The IMF approved a $16.5 billion loan program to rescue Ukraine in
October, but suspended it last month after the first $4.5 billion
installment because the government failed to make politically unpopular
spending cuts.

Despite the severity of the problems and the infighting, Aslund argued
that this Western-oriented nation of 49 million people is too important
strategically and politically to write off. "Such a country needs
support when in peril," he wrote.

The World Bank's Raiser said government and financial institutions must
bolster their credibility with the public, which has proved difficult,
but he added that Ukraine's natural resources, as well as its relatively
cheap land and labor, give it many long-term advantages.

In Raiser's analysis, the most hopeful scenario is that after a deep
recession this year, the country will stabilize and bounce back with a
reshaped economy. And, he said, the harsh economic environment could put
an end to the infighting, having "the effect of concentrating minds."

But Lozowy said the country's messy politics are not such a bad thing.
"Look, we have competitiveness in the political arena. At least there's
vocal opposition," he said. Because the ruling coalition is so
fractured, when one faction does something questionable, another side
tells the public.

Much of the former Soviet Union may appear more stable, he said, but
political opposition is almost nonexistent. "I've never seen the logic
that political chaos is terrible," Lozowy said.

For the people on Artema Street, though, questions are often personal,
not political. One man said he needed money to send to Ohio. It's for
his son, he said, who is stuck with an apartment there he can't afford.

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