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Friday, February 01, 2008

Ukraine Kicks a bit of Russian Butt

The Moscow Times reports on the breathtaking early triumphs of the Timoshenko government:

February is shaping up to be a big month for Ukraine, and President Viktor Yushchenko -- backed by a group of heavyweight allies in Davos -- said his country should emerge with flying colors.

On Feb. 5, the World Trade Organization's General Council will vote on Ukraine's long-awaited entry into the World Trade Organization -- a decision that could give Kiev an upper hand over Moscow as well as any European capital tempted to resort to protectionism to ward off global economic turmoil. Then Yushchenko will fly to Moscow on Feb. 12 for his first visit with President Vladimir Putin since Yulia Tymoshenko replaced the pro-Russian Viktor Yanukovych as prime minister.

Yushchenko, speaking Friday at a lunch on the sidelines of the World Economic Forum, gave few details about what he expected from the Moscow visit but indicated that he hoped for some resolution to issues that have strained relations, including gas transit fees and the price that Ukraine pays for Russian gas. "We would like to see new prospects for settling problems with Russia," Yushchenko told a restaurant overflowing with guests. Organizers had to turn away 250 people. But first is the Feb. 5 vote that Yushchenko will attend in Geneva. The WTO confirmed Ukraine's accession at a meeting Friday, clearing the way for the largely formal vote by the 151-member General Council. Ukraine will then have six months to pass the legislation that it agreed to as part of its entry. The country will become a member 30 days after that. "I have no doubt that Feb. 5 will be a great day for Ukraine and Ukraine's business partners," said Yushchenko, who has made WTO membership a priority since becoming president three years ago.

Speaker after speaker took to the lectern after Yushchenko to praise his initiatives and Ukraine's course. The loud praise was in stark contrast to last year's Ukrainian lunch at Davos, where Yanukovych was the guest of honor and faced a barrage of criticism from then-Latvian President Vaira Vike-Freiberga and other guests over his more Russian-focused vision for Ukraine.

Former World Bank president James Wolfensohn applauded Yushchenko's efforts to bring Ukraine into the WTO as well as NATO and the European Union. "I think the steps you are taking would give encouragement to everyone," he said. Turning to Yushchenko's upcoming talks with Putin, Wolfensohn said, "We look forward to the Feb. 12 visit as another clarification in the role of your country." Tymoshenko is expected to visit Moscow in a few days to lay the foundation for Yushchenko's trip.

Yushchenko sharply defended Ukraine's desire to join NATO, a move strongly opposed by Russia. "We do not need anybody's authorization, agreement or their 'yes' or 'no,'" he said. "This is not against any country. It is a reflection of our national interests."

The president touted Ukraine's plans to privatize Ukrtelecom and stakes in around a dozen other enterprises this year, and he called on banks and consulting firms to bring their expertise to the table to ensure the sales' success. "We need partners," he said. He also said Ukraine would like to float 10 companies on the New York Stock Exchange this year.

Yushchenko won a ringing endorsement from Jean Lemierre, president of the European Bank for Reconstruction and Development. "Ukraine has a sound economy from a business viewpoint," he said, identifying the key benefits of doing business there as cheap energy and cheap labor. He cautioned that the benefits would not last forever and said the main bottleneck to economic growth remained a lack of infrastructure. Still, Lemierre praised the latest privatization plans and said foreign investors had "a huge appetite" for Ukrainian assets.

Among the hungry investors is Michael White, head of PepsiCo International, who first visited Ukraine as a college student in the 1970s. White said he was impressed with how much the country has changed and said Pepsi was putting its money where its mouth was, purchasing a local juice company, Sandora, for $542 million last year and switching from Malaysian palm oil to local sunflower oil at its regional potato-chip plant.

Fred Bergsten, a U.S. economist and co-founder of the Peterson Institute for International Economics, also gave Ukraine's economy high marks, saying robust emerging markets like Ukraine provided guarantees that the U.S. financial crisis would not spread across the entire world. "There will not be -- I repeat -- there will not be a world recession," he said.

Bergsten applauded Ukraine's march toward the WTO and said its accession would place it in a better position to defend its trade interests -- particularly against a growing threat of trade protectionism as EU countries consider ways to avoid economic fallout from the United States. The EU is Ukraine's biggest trade partner. "It is important ... that Ukraine is about to join the WTO," Bergsten said. Ukraine, Russia and Iran are the biggest countries outside the WTO. Russia has been trying to join for more than a decade, and European Trade Commissioner Peter Mandelson said in Geneva on Friday that he hoped Russia would enter the trade body this year, Reuters reported.

At the lunch, Yushchenko conceded that he had a way to go to reach his goal of "bringing Ukraine back to Europe." But he said his government was taking the right steps by, among other things, creating a new state agency to fight corruption among civil servants and ensure fair parliamentary elections. He noted that the vote last fall was the first in Ukraine's history to be declared democratic by international observers. "Ukraine is a young democracy, and one has to go to the first grade, then to the fifth grade, and then to graduate," Yushchenko said.

LR: Note how this man can freely admit that Ukraine still has work to do on democracy, without being ashamed or worried about foreign scorn. He's confident, because he's legitimate. Can we say the same about Vladimir Putin? Is he man enough to make a statement like this? Of course not.

The Ukrainian lunch at Davos, now in its fourth year, was hosted by Viktor Pinchuk, the billionaire son-in-law of former Ukrainian President Leonid Kuchma. The Ukrainian-themed menu included hors d'oeuvres made with slabs of salo, followed by bowls of dark-red borshch smothered in sour cream, honey-marinated beef stuffed with prunes and apples, and cherry vareniki for dessert.

There's more. The EU is on board!

The European Union supports Ukraine's attempt to revise its natural gas agreement with Russia, which would allow the country to sign a long-term accord, Ukrainian Prime Minister Yulia Tymoshenko said Tuesday. Tymoshenko, who took office Dec. 18, wants to scrap the country's natural gas accord with Russia, raise transit fees for Russian fuel exports to Europe and fees for Ukraine's gas storage and drop gas-trader RosUkrEnergo. She will visit Moscow Feb. 21 to revise the agreement. "We propose building a formula approach" to determine the gas price, Tymoshenko told a group of journalists in Brussels on Monday. "I have heard the support for this kind of negotiation here today. The EU is interested in forming a long-term pricing policy."

Tymoshenko also used the visit to stress the need for an alternative to the Nabucco project to deliver Central Asian gas to Europe and an EU donor group to help fund the modernization of Ukraine's pipelines, Interfax reported. Tymoshenko also said she wanted to diversify energy supplies to Ukraine. "For 17 years we have not built any diversified projects,'' Tymoshenko said. "We would like to have new transit Caspian-Black Sea corridor together with investors.'' She requested that the EU consider participation in the so-called White Stream gas project, which would pass the Caspian and Black seas through Ukraine to Europe, Interfax reported. "This project could be considerably cheaper and more effective, and we want Ukraine and the European Union to be partners in this project," Tymoshenko said, Interfax reported.

Russia supplies one-quarter of Europe's gas, of which about four-fifths travels through Ukrainian pipelines. In 2006, Russia sought to quadruple Ukraine's gas price, and Gazprom cut supplies in the first days of January 2006 after Ukraine rejected the demand. This resulted in shortages in countries including Hungary, Italy and Germany. "The market has to regulate everything," Tymoshenko said. "It has to be the market, not a political discussion." Russia doubled the gas price for Ukraine in 2006 and raised it by 37 percent last year and 38 percent this year. Ukraine increased the transit fee for Russia to $1.70 per 1,000 cubic meters of gas per 100 kilometers this year, compared with $1.60 in 2007 and 2006. "Starting in 2006, Russia has been raising prices of natural gas," Tymoshenko said. "On the other hand, the cost of transit remained almost unchanged."

At a news conference Tuesday in Brussels, EU Trade Commissioner Peter Mandelson said the bloc was planning to negotiate a free trade agreement with Ukraine, calling the accord a high priority. Mandelson said talks would start in the weeks after Ukraine joins the World Trade Organization. Ukraine on Jan. 25 received approval to become the WTO's 153rd member. Appearing at the same news conference, Tymoshenko asked EU officials to start work on allowing Ukraine to join the EU's electronic customs declarations in the fight against smuggling. Ukraine borders EU members Poland, Slovakia, Hungary and Romania. "I say 'yes' ... to the question of whether Ukraine is capable of forming solid, long-term and reliable stability," Tymoshenko told reporters after talks with EU foreign policy chief Javier Solana. "'Yes' to harmonious relations between the president, parliament and government and 'yes' to stability."

Anders Alsund jumps on the bandwagon:

After Ukraine's extraordinary parliamentary elections on Sept. 30, it took no less than 2 1/2 months to form a government, and it was confirmed by the slightest of parliamentary margins. The new coalition government headed by Yulia Tymoshenko, however, has started ambitiously and auspiciously.

The Ukrainian economy is in good shape with a growth rate of 7.3 percent last year. The stock market surged by no less than 120 percent last year, and it has barely fallen during the January turmoil. The new government's biggest achievement is to make Ukraine ready to join the World Trade Organization at a February 5 meeting of the WTO General Council. One month after the parliament ratifies the accession, Ukraine will become a full-fledged member of the WTO. This could boost the country's growth by one percentage point a year.

Ukraine's WTO accession is a joint accomplishment of the four last governments. The very last obstacle was a European Union complaint about the country's export tariffs, primarily on steel scrap. It has been relegated to the negotiations about a free-trade agreement with the EU, which are likely to be concluded before the end of 2008. As elsewhere in the region, the greatest economic concern is the high and rising inflation, as consumer prices rose by 16.6 percent last year. As a consequence, experienced Finance Minister Viktor Pynzenyk immediately tightened the budget by balancing it. Fortunately, no price controls or export controls are being discussed. Tymoshenko says that she has learned not to do so from her tenure in 2005. Tymoshenko's most worrisome campaign promise was to compensate Ukrainians who lost their bank savings in the early 1990s because of hyperinflation and to do so in the course of two years. Fortunately, the government has capped this compensation program at $1.2 billion, which is less than one percent of gross domestic product, and it has distributed the money swiftly and equally.

As in all democratic post-communist countries, corruption was the biggest concern during the election campaign. Wisely, Tymoshenko made it her key theme. In order to substantiate her promises to combat corruption, she has moved quickly on three fronts. The most obnoxious and conspicuous corruption was the previous government's practice of selling value-added tax refunds for exporters at a "commission" of 20 percent to 30 percent. Tymoshenko has appointed a competent former economy minister, Valery Khoroshkovsky, to head the tax administration and to sort that problem out. The customs problem, which Tymoshenko cleaned up in 2005, has again become one of her focal points of corruption, and she is set to repeat her prior success. The most intricate corruption is persistently in gas trade, which Tymoshenko is very knowledgeable about from her old business. The intermediary RosUkrEnergo does not appear to have any reason to exist. Nor does its half-owned Ukrainian subsidiary, UkrGazEnergo. The apparent purpose of these two nontransparent joint ventures is to siphon off money to a number of prominent Russians and Ukrainians. The costs of this boondoggle are so large that the Ukrainian state oil and gas corporation, Naftogaz Ukrainy, is on the verge of bankruptcy. We do not need to know the details to understand that something has to be done. Tymoshenko has moved to exclude these dysfunctional structures from Ukraine's gas trade. Fortunately, Gazprom chairman and Russia's president-in-waiting Dmitry Medvedev expresses the same view.

In the last two years, Ukraine has carried out minimal privatization. On Jan. 18, the new Ukrainian government published a list of 19 state-owned companies slated for privatization this year. The total value of the stakes to be sold is assessed at some $5 billion. Sensibly, the new government has abandoned its predecessor's tactic of selling very small posts, instead offering large majority posts in three major companies, including Ukrtelecom, Ukraine's old fixed-line monopoly. Year after year, Ukraine has prolonged a moratorium on the sale of private agricultural land, benefiting only large businessmen who have bought up tens of thousands of hectares. The new government has let this moratorium lapse, and it is intent on swiftly adopting the necessary legislation to facilitate land trade.

President Viktor Yushchenko, Tymoshenko and parliamentary Speaker Arseniy Yatseniuk have signed an application for a Membership Action Plan to NATO in advance of the alliance's summit in Bucharest in April. This was somewhat surprising because Tymoshenko has avoided the topic. Together with WTO membership and a free trade agreement with the EU, the MAP, which may or may not lead to NATO membership, defines Ukraine's firm Western-oriented foreign policy.

The worst policy that Tymoshenko pursued in 2005 was reprivatization, but she seems to have learned that lesson as well, so far staying away from such a destabilizing policy. The new Ukrainian government has delivered a very impressive start, and there is strong hope that much more is to come. One outcome of the last parliamentary elections was that the three dominant parties share a broad market economic consensus. All three are democratic, center-right parties that are financed by big businessmen, most of whom are quickly gentrifying because the market values of their corporations surge with transparency and orderliness.

Several of the biggest Ukrainian businessmen have voluntarily abandoned transfer pricing and started paying taxes in full. They are also devoting large resources to charitable donations, mainly in education and health. Yet, as a consequence of scandals with big businessmen-cum-ministers, they are almost absent from the new Cabinet.

Ukraine has all along suffered from constitutional disorder. Although the constitution has not changed, improved practices are apparent. The dominant opposition party, the Party of the Regions, has set up a shadow government. The two coalition partners, the Yulia Tymoshenko Bloc and Yushchenko's Our Ukraine, have divided the Cabinet posts so that Tymoshenko controls all economic appointments while Our Ukraine controls foreign policy, security and culture. An orderly balance of power between the president and the prime minister seems to be emerging out of their persistent power struggle.

Obviously, one month is far too early to pass any judgment on a government, but its start has been truly impressive. Ukraine sets an illustrative example for how Russia could have evolved if it had developed its democracy and market economy through competition among the oligarchs instead of abandoning democracy. Because of its more radical, market-based economic reforms in the 1990s, Russia still benefits from better legislation. Even so, property rights appear more secure in Ukraine now because of democracy's greater transparency and checks and balances.


elmer said...

You are absolutely right on this!

Moreover, roosha is insanely beside itself as to what to do.

You might check out the video of Leontyev absolutely foaming at the mount like a rabid dog about Ukraine over at Ukrainiana (this is not a plug, that's where the link to the video is):

or here, on YouTube

Translation taken from Ukrainiana blog ----------

Today, when making a decision on NATO, you should have awareness, you should think of who you’re going to shoot at. It’s a very serious question. And if you feel like shooting at the Russians, well, it’s your decision, guys. Shoot, you crazy brothers. You understand, don't you? But this question is a very serious one. And that Ukraine, if she assumes [NATO] obligations, will be the first to be forced — as Russia was forced in all her historical alliances to fight until the last Russian — to shed blood raises no doubts. But whether the Americans will guarantee Ukraine’s security is a very big question in this situation. Will they be able and willing to? And where and how the Ukrainians are going to shed their blood for an ill-defined alliance with their historical enemies, as a matter fact, right? That’s...that's the way it is. Now you decide, guys.

Anonymous said...

"In 2006, Russia sought to quadruple Ukraine's gas price, and Gazprom cut supplies in the first days of January 2006 after Ukraine rejected the demand. This resulted in shortages in countries including Hungary, Italy and Germany."

In plain English, this means: when Russia decided to stop subsidizing an overtly anti-Russian regime in Ukraine, the "civilized democratic Ukraine" began to steal gas intended for others from the transit pipelines.