Blue &Yellow: Politics and Economics in Ukraine

For those interested in the new coalition and what to think of it, a short piece from Den about it.  In another piece, the president criticizes the coalition and how it was formed.  Nothing new in this piece, his determination for new elections haven't changed or his dislike of his prime minister. While a new coalition is in place, how long will it last when one faction is divided like OU-PSD? Not sure what sort of penalties the president has in mind for the MPs that supported the coalition, considering how divided the party is right now, he may not have the power to punish them.

He called the “backdoor methods” used to forge the current coalition unacceptable and im moral. “The coalition is effective if it has 226 votes. In the third millennium I would not advise anyone to turn for help to the Communist ideology — this is political disgrace. This is a relapse into the condition from which we have been escaping for so many years.

“Why can’t we enter the coalition headed by Yulia Tymoshenko? This is the decision of the party and it says: we are not enemies, but we cannot agree with the line pursued by the prime minister,” said the president. He added that the forthcoming II Congress of Our Ukraine next week will consider expelling party members who “supported the coalition contrary to the decision of the congress.”

Even today the president believes that there is no coalition in the Verkhovna Rada. What is happening is, in his words, “the boisterous activity that recently erupted in parliament for the single purpose of preserving the seats.” Yushchenko placed the recent coalition next to what happened during the previous convocation when Oleksandr Moroz betrayed his political allies in order to form the ruling coalition in parliament.

The prime minister, in reference to the ongoing crisis, thinks that the president should resign alongside the head of the central bank. She accuses them of participating in currency speculation by using funds intended for Nadra bank to make money off the hryvnia. She has presented no evidence for these accusations. 

She is also ready to resign if a better candidate can be found for prime minister in the new coalition.  

While the recent protests about the economic crisis were small (around 1,000 protesters), there is evidence that the people will go out onto the streets if things worsen economically. As reported in the Kyiv Post, a large percentage of the population have a negative outlook on the economy.

94.6 percent of Ukrainians polled by the Social Research Centre Sofia regard current economic situation in the country as bad, indicate outcome of the poll carried out by the centre.

The pollees were asked to estimate the economic situation in Ukraine.

So, 58.6 percent of them think it is bad, 36 percent thinks it is rather bad than good.

At the same time 0.3 percent of the respondents said the situation is good, 3.6 percent said it is rather good than bad.

With the new year just around the corner, Russia has decided to start the New Year by threatening to again shut off gas to Ukraine.  BBC Ukraine and the Wall Street Journal are reporting that Gazprom will shut off gas on the 1st of January 2008 if debt owed to the energy giant is not paid. Ukrainska Pravda's article on this situation mentions that Ukraine owes money for gas given provided for the months of October, November, and December. 

Interestingly, Eurasia Daily Monitor had a article about Gazprom's financial difficulties in the next year (Volume 5, Issue 240-"The Price of Gas and Russian Democracy").  While other gas disputes with Ukraine since 2006 have ended without gas being shut off, perhaps next year the company will be more forceful and shut off the gas if its demands are not met because of a projected drop in revenue. Russia may try to hasten to collapse of the new coalition.  OU-PSD commitment could collapse under pressure from the president. A prolonged dispute would shake the Ukrainian economy even further and may create further public discontent. 

 Earlier, in November, the deputy head of Gazprom Export, Sergey Chelanov, predicted that in the first quarter of 2009 the price of gas would be in the range of $360 to $400 (Kommersant, December 15). If these predictions come true, Gazprom’s profit will drop by $20 billion in 2009.

Low gas prices will also delay Gazprom’s investment policy and the development of desperately needed new gas fields. The state-owned gas monopoly has already requested that the government suspend tax levies on importing equipment vitally needed for the development of the Shtokman gas field project and the East Siberian fields. If this request is vetoed, these major projects might be forced to suspend their activities for some time.

The crisis might also delay the North Stream and the projected South Stream pipelines, both of which are highly expensive and would serve Russian political rather than commercial needs.

A drop in the price of gas by 30 to 40 percent will reverberate throughout the battered Russian economy which already is seeing a steady devaluation of the ruble and a major slowdown in economic growth. In November Russian industrial output shrank 10.8 percent on the month and payments arrears are rapidly growing (Moscow Times, December 17).

Another piece from BBC, this time on the president's attitude toward members of his party who accepted the new coalition with BYuT and Lytvyn.  As some may remember it was his party which bolted the coalition in early September. No new election materialized after that because of the economic crisis and strong opposition from BYuT. Instead a majority of this party's members (which is an umbrella for 9 small parties) accepted a new coalition; with the addition of Bloc Lytvyn whose leader is now speaker of the Rada. The president feels they should be punished for going against the party's decision to be in a coalition with BYuT. He also said that the only reason for creating a new coalition was to keep the prime minitership with Tymoshenko. 

The Eurasia Daily Monitor's recent issue (Volume 5, Issue 239) on the new coalition casts light on the fractures within party and how weak his position in the party is right now.  While the president sees treachery with those members who violated the decision, members may simply be tired of his leadership and his decision to create a new party. 

Lytvyn’s election as speaker was only made possible by the 27-member Communist Party faction, which supported the vote (www.pravda.com.ua, December 9-10). Only 40 of the 72 OU-PSD deputies supported his election. The larger orange coalition cannot remain stable if it has to rely on the votes of the Communists, who would never support many of the anti-crisis measures that Ukraine is being forced to adopt as part of the IMF stand-by loan negotiated in October.

 Of the nine parties in the OU-PSD, five did not support the OU-PSD’s withdrawal in September, and this month six supported joining the larger orange coalition. It is interesting how many of the deputies have fallen out with Yushchenko. Only 30 of the 72 OU-PSD deputies attended a meeting with the president on December 15.

The president does not favor the larger orange coalition and holds out hope for a technocratic government (www.president.gov.ua, December 15); but this is unrealistic in a parliamentary democracy, as the position of prime minister will always go to the leader of a political party.

Two pieces on the proposed new coalition from BBC Ukraine. While Lytvyn announced a new coalition with his bloc in it, OU-PSD deputies are still discussing the new agreement. While its very likely that the faction will be in the coalition, the leadership appears to be dragging thier feet on this. One faction deputy, Taras Stetzkiv, thinks that the coalition could last until next year's president election. In that case, perhaps that election will run simultanesouly with a new Rada election. It will also give the president enough time to build support for his  other party, United Center. 

If and when this coalition starts working, Tymoshenko expects that there will be a change in ministers.  While changes in government are expected, she will most likely stay on as prime minister. The prime minister expects these changes to happen very soon. The government changes will tell us what exactly was traded by the factions in return for a new coalition. If BYuT keeps the prime ministership, Lytvyn gets the speakerships, what will OU-PSD get in return?

After a long period of paralysis, which began in early September, a new coalition has been formed. The two factions currently in power, BYuT and OU-NPSD, will be joined by Lytvyn bloc. This result was not unexpected; it was the best chance Tymoshenko had in avoiding new elections. Lytvyn will return to his role as deal maker and also power broker as he balances the interests of the prime minister and president. According to BBC Ukraine, the new speaker received 244 votes with BYuT contributing 154, Communists 27, OU 40 and Bloc Lytvyn 20.  However, a representative from OU says that no new agreement has been reached for the new coalition. 

Lytvyn announced the restoration of the coalition minutes after being elected to his post with backing from 244 members of the 450-seat assembly. The coalition can theoretically command up to 258 seats, though in practice it will be somewhat smaller.

Lytvyn, who earned a reputation as a skilled negotiator while parliamentary chairman from 2002 to 2006, said he saw few reasons to choose a new premier.

"We have a government, we have a prime minister," Lytvyn told journalists after announcing the coalition.

"Clearly, there will be proposals from the coalition on the make-up of the government. I see no legal grounds for substantial changes in the government and, first and foremost, the prime minister."(From Kyiv Post)

Two RFE/RL pieces on NATO's decision not to offer a MAP to Ukraine.   The first one focuses on Georgia and reminds us that Georgia and Ukraine are unfortunately tied together. Unfortunate,  because  means that both will have to progress in meeting NATO standards before NATO gives them a MAP.  The second article  argues that NATO expansion has not ended, but will come eventually. 

Georgia and Ukraine's best hope for eventually winning NATO membership, analysts say, is to push ahead with military reforms and hope the international environment turns more favorable to their aspirations.

"I think the hope in NATO and in the incoming Obama administration is that after a few years of nitty-gritty military reform, maybe after a few years both Georgia and Ukraine will look like more credible candidates and maybe the wider political climate will be more favorable," Lucas says.

In addition to reforming their militaries to meet NATO standards, both countries also have a lot of work to do on the political front. 

The recent debt stand off has ended with Ukraine paying debt owed to Gazprom. As in previous situations, after a couple of weeks the crisis was resolved (from Reuters).

"We see this money and are ready to resume negotiations on December 2 to resolve the issue of gas supplies," Gazprom spokesman Sergei Kupriyanov told Vesti television, according to ITAR-Tass news agency. Kupriyanov did not say how much Ukraine had paid.

KIEV, November 19 (Itar-Tass) - The probe conducted by the Ukrainian Security Service (SBU) is "a political contract and a fake," the ad hoc investigation commission of Verkhovnaya Rada (parliament) stated on Tuesday.

The lawmakers from the commission on ascertaining facts of sale of Ukrainian military equipment in violation of the country's legislation and international norms, said the objective of the SBU's probe was to "hide the criminal actions and corruption of individuals from (President Viktor) Yushchenko's closest milieu."

"The SBU's actions are aimed at deliberate misinformation of the Ukrainian citizens," the commission said.

A preliminary report by the commission is due shortly. The parliamentarians are planning to present "new evidence and a legal and political evaluation of the actions by the ruling regime."

The commission also demanded "an immediate report by acting SBU chief Nalivaichenko in the parliament and his personal responsibility for the gross violations of the Constitution and the Ukrainian law.

Lawmakers said they had repeatedly - and unsuccessfully - invited Nalivaichenko to supply the information necessary for their probe. "But during the period of the commission's work, we have not received a single answer to our inquires, nor have we met with the SBU leadership at our sessions," they claimed.

Earlier on Tuesday, head of the ad hoc commission Valery Konovalyuk accused the SBU of illegal arms sales to Georgia, accompanied by "serious financial violations,' which lost the state budget hundreds of million dollars."

On November, 12, the SBU opened a criminal case over the divulging of confidential information, following the publication on the Internet of a copy of the letter by Ukrspetsexport, the state weapons exporting company, together with Konovalyuk's comments on the document. Konovalyuk then was summoned for interrogation at the SBU.

Konovalyuk earlier stated that Ukraine was selling armaments to Georgia even after the conflict in South Ossetia in August, and that it continues to sell, while the proceeds from arms sales do not end up in the budget. According to the commission's information, President Viktor Yushchenko is one the persons behind the supplies.

In October, director of the department for military security issues under Ukraine's National Security and Defense Council Sergei Khimchenko said Kiev would continue to sell armaments to Georgia, in accordance with concluded contracts.

Ukraine mostly supplies to Georgia Soviet-era armaments, except for the Shkval combat module. Arms sales to Georgia account for 7 percent of all Ukraine's weapons exports, Khimchenko said.

He denied Ukraine's supplying weapons to Georgia during its aggression against South Ossetia, dismissing the allegations that weapons were disguised as humanitarian aid.

Khimchenko also denied the reports that Ukrainian military specialists had taken part in the fighting on Georgia's side.

There were 17 specialists servicing military equipment at that time (in August), which belonged to Ukrainian companies. "However when hostilities began, they all were evacuated to Ukraine on August 7-13," the director said.

Konovalyuk asserts that Ukraine has sold missile air defense systems to the detriment of its defense capability.

"Our data prove that over the past four years virtually all weapons were sold at understated prices. For example, a Kalashnikov assault rifle was sold for 547 hrivnas (one U.S. dollar buys approximately 5.6 hrivnas), a T-72 tank for 240,000-250,000 hrivnas," Konovalyuk said.

"According to our estimates, arms exports to Georgia considerably exceeded this country's defense demands. This concerns offensive weapons such as Pion, Grad and Shkval systems. We bear moral responsibility for the fact that Ukrainian weapons, delivered to the Caucasus, resulted in the death of civilians and Russian peacekeepers," he said.

Ukraine's National Security and Defense Council denied that arms supplies to Georgia were illegal.

"Georgia was not and is not under sanctions or embargo of the U.N. Security Council, the OSCE, the European Union or other international organizations," the council said.

The council said Ukraine cooperated with Georgia "absolutely transparently" by providing all information about its arms exports to the U.N. Register and other international agencies, and that Konovalyuk's assertions that the Ukrainian armaments had been sold to Georgia underpriced were "unprofessional and subjective".

Konovalyuk insisted that over the last three years Ukraine had sold two billion U.S. dollars worth of arms, while only 840 million U.S. dollars reached the state budget.

"The commission has received information from the state treasury, which clearly indicates that a great deal of the money Ukraine should have received from the sale of arms ended up outside the state budget and the Defense Ministry," he said.

The director general of the Ukrspetsexport weapons trading company Sergei Bondarchuk said his country had supplied mainly defense systems to Georgia.

"As for Georgia, the supplies mostly related to defense, not assault," Bondarchuk said, adding, "Grads (salvo systems) wee not supplied."

Kiev also supplied to Georgia radio electronic warfare systems, radars and air defense equipment.

Commission Discovers Facts Proving Ukrainian Arms Supplies To Georgia

TSKHINVALI, November 3 (Itar-Tass) -- Ukraine's ad hoc commission investigating arms supplies to Georgia has discovered facts in South Ossetia that confirm Ukrainian arms supplies to Georgia.

"We have received information and facts we need for our investigation. We have seen here Ukrainian hardware left by the Georgian army and received information about Ukrainian specialists who were involved in combat actions," the head of the commission, Valery Konovalyuk, said on Monday.

"In order to complete the investigation, the commission also needs information from the Georgian side, but Georgia has not provided us with the necessary information about Ukrainian arms supplies before and during the conflict," Konovalyuk said.

He said Ukraine continued to supply military hardware and ammunition to Georgia.

"The military contract with Georgia remains in force. We know of tanks, artillery systems and ammunition supplied to Georgia. The investigation commission will submit all available data to the parliament and demand a moratorium on arms supplies to Georgia," the official said.

"The document gathered by the investigation commission will be presented to law enforcement agencies and will help bring to justice all those who are responsible for illegal arms supplies used against peacekeepers and civilians," Konovalyuk said.

Over the last three years Ukraine has sold two billion U.S. dollars worth of arms, while only 840 million U.S. dollars reached the state budget, he said.

"The commission has received information from the state treasury, which clearly indicates that a great deal of the money Ukraine should have received from the sale of arms ended up outside the state budget and the Defence Ministry," he said.

However Ukraine's National Security and Defence Council denied that arms supplies to Georgia were illegal.

"Georgia was not and is not under sanctions or embargo of the U.N. Security Council, the OSCE, the European Union or other international organisations," the council said.

"Ukraine acts in accordance with its national interests, subordinating its policy both to the norms of certain ethics and international law," it said.

The council said Ukraine cooperated with Georgia "absolutely transparently" by providing all information about its arms exports to the U.N. Register and other international agencies.

"Ukraine has the most up-to-date and effective arms export control system. It was created with the methodological and technical assistance of the European Union and was adapted to its standards," the council said. 

In a little over a month Ukraine is supposed to have early Rada election (14 December), but its very uncertain if this will take place. Wih no money available for the election, the election will either be postponed until January or Yushchenko may cancel his decree. DT has an interesting piece on the changing attiude toward the early election by Regions, Our Ukraine, and members of the presidential secretariat 

Bankova [street in downtown Kyiv, seat of the Presidential Secretariat] is evidently revising its initial plans. Yushchenko keeps insisting on the early election, but his insistence is losing resolve. The Premier is so far making the most of her trump cards – her influence on courts and control over the central budget. The presidential decree [on the parliament’s dissolution and the preterm election] is still in court limbo and the Central Election Commission is still waiting for money to launch the election campaign. It is already clear to everyone that the election will not take place this year. But will it do Yushchenko any good next year? His initial aim – to get rid of Tymoshenko – makes no sense now. He took this aim in September, but under the present circumstances the country will get a new government in late spring at the earliest – just a couple of weeks ahead of the presidential race.

Besides, Yushchenko is beginning to see the approaching economic danger. Those who have the privilege of contacting him are still doubtful whether he realizes the hugeness of the looming threat. He simply turned a blind eye to it until the nosedive of the national currency drew him from his idées fixes – the NATO Membership Action Plan, the Holodomor [international recognition of the Great Famine of 1932-1933], and the early election. Yushchenko must have come to realize that in the coming months the country can not remain without the parliament and government and that Tymoshenko’s premiership might eventually earn him good political fortune as all impacts of the crisis could be blamed on her.

Yushchenko’s “alter ego” Baloha [chief of the Presidential Secretariat.] is not interested in the early election, either. He sees that his political party [Yedyniy Tsentr (United Center) composed of renegade members of the pro-presidential bloc Our Ukraine and other rightist and centrist parties] stands no chance of entering the new parliament. Seeing that the OU is on the verge of political death, its “flexible” members refuse to ally with Baloha’s party in an election bloc and even demand guarantees from Yushchenko that after the election he will not force them to join the Regions Party in a new coalition.

The latest surveys show that the pro-presidential political force has meager electoral chances. Baloha does not want to be left holding the bag after his political project fails and so has to restrain his ardor.

Yushchenko and his confidants keep declaring their determination to follow through, but their serious doubts as to the expediency of their venture are already visible.

The Regions Party is no longer enthusiastic about the election race. Most of its members, who hated to ally with Tymoshenko, regarded the early election as the only reasonable alternative to such an alliance, but now this “hard choice” looks petty vis-à-vis a far more serious problem: the party’s sponsors are running out of money and are reluctant to invest in the election campaign. One of them said recently, “The robbed don’t perform charities.” They are not even ready to continue paying the regular “party tithe.” Why should they sponsor Yushchenko’s election campaign?

Tymoshenko's desire for no new election may have been purely for political self-preservation, but the economic crisis certainly has shown why the political crisis must be resolved quickly. President Yushchenko believes that the internal Ukrainian market needs to be supported as the first move toward getting out of the crisis. His also concerned about exported oriented firms that have been hit hard by the economic crisis.   Meanwhile, the National Bank has once again devalued the hryvnia, the official exchange rate to the dollar is now 5.76 to 1. 

With the economy under dire straits, Tymoshenko and Yushchenko continue their political struggle. In Dzerkalo Tyznia, a recent piece noted how destructive this political brinkmanship is to the country. 

The general public was left out in the cold again: the NSDC never published its resolution. No one even took the trouble to explain the direction or objectives of the anti-crisis steps or what they would cost. It looks strange because after the NSDC meeting the President said that the anti-crisis measures would require “one colossal asset – the people’s trust” – which he called “the key factor of overcoming the crisis.” Is that the way the people’s trust should be gained?

The only concrete figure the public heard was disclosed by Prime Minister Yulia Tymoshenko: she said that 49 active laws and regulatory norms would have to be amended. She decided to put all draft bills into one basket – i.e. motion them in a single package. She must have shared Yushchenko’s suspicions that it would be “extremely difficult to get all political forces to support them.”

Both Yushchenko and Tymoshenko have been demonstrating a storm of “anti-crisis activity.” Yushchenko addressed the nation on TV and met with representatives of national and international mass media and the IMF, and his press service diligently rubber-stamped press releases. The tenor of this PR spurt could be found his utterance: “It is in the government’s exclusive competence to turn on the mechanism of support to the national economy.”

Tymoshenko also made a series of public appearances, addressing her compatriots and holding numerous consultative meetings with authoritative economists and bankers. After her meeting with IMF representatives on Monday, she said proudly that Ukraine had “practically completed talks with the IMF” and that an agreement on a multi-billion-dollar loan might be reached on Wednesday.

Nothing of the kind happened on Wednesday (according to some sources, the IMF experts were very much disappointed with a number of legislative innovations proposed by the government). All that the government showed the public was a package of 43 amendment bills. At a closer look, some of them have nothing to do with the financial crisis. The brief explanatory note does not say how the proposed amendments to the laws on melioration or thegeological service are supposed to lift the country out of the crisis.