The Leeches of Ukraine

Outgoing president Leonid Kuchma is threatening a collapse of the Ukraine economy to pressure the opposition. But really it's the country's industrialists and Kuchma's own policies that are to blame. Millions flow into their pockets each day.

Thirty-seven-year-old dental technician Igor Brodan is married and has two children. He lives in Trostanez, a city 400 kilometers northeast of Kiev, where one of the major employers is a chocolate factory. One would think a job there would be sufficient to put meat and potatos, a bottle of vodka and some sweets on the table -- albeit with a lifetime supply of cavities. The problem is: few residents of Trostanez have enough pocket money leftover for sweets. Brodan earns between $6.50 and $13 per month and has to moonlight as a taxi driver just to make ends meet.

Worse yet, public services across the country are at the breaking point. The health care system, for example, is disastrous and pharmacies in the relatively rich capital city of Kiev have only small supplies of essential medications. Even if they had more, patients couldn't afford them, since most in Ukraine lack adequate health insurance. Nor is there any light at the end of the tunnel.

The Ukrainian government has no money to support a decent state health system and the health budget for the year 2004 is already overdrawn to the tune of $1.5 billion. The country is only able to keep itself going by taking out large foreign loans.

Things are so bad in the country, in fact, that outgoing President Leonid Kuchma and his Prime Minister (and presidential candidate) Viktor Yanukovych are claiming that the country stands only weeks away from economic collapse. If the demonstrations continue, they argue, banks will go broke, pensioners will stop receiving payments and people across the country will go cold and hungry over the Christmas holidays.

But here's the rub. The Ukrainian economy grew by 8.2 percent last year according to German Foreign Ministry statistics, and the long recession the country experienced after gaining independence in 1991 is a distant memory. Additionally, average incomes grew by 13.7 percent between Jan. and Nov. 2003. Exports grew during the same period by 27.9 percent.

There are two factors behind Kuchma's threats -- and neither is indicative of a healthy government attitude toward democratic values. The first is good old-fashioned fear mongering. Raising the specter of an economic collapse and trying to blame the opposition for the situation is a strategy Kuchma has used before. In 2001, when Ukraine was rocked by demonstrations and allegations that the Ukrainian government was involved in the beheading of opposition Web site editor Heorhiy Gongadze, Kuchma trotted out the same argument. Demonstrators, he then said, were a serious threat to the nation's economy.

The second issue is good old-fashioned crony capitalism. Despite the positive economic numbers, 29 percent of Ukrainians live below the poverty line -- and the rise in average incomes likely comes mostly as a result of a growing number of fat cats among the nation's elites. A stroll through Kiev reveals fur coats and shiny, new Mercedes sedans at every step. That so few benefit from such wealth is partially a result of Kuchma's, and Yanukovych's, shocking mismanagement.

A bigger problem yet is the widespread attitude among the country's industrial magnates that the government is there to be robbed -- a thievery that has been literally rubber stamped by Kuchma.

Since Ukrainian independence 13 years ago, these so-called oligarchs have succeeded in buying up or controlling large portions of the country's economy -- especially in the heavy industry regions in the East. The steel, coal, chemical and armaments factories in eastern Ukraine -- all firmly in the hands of government-connected industrialists -- generate 40 percent of Ukraine's gross national product.

Starting in the early 1990s, a number of unscrupulous, nouveau-riche businessmen like Rinat Akhmetov, Michail Taruta, Viktor Pinchuk (Kuchma's son-in-law) and Igor Kolomeisky, began making ever-higher profits on their business interests. A corrupt system of radical exploitation to achieve the maximum-possible profits was created. Manufacturers would sell their drastically overpriced equipment -- mining drills, industrial tools, work clothes and just about anything else they could produce -- to the mines of the Donetsk Valley (following the appropriate payment of bribes to their directors, of course) and would then buy coal back from them at prices well under the market standard.

As both coal customer and equipment supplier, these oligarchs were able to create a dependency that they then mercilessly took advantage of. This cycle didn't last long, however. The mines soon went bankrupt -- which opened up new opportunities for the profit-hungry industrialists. Having driven the companies into the ground, they were now in a position to buy up the remains relatively cheaply. The coal subsidies from the state now flowed directly into their pockets. In the meantime, they have bribed politicians at all levels of government and exert a powerful control over the media. The press freedom group Reporters Without Borders routinely issues warnings of both government and industry repression directed toward journalists in the county. And there is little opportunity for their criminal activities to be controlled.

If, ultimately, opposition candidate Viktor Yushchenko is elected in a second poll, he could change all that. He has promised he would immediately stop government influence of the media. And, when he served as prime minister from 1999 to 2001, he, along with his deputy Yulia Timoshenko, tried to introduce western standards to Ukraine's industrial landscape. Those standards including trying to establish general terms and conditions for business transactions and both legal system and tax reforms intended to attract foreign investment. Yushchenko did succeed in improving the economy and attracting foreign investors to the Ukrainian economy. Russia's Lukoil and the oil company TNK arrived in the country during his term.

But the new economic transparency pushed through by Yushchenko put the oligarchs' profits in danger. President Leonid Kuchma fired Yushchenko and Timoshenko in 2001. Now, the same powerful industrialists are attempting to prevent their return to power.

In order to weaken the opposition movement, eastern governors, who support Kuchma's candidate Yanukovych, have threatened to seek autonomy for their region. Last weekend, at a meeting in Lugansk, they passed a resolution calling for autonomy should an illegitimate president -- read Yushchenko -- be elected. "I'm against those calls for separatism," industrialist Akhmetov told the Financial Times earlier this week. "But Yushchenko should realize that his actions are pushing eastern and southern Ukraine that way."

Diplomats and Ukrainian economic experts consider such comments to be nothing more that saber rattling that is intended to put pressure on the opposition. "It is just a big bluff," said business consultant Andrei Stepanov of the Kiev firm Spektor, Sachs and Co. The government, he said, is hoping that such a strategy will force the European Union to pressure the opposition to end the demonstrations and thus save the integrity of the country.

In reality, however, the danger of an East-West split in Ukraine isn't terribly great. The powerful industrial bosses who pull the strings in the background know that such a move would equate to economic hari-kari. Not only for the region -- since a union of autonomous provinces could unlikely survive on its own -- but also for themselves.

Because the Ukraine is not a member of the World Trade Organization, it is dependent on bilateral trade agreements with the European Union and the United States -- deals stipulating quotas that, for example, guarantee the country 150,000 tons of steel sales per year. Economists say that an autonomous region in the east would no longer benefit from these quotas as it would not have international recognition and, thus, no economic legitimacy.

In addition, the subsidies for the unprofitable coal mines (indeed, Russia mines produce coal at a far cheaper cost) would no longer flow, a situation the oligarchs could never agree to. These subsidies, according to the former Energy Minister, currently add up to around $1 billion per year.

But if one asks the population in the Donetsk region, a majority would likely support the idea of autonomy -- a result, says the opposition in Kiev, of a disinformation campaign. The people of Donetsk are constantly told their taxes flow to the west and they receive no benefits whatsoever. That the subsidies coming from West to the East flow directly into the pockets of their local businessmen hasn't been reported in the state-controlled media.

For his part, dental technician Brodan is fed up with the economic situation -- which is why he has come to the capital city Kiev to demonstrate for Yushchenko's opposition movement. As he left his town, he was made aware of how strong the controls still are. "They told me, 'If you go to Kiev now, there is no need for you ever to come home again,'" he said.

Pinchuk (Kuchma's son in law), Soros and
Olena Franchuk (Kuchma's daughter)

Soros, Pinchuk to create legal aid foundation in Ukraine - Kyiv, April 1 (Interfax - Ukraine) - Prominent American businessman George Soros and MP of Ukraine's Verkhovna Rada Viktor Pinchuk are planning to set up a joint fund rendering legal aid to citizens in Ukraine, Soros said at a solemn reception in Kyiv on Wednesday evening.
He said that this is practical and constructive result of his visit and thanked Pinchuk for agreement to become his partner in such fund creation.

A former governor of the Donetsk region in eastern Ukraine, Yanukovych is linked to that area's powerful coal and steel barons. His government has openly favored the interests of these oligarchs, who are allied with Kuchma. In May it privatized Kryvorozhstal, Ukraine's largest steel producer, awarding the company to a business group headed by Kuchma's son-in-law, Viktor Pinchuk, even though the winning bid of $800 million was far less than a $1.5 billion offer from U.S. Steel Corp. - LINK

Mr Yushchenko has pledged to review the controversial privatisation of Kryvorizhstal, Ukraine's biggest steel mill, which was sold to Mr Pinchuk and Mr Akhmetov earlier this year for $800m (€604m, £424m), far less than foreign bidders were prepared to offer. - LINK

Ukrainian soldiers take shelter behind a military vehicle in the southern Iraqi city of Kut. Ukraine's parliament voted to demand the withdrawal of the 1,600 Ukrainian troops from Iraq.(AFP/File/Karim Sahib)

Ukraine parliament demands withdrawal of troops from Iraq

KIEV (AFP) - Ukraine's parliament voted to demand the withdrawal of the 1,600 Ukrainian troops from Iraq, in a move the opposition distanced itself from and denounced as a provocation by government forces.

"We don't think this is the right time to raise this issue," Irina Gerashchenko, the spokeswoman for pro-Western opposition leader Viktor Yushchenko, told AFP.

"We need to resolve the internal crisis in Ukraine," she said, adding that the motion had been proposed by the Communists and backed by pro-government lawmakers with the support of a minority of opposition deputies.

"This is a provocation, an attempt to discredit us," the opposition spokeswoman said.

The lawmakers voted by 257 out of 397 present in the 450-member chamber to ask outgoing President Leonid Kuchma to pull out the Ukrainian contingent serving in the US-led coalition force in Iraq.

Both of the rival candidates to replace Kuchma, Yushchenko and pro-Russian Prime Minister Viktor Yanukovich, have said the troops should return but the opposition is pushing for a faster withdrawal timetable.

"We do support a pullout of the Ukrainian forces, but not in a hasty manner. It needs to be discussed properly in parliament first," Gerashchenko said.

The United States has given covert support to the West-leaning opposition leader in this strategic nation as it engages in a Cold War-style battle for influence with Russia, which openly backed the Kremlin-friendly Yanukovich.

'Kuchmagate' and Iraq (Ukraine weapons sales to Iraq) - At the centre of the Iraqi arms scandal stand the hundreds of hours of tapes made illicitly in the office of Ukrainian President Leonid Kuchma by security guard Mykola Melnychenko. The portion of the tapes dealing with Iraq was only released in March on the eve of the Ukrainian elections. The existence of the tape of the Iraqi radar sale was reported earlier in the year but at that stage the US still did not publicly back up the accusations. In March, shortly before the Iraq allegations surfaced, Valeriy Malyev, head of the arms export company Ukrspetseksport, died in a mysterious car accident.

The tape, which has been authenticated by the FBI, is of a conversation between Kuchma, Malyev, and then Security Service chief Leonid Derkach (who is accused of other illegal arms sales) which took place in July 2000. In April 1999, US intelligence sources discovered that Ukraine had signed a secret agreement for military co-operation with Iraq in November 1998. In January 1999, a Ukrainian delegation led by a deputy minister visited Iraq. During the first stage of the agreement equipment identified for customs as 'agricultural' was sent to Iraq.

On the Melnychenko tape of the July 2000 meeting, Kuchma is heard giving the go ahead to sell four Kolchuga units to Iraq for $100 million. Melnychenko claims to know the name of a "high-ranking Russian official" who was also alleged to be present.

The scenario of events after the meeting follows a clear pattern that seems to confirm the Kolchuga units were indeed dispatched to Iraq. Only four days after the conversation, the government released the Kolchuga system from any export restrictions. On 9 October 2000, an agreement on trade and scientific and technical co-operation was signed with Iraq. This was ratified by the Ukrainian parliament on 15 November 2001.

FR KEYWORD: KOLCHUGA

Good stuff, as always..and thanks..I wanted to give you a headsup, if case you missed it. John Podhoretz had a good column intodya's NY Post.but in it he referenced a blog...www.tulipgirl.com..she's an American on the ground in Kiev...I've just spent an hour looking through it... amazing stuff...not sure if it's been posted here...you've kind of been on the cutting edge keeping us all apprised here, so if you want to start a thread, or mention it in your next post..or maybe even we can contact her....

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