End Note: RUSSIAN CRISIS HITS UKRAINIAN FIRMS xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx

GUAM GROUP TO COOPERATE TO OVERCOME WORLD CRISIS. Representatives of the four GUAM countries--Ukrainian Premier Valery Pustovoitenko, Moldovan Premier Ion Ciubuk, Georgian state minister Bazha Lordkipanidze, and Azerbaijan presidential economic adviser Vakhid Akhundov--issued a declaration in Washington on 6 October that their governments will work together to overcome the world economic crisis, Interfax reported. They said that they will both coordinate their policies and seek to promote transit across their region. PG


Ukraine's Motor-Sych appeared to have it all: direct government support, an expanding Russian customer base, cheap labor and materials, as well as a weak national currency to exploit those advantages even further.

Then the Russian financial crisis set in, sending the ruble into freefall. Motor Sych's customer base of large Russian aerospace companies dried up almost immediately. The few customers that remained operational could pay only in rubles. Moreover, a number of Russian suppliers of key components shut down their production lines.

Motor Sych, Ukraine's largest engine maker, is among a host of companies paying for Ukraine's inability--or unwillingness--to loosen the economic bond with Russia.

The recent price of maintaining such close ties has been steep. Falling exports to Russia have crippled key industries such as metallurgy and machine building. And it has forced the government to devalue the hryvna.

Through August, Russia had accounted for almost half (44.3 percent) of Ukraine's general trade turnover in 1998. Most exports (55 percent) to Russia were products of the former Soviet military-industrial complex: for example, metallurgical products (15 percent), heavy machinery (14 percent), and chemicals (10 percent).

In July, Russia slapped a 3 percent import duty on Ukrainian industrial and agricultural commodities. Then the crisis hit.

The hryvna's downslide, rooted in Ukraine's longstanding foreign currency crunch, might also have been prompted by a calculated effort by the government to make exports competitive.

Paul Gregory, head of the research section at Alfa Capital Kyiv, told RFE/RL that "one way for the Ukrainian government to increase income is to increase the volume of its exports." He said "one means of doing that is worsening the hryvna's exchange rate against other currencies, so Ukrainian products become cheaper."

But Gregory also said that even if the Ukrainian exchange rate winds up lower relative to the ruble than it was before the crisis, it will not affect trade statistics until some time next year.

The Donetsk Iron and Steel Works (DISW), one of Ukraine's metal exporters, was another company hit first by the Russian excise duty and then by the fall of the ruble.

Olexsander Pilipenko, DISW's vice president, told RFE/RL that his company is not currently receiving many new orders from Russia. He said the main reason is that Russian companies are short of funds.

A partly privatized mill and a leader in the Ukrainian steel industry, DISW was in the process of expanding and modernizing its product line when the Russian crisis hit. The crisis put a damper on that process.

Pilipenko said that as of the beginning of September, many Russian firms stopped sending payments to his company. He said Russian companies buy only 10 percent of his firm's products, adding that "non-payment by any customer is by no means good news."

With some 80 percent of its products traditionally labeled for Russia, Motor Sych is worse off. Vladislav Matvienko of Motor Sych's import-export division said its "Russian customers are experiencing certain problems in settling contracts agreed with earlier." He said Russian firms "are still paying, but sometimes with a delay." And when they pay, he added, they do it often in rubles, which only adds to Motor-Sych's problems.

Matvienko added that "like many other companies," his is having trouble exchanging rubles paid by Russian firms. He noted that his company sometimes has to exchange into a third currency--a so-called multi-stage currency exchange --in order to get the currency it needs to make its own payments.

The Ukrainian government has curtailed sales of dollars and the conversion of rubles on Ukrainian exchanges, making the Russian currency essentially worthless. There are no clear prospects of a change in that situation any time soon.

The author is a Kyiv-based RFE/RL correspondent.

UKRAINE TO 'UNCONDITIONALLY SUPPORT' UN DECISION ON KOSOVA. Andriy Veselovskyy, an official in the Ukrainian Foreign Ministry, told journalists on 6 October that Ukraine "will unconditionally support" a possible decision of the UN Security Council on the use of force against Yugoslavia, Ukrainian Television reported. But he stressed that Ukraine is interested in a peaceful solution of the Kosova crisis. The same day, the Ukrainian Supreme Council adopted a resolution calling for the issue of Kosova autonomy to be settled "in a peaceful, civilized way, while maintaining the territorial integrity of the [Yugoslav] state." ITAR-TASS reported that Rukh deputies did not participate in the vote on the resolution, nor did part of the Popular Democratic Party and the Greens parliamentary caucuses. JM

KUCHMA WANTS TO BOOST ALCOHOL, TOBACCO INCOME. Ukrainian President Leonid Kuchma ordered government officials on 6 October to raise more money from the country's alcohol and tobacco industries by cutting taxes and reducing smuggling, AP reported. Kuchma criticized the government's increase in the excise tax on alcohol, which had to be revoked last week because prices increased so much that distilleries were unable to sell their products. Kuchma also said the heavy taxes on tobacco and alcohol have resulted in a huge black market for those goods, adding that 75 percent of cigarettes and 25 percent of alcoholic beverages sold in Ukraine are either smuggled into the country or illegally produced. JM

RADIOACTIVE MUSHROOMS FOUND IN ROMANIA, BULGARIA. Bulgarian officials said on 6 October that they have discovered mushrooms tainted with radioactive cesium 137 in the southern part of the country, AFP reported. An official said the radioactive levels recorded are the highest since the Chornobyl nuclear accident in 1986 and twice as high as generally accepted levels. Romanian officials said last week that they exported contaminated mushrooms to several EU countries but that the levels were not high enough to threaten public health. PB