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WORLD BANK HAILS UKRAINIAN GROWTH, CONSIDERS LOAN REVIEW (21 MAY) On 21 May, the World Bank praised Ukraine's 2002 economic growth along with government efforts to reform the economy, Reuters reported. Johannes Linn, World Bank vice president for Europe and Central Asia, told a news conference he expected Ukraine's gross domestic product (GDP) to grow between 4 and 6 percent in 2002. Ukraine's GDP grew a record 9.1 percent in 2001. The pace of growth has slowed this year, with GDP rising by 4.1 percent in the first four months of 2002, year-on-year. Linn said Ukraine's economic expansion was encouraging in the context of a global recession: "Given the last 10 years of economic decline, the kind of reversal which Ukraine has seen over the last two or three years is encouraging." Linn said talks over the next installment of a $750 million, three-year loan were successful. He noted that more steps are needed to reform the country's financial and energy sectors. The World Bank expects to see continued efforts to privatize electricity distributing companies and improve transparency and financial discipline. Linn said this fall he will most likely propose that the bank's board of directors release a $250 million loan to Ukraine in one installment instead of dividing it into tranches. (JMR)
Makarov and Itera have also been linked to organized-crime activities and individuals by Russian journalists. "Moskovskii komsomolets" (7 June 2000), for instance, claimed that Itera put Chechen mob-connected managers on the Rospan payroll after the company's takeover. "Sovershenno sekretno" (No. 6, June 2000) further claimed that Itera used "enforcers" from "various crime gangs" in a dispute with Rospan's creditors over the company's management. Moreover, reputed Solntsevo mafia boss Sergei Mikhailov, according to "Sovershenno sekretno" (No. 4, 1999), acted as Itera's agent in its gas deals with Ukraine in the late 1990s. Stories have also appeared in the foreign press concerning Makarov and Itera. A scandal erupted in 2000 concerning Tractebel, the Belgian energy group, and the government of Kazakhstan over an alleged breach of contract concerning the heating distribution and utility in the capital, "The Financial Times" reported on 28 January 2000. Later, BBC reported on 2 March 2000 a story appearing in "Le Soir" on how a businessman named Grigorii Luchanskii, a representative of Itera, met with Pierre Baquet, crisis manager for Tractebel, claiming to have the authority to resolve any crisis concerning a breach of contract with Kazakhstan because he also represents the Kazakh government and Gazprom. Luchanskii is also known in connection with a company he established called Nordex. "[U.S. Central Intelligence Agency] Director John Deutch went on record in describing Nordex as an organization associated with Russian criminal activity" as found in "One Point Safe," written by Andrew and Leslie Cockburn (Doubleday, 1997). According to the "Le Soir" article cited in the BBC report, Baquet was offered a $7 million bribe by a representative of Itera. Baquet claims to have met with Luchanskii and Igor Makarov in Moscow in late 1999. This supposedly led to an investigation by the Swiss Prosecutor's Office of Itera for bribery and the questioning of Luchanskii by Swiss authorities. No results emerged. Tractebel remains partners with Itera in Kazakhstan, but as the BBC report concluded, "Itera's reputation now in the Belgian press is clear. The news that senior Russian officials are involved in talks at Itera's office brings a knowing smile to reporters in Brussels. It takes years to build a reputation. But only minutes to lose it."
Many sources have thus viewed Makarov as a shady front man for the Rem Vyakhirev Gazprom management team, which was at least partially dislodged last year with Russian President Vladimir Putin's appointment of Aleksei Miller as head of Gazprom's management board. Miller has reportedly made efforts to assert state control over the gas giant and clear up questions about Gazprom's relations with Itera.
According to the "front man" view of Makarov, Vyakhirev, who was Gazprom founder Viktor Chernomyrdin's deputy in the Soviet-era gas industry, and his allies created Itera and are the true, hidden owners of the company -- something Makarov has repeatedly denied. The founding of Itera and Vyakhirev's takeover of Gazprom management roughly coincided with Chernomyrdin's appointment as Russian prime minister. Gazprom subsequently complained repeatedly of cash shortages in the 1990s, and the company, which is the biggest source of tax revenue for the state, bargained constantly with the government on tax payments, while most press accounts reported it investing the minimum required to maintain its infrastructure. Meanwhile, as Gazprom's production fell, Itera's sales and production -- as well as profits, safely transported to offshore affiliates -- rose dramatically.
Critics of Gazprom -- especially minority shareholders who feel the former management bilked the company of huge amounts of cash, keeping its share prices low and cutting them out of profits -- have therefore claimed that Itera was set up as an "offshore zone" by Vyakhirev and his allies in the Gazprom management (and, possibly, Chernomyrdin) to siphon funds away from the Russian budget and Gazprom shareholders (see 18 March 2002 Carnegie Endowment report from William Browder, CEO of Hermitage Capital Management, a Gazprom shareholder that has attacked the firm's relations with Itera at www. Cdi.org/Russia/Johnson/6149-11.cfm).
The dubious deals between Gazprom and its partners have been strengthened by revelations about Gazprom's relations with Stroitransgaz, a pipeline and construction firm that received $1 billion in contracts from Gazprom -- and boasted two sons of Chernomyrdin and Vyakhirev's daughter as major shareholders ("The Washington Post" 24 December 2000).
Since last year, when Miller took over as Gazprom management chief, various press sources have speculated that Itera's potential business rivals and Kremlin operatives would see Makarov and his firm as vulnerable without his Gazprom "cover." Shortly after Vyakhirev's departure from his Gazprom post, for instance, "Kommersant" (6 June 2001) reported that the Tyumen Oil Company was buying up Rospan's debts, probably in preparation for an eventual attempted takeover of the gas firm. Moreover, the Russian Audit Chamber was auditing Gazprom's relations with Makarov's Itera.
There is some reason to believe, however, that Makarov and Itera may not only survive, but continue to prosper. Makarov has grown into a full-fledged economic player in his own right -- and Itera's business, as the primary gas supplier to many CIS states, may prove useful to the Kremlin, which, in view of the CIS states' energy needs, has used natural gas sales as a tool in strengthening Moscow's position within the "former Soviet space." Moreover, Itera has sold gas in the "near abroad" for much higher rates than Gazprom (for political reasons) has sold "blue fuel" domestically. Many Russian politicians both within and without the Kremlin might see the highly profitable Itera as a source of campaign funding and a potential ally in regions where Itera does business domestically.
Last summer, for instance, "Kommersant" (16 August 2001) saw Itera's threats to cut off gas supplies to Ukraine as yet another "trump card" in Moscow's relations with Kiev. Itera has also expanded into the electrical energy business, planning construction of power lines in, for example, Belarus, which would facilitate the export of Russian energy to the "near abroad" ("Kommersant" 30 May 2001) and give Moscow another lever to pressure its CIS partners with. Indeed, according to "Kompaniya" (23 July 2001), many of the journal's observers claimed Makarov (whom the magazine placed on its list of Russia's "business elite" last year) had already reached an "understanding" with the Kremlin last summer, strongly implying that Itera would be left alone in return for certain services to the authorities, much as Gazprom management had been in the past. "Business Week" (2 April, 2001) anticipated the "Kompaniya" claims last spring, writing that Makarov and Itera (a "power player" in the CIS) "fit in" with the Kremlin's overall design to "rebuild Russia's influence in key regions of its former empire."
The Russian Audit Chamber's issuing of a clean bill of health regarding Itera's past relations with Gazprom last summer ("Kommersant" 11 July 2001) may have been a sign of the "understanding" Makarov had allegedly reached with the Kremlin. According to the "Kommersant" report, even Audit Chamber officials admitted they were still not certain that many of the Gazprom-Itera transactions were "justified," even as they cleared Itera of any charges of impropriety. It is also possible, however, given the way business and the state have interacted since the early 1990s, that the auditors may have gathered enough kompromat ("compromising material") on Makarov to ensure his future cooperation with the authorities.
END NOTE: LOSER TAKES ALL: UKRAINIAN PRESIDENT COOPTS PARLIAMENT xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
LOSER TAKES ALL: UKRAINIAN PRESIDENT COOPTS PARLIAMENT
On 28 May, after over a week of intrigue and interfaction squabbles, the Ukrainian parliament (Verkhovna Rada) finally selected candidates to fill its three key positions. Aside from the 177 votes from the pro-presidential For a United Ukraine, which has been renamed United Ukraine, and 31 votes from the oligarchic Social Democratic Party of Ukraine-united (SDPU-o), the vote was carried by seven Our Ukraine deputies who were immediately expelled from that faction, and Communists "loaned" for the vote.
The election resulted in two eastern Ukrainian pro-presidential and oligarchic groups, United Ukraine and the SDPU-o, taking full control of all three chairman and deputy chairman positions. Volodymyr Lytvyn, the head of the presidential administration and United Ukraine faction, became Rada chairman followed by Hennadiy Vasyliev, a member of the oligarch Labor Ukraine party, as first deputy chairman and with the post of deputy Rada chairman going to Oleksandr Zinchenko, the deputy head of the SDPU-o. Zinchenko was head of the SDPU-o faction in the 1998-2002 Rada and is honorary president of Inter television, which broadcasts mainly in Russian to eastern Ukraine.
This vote brought President Leonid Kuchma one step closer to what he failed to obtain in 1996 with his Russian-style constitution, which led him to initiate an internationally unrecognized referendum in April 2000 designed to turn Ukraine into a presidential republic with a malleable Rada. Vasyliev's position was given in gratitude to the Donetsk clan, the only region where For a United Ukraine finished first in the 31 March elections.
In the party-list vote in the March elections, For a United Ukraine finished only third with 11.81 percent, compared to Viktor Yushchenko's Our Ukraine's with 23.65 percent. On the basis of these results, Yushchenko proposed after the election that because Our Ukraine won the elections, it should be the basis for creating a Rada majority. In a joint statement on 26 April, Our Ukraine, the Communists (which polled 20.4 percent), the Yuliya Tymoshenko Bloc (7.21 percent), and Socialists (6.93 percent) said that they won the elections, which was a defeat for the authorities.
But Lytvyn and Kuchma disagreed, as did Russian President Vladimir Putin. Their shared understanding of the elections was that For a United Ukraine had won. Lytvyn based his argument on the fact that his faction had become the largest in the Rada after the elections by virtue of inducing or blackmailing the majority of deputies elected in majoritarian districts into its ranks. Through these tactics United Ukraine has been able to increase its faction from 102 deputies to being the largest with 182 deputies (compared to the 111 in Our Ukraine).
The hundreds of hours of tapes illicitly made in Kuchma's office by his security guard, Mykola Melnychenko, reveal how the tactics used to obtain Lytvyn's election as Rada chairman have been a consistent feature in what has been defined as a "blackmail state." In a recent study in "East European Constitutional Review," Yale Professor Keith Darden concludes that blackmail is used to secure political control. This is undertaken by tolerating "pervasive corruption" as "an essential element in an informal technique of presidential control" through the collection of evidence of corruption by the Security Service and the Internal Affairs Ministry.
This system is especially effective in ensuring compliance by businessmen who tend to be elected in majoritarian districts as "independents." In a taped conversation between oligarch Oleksandr Volkov and Kuchma in July 2000, Volkov was asked why he was in favor of lifting deputies' immunity. He reasoned that "there is only one immunity for deputies and that is you. Everything else is crap." Since the elections, many independent deputies have been invited to the Prosecutor-General's Office and warned that it possessed files on them. Leonid Hadyatskyy admitted that he had left the Socialist faction to join United Ukraine "in order to save himself and his family."
Darden concludes that "corruption and illegality" in Ukraine are "accepted, condoned, and even encouraged by the top leadership." Volkov, for example, was given a state medal for his services to the Ukrainian economy by Kuchma in February 2001, even though he is wanted by Belgian police on money-laundering charges and his trial in absentia is to open next month in Brussels.
As long as businessmen continue to remain loyal to President Kuchma, the files collected by the Security Service and Internal Affairs Ministry will not be used by the Prosecutor-General's Office or the Tax Administration to destroy their business. One month after the elections, all criminal charges of "corruption" were dropped against Yuliya Tymoshenko and her husband. Volodymyr Shcherban, one of the seven deputies expelled from Our Ukraine for voting for Lytvyn as Rada chairman, said after the vote that, "I did not come here today to parliament to fight with the authorities for two years." Shcherban is the leader of the Liberals, the former Donetsk "party of power," and a wealthy businessman.
The "blackmail state" places the Our Ukraine bloc in a predicament. Volkov has pointed out that it cannot join the opposition because this would lead to its businessmen and bankers to be subjected to pressure from the enforcers of the "blackmail state." Although Yushchenko has deliberately never criticized Kuchma and has refrained from calling Our Ukraine an "opposition" bloc, his ability to maneuver between the pro-presidential/oligarchic and opposition forces may be coming to an end.
Earlier this month, Yushchenko warned that if Lytvyn, as leader of a defeated bloc, were to be elected Rada chairman he would take Our Ukraine into opposition. That warning was prompted by Kuchma's rejection of a compromise proposal whereby Yushchenko would become prime minister and Lytvyn Rada chairman, an arrangement that would have given Yushchenko an excellent base from which to be elected president in 2004.
Yushchenko had already concluded prior to the 28 May vote that "the political crisis in Ukraine has turned out to be much deeper than I had imagined." In a statement after Lytvyn's election, Our Ukraine said that he was "appointed" Rada chairman, not voted in, and that the entire process showed a lack of respect for deputies and voters. The "administrative resources" that were used so heavily by Kuchma in the elections to secure For a United Ukraine votes, were again used inside the Rada, the statement continued. Our Ukraine believes that the Rada has "in effect turned into a sub-section of the presidential administration."
If Our Ukraine does go into opposition, Ukraine would have a parliament dominated by two eastern Ukrainian pro-Kuchma and oligarchic groups who lost the elections, while western-central Ukraine would be in opposition to the executive. SDPU-o head Viktor Medvedchuk is unconcerned by this possible turn of events because he is convinced that a new Rada majority will be created on the basis of the United Ukraine-SDPU-o alliance to implement the president's wishes.
These steps by Kuchma and Lytvyn will only serve to make the outcome of the 2004 presidential ballot -- in which Kuchma may not seek a further term -- even more unpredictable and Ukrainians more angry. Our Ukraine's proposals for cooperation on deep political, social, and economic reforms were turned down by Kuchma's United Ukraine. These latest developments also give the European Union-Council of Europe delegation in Kyiv this week further grounds to again turn down Kuchma's request for an association agreement between Ukraine and the EU.
END NOTE: LOSER TAKES ALL: UKRAINIAN PRESIDENT COOPTS PARLIAMENT xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
UKRAINIAN, BELARUSIAN PRESIDENTS WELCOME NATO-RUSSIA RAPPROCHEMENT... Ukrainian President Leonid Kuchma and his Belarusian counterpart Alyaksandr Lukashenka met in Chernihiv (northern Ukraine) on 29 May to discuss bilateral relations, Ukrainian and Belarusian media reported. Kuchma and Lukashenka told journalists after the meeting that they welcome this week's NATO-Russia cooperation agreement. Lukashenka admitted that the NATO-Russia rapprochement may entail "a different system of mutual relations, particularly in the post-Soviet territory." Lukashenka said his government is thoroughly studying Kyiv's recent bid to seek NATO membership in order to enable Belarus "to make appropriate conclusions and, possibly, appropriate moves." JM
...SET DEADLINE FOR RESOLVING DEBT PROBLEM. Kuchma and Lukashenka signed a protocol obliging the Ukrainian and Belarusian governments to prepare by 15 June an accord on settling the issue of Ukraine's debt to Belarus. "This story has continued since 1992," Ukrainian Deputy Prime Minister Leonid Kozachenko told journalists. "The Ukrainian side considers that Ukraine owes Belarus no more than $50 million, while Belarus considers that Ukraine owes it more than $100 million," he added. According to Kozachenko, the debt problem arose shortly after the breakup of the Soviet Union, when Belarusian enterprises paid money to Ukrainian companies for products that have never been delivered. JM
UKRAINIAN PARLIAMENT TACKLES ELECTION OF COMMITTEE HEADS. Our Ukraine, the Communist Party, the Socialist Party, and the Yuliya Tymoshenko Bloc have proposed that the 23 posts of parliamentary committee heads be distributed only among these four groups, in view of the fact that United Ukraine and the Social Democratic Party gained the posts of speaker and two deputy speakers the previous day (see "RFE/RL Newsline," 29 May 2002), UNIAN reported. Parliamentary speaker Volodymyr Lytvyn refused on 30 May to submit this motion for voting and adjourned the session until late afternoon. United Ukraine acting head Serhiy Tihipko has called on deputies to distribute the posts of committee heads among all the six parliamentary caucuses, arguing that the current arrangement of forces in the Verkhovna Rada -- the "four" and the "two," with no side possessing a clear majority -- is a "way to nowhere." Meanwhile, Communist Party leader Petro Symonenko told journalists that the "four" has begun collecting signatures under a motion to hold a no-confidence vote in the newly elected parliamentary leadership. JM
UKRAINIANS NUMBER 48.4 MILLION. State Statistics Committee head Oleksandr Osaulenko told journalists on 29 May that, according to last year's census, there were 48.4 million people living in Ukraine on 5 December 2001, UNIAN reported. Sixty-seven percent of Ukrainians live in urban areas; women constitute 54 percent of the population. The previous census in 1989 found that the Ukrainian SSR was inhabited by 52.5 million people. JM
LOSER TAKES ALL: UKRAINIAN PRESIDENT COOPTS PARLIAMENT
On 28 May, after over a week of intrigue and interfaction squabbles, the Ukrainian parliament (Verkhovna Rada) finally selected candidates to fill its three key positions. Aside from the 177 votes from the pro-presidential For a United Ukraine, which has been renamed United Ukraine, and 31 votes from the oligarchic Social Democratic Party of Ukraine-united (SDPU-o), the vote was carried by seven Our Ukraine deputies who were immediately expelled from that faction, and Communists "loaned" for the vote.
The election resulted in two eastern Ukrainian pro-presidential and oligarchic groups, United Ukraine and the SDPU-o, taking full control of all three chairman and deputy chairman positions. Volodymyr Lytvyn, the head of the presidential administration and United Ukraine faction, became Rada chairman followed by Hennadiy Vasyliev, a member of the oligarch Labor Ukraine party, as first deputy chairman and with the post of deputy Rada chairman going to Oleksandr Zinchenko, the deputy head of the SDPU-o. Zinchenko was head of the SDPU-o faction in the 1998-2002 Rada and is honorary president of Inter television, which broadcasts mainly in Russian to eastern Ukraine.
This vote brought President Leonid Kuchma one step closer to what he failed to obtain in 1996 with his Russian-style constitution, which led him to initiate an internationally unrecognized referendum in April 2000 designed to turn Ukraine into a presidential republic with a malleable Rada. Vasyliev's position was given in gratitude to the Donetsk clan, the only region where For a United Ukraine finished first in the 31 March elections.
In the party-list vote in the March elections, For a United Ukraine finished only third with 11.81 percent, compared to Viktor Yushchenko's Our Ukraine's with 23.65 percent. On the basis of these results, Yushchenko proposed after the election that because Our Ukraine won the elections, it should be the basis for creating a Rada majority. In a joint statement on 26 April, Our Ukraine, the Communists (which polled 20.4 percent), the Yuliya Tymoshenko Bloc (7.21 percent), and Socialists (6.93 percent) said that they won the elections, which was a defeat for the authorities.
But Lytvyn and Kuchma disagreed, as did Russian President Vladimir Putin. Their shared understanding of the elections was that For a United Ukraine had won. Lytvyn based his argument on the fact that his faction had become the largest in the Rada after the elections by virtue of inducing or blackmailing the majority of deputies elected in majoritarian districts into its ranks. Through these tactics United Ukraine has been able to increase its faction from 102 deputies to being the largest with 182 deputies (compared to the 111 in Our Ukraine).
The hundreds of hours of tapes illicitly made in Kuchma's office by his security guard, Mykola Melnychenko, reveal how the tactics used to obtain Lytvyn's election as Rada chairman have been a consistent feature in what has been defined as a "blackmail state." In a recent study in "East European Constitutional Review," Yale Professor Keith Darden concludes that blackmail is used to secure political control. This is undertaken by tolerating "pervasive corruption" as "an essential element in an informal technique of presidential control" through the collection of evidence of corruption by the Security Service and the Internal Affairs Ministry.
This system is especially effective in ensuring compliance by businessmen who tend to be elected in majoritarian districts as "independents." In a taped conversation between oligarch Oleksandr Volkov and Kuchma in July 2000, Volkov was asked why he was in favor of lifting deputies' immunity. He reasoned that "there is only one immunity for deputies and that is you. Everything else is crap." Since the elections, many independent deputies have been invited to the Prosecutor-General's Office and warned that it possessed files on them. Leonid Hadyatskyy admitted that he had left the Socialist faction to join United Ukraine "in order to save himself and his family."
Darden concludes that "corruption and illegality" in Ukraine are "accepted, condoned, and even encouraged by the top leadership." Volkov, for example, was given a state medal for his services to the Ukrainian economy by Kuchma in February 2001, even though he is wanted by Belgian police on money-laundering charges and his trial in absentia is to open next month in Brussels.
As long as businessmen continue to remain loyal to President Kuchma, the files collected by the Security Service and Internal Affairs Ministry will not be used by the Prosecutor-General's Office or the Tax Administration to destroy their business. One month after the elections, all criminal charges of "corruption" were dropped against Yuliya Tymoshenko and her husband. Volodymyr Shcherban, one of the seven deputies expelled from Our Ukraine for voting for Lytvyn as Rada chairman, said after the vote that, "I did not come here today to parliament to fight with the authorities for two years." Shcherban is the leader of the Liberals, the former Donetsk "party of power," and a wealthy businessman.
The "blackmail state" places the Our Ukraine bloc in a predicament. Volkov has pointed out that it cannot join the opposition because this would lead to its businessmen and bankers to be subjected to pressure from the enforcers of the "blackmail state." Although Yushchenko has deliberately never criticized Kuchma and has refrained from calling Our Ukraine an "opposition" bloc, his ability to maneuver between the pro-presidential/oligarchic and opposition forces may be coming to an end.
Earlier this month, Yushchenko warned that if Lytvyn, as leader of a defeated bloc, were to be elected Rada chairman he would take Our Ukraine into opposition. That warning was prompted by Kuchma's rejection of a compromise proposal whereby Yushchenko would become prime minister and Lytvyn Rada chairman, an arrangement that would have given Yushchenko an excellent base from which to be elected president in 2004.
Yushchenko had already concluded prior to the 28 May vote that "the political crisis in Ukraine has turned out to be much deeper than I had imagined." In a statement after Lytvyn's election, Our Ukraine said that he was "appointed" Rada chairman, not voted in, and that the entire process showed a lack of respect for deputies and voters. The "administrative resources" that were used so heavily by Kuchma in the elections to secure For a United Ukraine votes, were again used inside the Rada, the statement continued. Our Ukraine believes that the Rada has "in effect turned into a sub-section of the presidential administration."
If Our Ukraine does go into opposition, Ukraine would have a parliament dominated by two eastern Ukrainian pro-Kuchma and oligarchic groups who lost the elections, while western-central Ukraine would be in opposition to the executive. SDPU-o head Viktor Medvedchuk is unconcerned by this possible turn of events because he is convinced that a new Rada majority will be created on the basis of the United Ukraine-SDPU-o alliance to implement the president's wishes.
These steps by Kuchma and Lytvyn will only serve to make the outcome of the 2004 presidential ballot -- in which Kuchma may not seek a further term -- even more unpredictable and Ukrainians more angry. Our Ukraine's proposals for cooperation on deep political, social, and economic reforms were turned down by Kuchma's United Ukraine. These latest developments also give the European Union-Council of Europe delegation in Kyiv this week further grounds to again turn down Kuchma's request for an association agreement between Ukraine and the EU.