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One of the big decisions facing the Russian government this year is what, if anything, to do with the money that has accumulated in the so-called stabilization fund. The creation of the fund, which is now worth more than 500 billion rubles ($16.7 billion) because of unprecedented global oil prices, was widely hailed domestically and abroad as one of the government's signal economic achievements of 2004.

Recognizing Russia's overwhelming economic dependence on the export of raw materials -- especially energy -- the government created the fund at the beginning of 2004 to accumulate proceeds from high oil prices in a special account that could then be used to ameliorate the economic effects of significant downturns in energy prices in the future. When oil prices are above $25 per barrel, as they were throughout 2004, up to 90 percent of the excess proceeds on oil exports are automatically diverted to the fund. Already by the end of March, Deputy Prime Minister Aleksandr Zhukov was boasting that the fund contained nearly $5 billion.

Despite the windfall from high oil prices, the Russian economy still faces numerous problems that make it increasingly difficult for politicians simply to allow the vast resources of the stabilization fund to sit idle, waiting for a rainy day. As might be expected, left-leaning politicians led the call for using the stabilization fund to resolve social problems. Communist Party leader Gennadii Zyuganov, during this summer's debate over the monetization of most in-kind social benefits, cited the fund in his rebuttal to government claims that social benefits had to be restructured for economic reasons. "The country's huge hard-currency reserves and the stabilization fund deprive the government of the right to speak about an inability to afford benefits," Zyuganov wrote in an open letter to Putin in June. "Rather, it is a case of the government's clear lack of desire to fulfill the norms of the Russian Constitution." Although the government has not made any announcements regarding the use of the stabilization fund for the monetization of benefits, periodic media reports indicate that some regions expect just such a policy. On 29 December, for instance, Regnum quoted Federation Council member Yevgenii Bushmin, who represents the administration of Nizhnii Novgorod Oblast, as saying that his region expects to receive 100 million rubles from the fund for benefits payments this year.

Of course, opposition arguments like Zyuganov's carry little weight in Russia these days, but other voices within the government and the pro-Kremlin Unified Russia party have also been floating ideas for spending the stabilization fund. Prime Minister Mikhail Fradkov told a cabinet session in August that in 2005 the fund "will cease to be a cumulative institution and will become an instrument of active budget policy."

In the wake of a wave of horrific terrorist attacks in August and September that culminated with the Beslan school hostage taking, the government proposed sharp increases in defense and antiterrorism spending, increases which many argued should be covered with financing from the stabilization fund. Finance Minister Aleksei Kudrin -- who has been one of the staunchest figures opposed to spending the stabilization fund, except for the non-inflationary purpose of paying down the country's foreign debt -- conceded in an October interview with "Itogi" magazine that the fund could be used to pay for such things as the creation of an Interior Ministry fingerprint database and other projects that are "an important part of the fight against terrorism."

Union of Russian Entrepreneurs and Industrialists (RSPP) President Arkadii Volskii, one of the Kremlin's most loyal supporters in the business community, told Ekho Moskvy on 29 December that the government's policy of accumulating hard-currency reserves and building up the stabilization fund is inhibiting economic development. He accused government economic managers like Finance Minister Kudrin and Economic Development and Trade Minister German Gref of adhering to a stubborn belief -- "some kind of blockheadedness" -- that "it's good when money just sits there." Volskii said some of the funds should be distributed to business in the form of development loans "so the money works for the country rather than for foreign banks."

Moscow Mayor Yurii Luzhkov, writing in "Trud" on 3 December, made similar arguments, accusing the government of a policy of "accumulation for its own sake." He criticized the government's policy of investing the fund in foreign securities, saying that doing so was tantamount to "supporting the foreign producer, not the domestic producer."

More nefariously, perhaps, political scientist Sergei Markov told on 30 December, that one potential use of the stabilization fund could be to "purchase assets" in Ukraine as a way of increasing Russia's influence there in the wake of the 26 December victory of opposition presidential candidate Viktor Yushchenko.

In October, Industry and Energy Minister Viktor Khristenko proposed several possible uses for the stabilization fund, including a federal program for the development of civil aviation and a guarantee fund to attract investment to the housing and municipal-services sectors, reported.

Perhaps in response to opposition from Kudrin and Gref, Khristenko has changed his tactics a bit. On 2 January, he told RosBalt that "indubitably we cannot touch the funds that go into the stabilization fund." He added, however, that the government in 2005 could create "in addition to the stabilization fund" a sort of "development fund, the resources of which could be used to fund strategically important projects that are capable of exercising systematic influence on the development of our economy." Although, Khristenko did not say where the money for this development fund would come from, Kudrin told ITAR-TASS on 1 November that he will propose reducing the amount currently set aside for the stabilization fund by raising the threshold beyond which profits are diverted into the fund from $20 per barrel to $21.50 per barrel.

Such concessions notwithstanding, Kudrin, Gref, and presidential economics adviser Andrei Illarionov have so far presented a united front advocating spending the stabilization fund only on reducing Russia's foreign debt. Any domestic use of the fund, Illarionov has stated, threatens to spawn inflation and endanger the government's macroeconomic program.

In the wake of the vocal opposition of these liberals to the government's actions regarding Yukos over the past 15 months, the battle over the stabilization fund could be the issue that ultimately pushes them out of the government. As economist Vladimir Mau told "Vedomosti" on 30 December: "A sharp political battle has already evolved around the 'cheap money' in the stabilization fund. Pressure to use the fund's money given high oil prices will only grow and will only become more difficult to resist."

FOREIGN MINISTER SAYS NO NEW COLD WAR OVER UKRAINE AND GEORGIA... Foreign Minister Sergei Lavrov said in an interview with the German business daily "Handelsblatt" on 28 December that there is no threat of a new Cold War between Russia and the West over Ukraine if "the principle of noninterference in the internal affairs of Ukraine is maintained," according to the Russian transcript of the interview published on 3 January by Talking about the possibility of Ukraine and Georgia joining NATO and the European Union, Lavrov said that Russia will not obstruct these developments as Russia respects "the right of each state, including our neighbors, to choose its own partners." Lavrov added that in those cases, however, Ukraine and Georgia could not rely on privileged economic relations with Russia. It is "their choice," and "we assume they consider how they develop their policy and economy and which partners and allies they choose," he added. VY

LIBERAL POLITICIAN LAMENTS SETBACKS OF 2004. Union of Rightist Forces (SPS) political council member Boris Nemtsov told Interfax on 4 January that 2004 will be remembered in Russia as the year of the "cleansing" of the country's democratic achievements, including independent television, the direct election of regional leaders, and the principles of federalism. He said that the only bright spot of the year was the "birth of a democratic Ukraine." He noted that the SPS has had "definite successes" in several regional elections, which he said is "particularly pleasant and important considering that the party still lacks a leader." Last month, Nemtsov criticized the de facto censorship of many topics on Russian television and characterized the Kremlin as "a lying regime" (see "RFE/RL Newsline," 14 December 2004). RC

GEORGIAN PRESIDENT MEETS WITH NEW UKRAINIAN LEADER IN KYIV. Georgian President Mikheil Saakashvili met on 2 January with Ukrainian President-elect Viktor Yushchenko during a visit to Kyiv, Imedi TV and ITAR-TASS reported. Saakashvili arrived in the Ukrainian capital on 31 December and held a number of meetings with Yushchenko's advisers. Georgia's "Rose Revolution" that swept Saakashvili to power in late 2003 was hailed as an inspiration for the "Orange Revolution" in Ukraine and both leaders are seen as sharing a defiance of Russian influence. RG

TURKMENISTAN CONCLUDES NEW AGREEMENT ON GAS SHIPMENTS TO UKRAINE. Ukrainian oil and gas company Naftohaz Ukrayiniy Chairman Yuriy Boyko announced in Ashgabat on 3 January that a new agreement on the price for Ukrainian imports of natural gas from Turkmenistan has been reached, ITAR-TASS reported. The new agreement follows weeks of negotiations and sets a one-year contract for the import of 36 billion cubic meters of Turkmen gas at the new price of $58 per 1,000 cubic meters. The agreement follows a cutoff of gas supplies by Turkmenistan on 31 December, ITAR-TASS reported. Although the new price is $14 higher than the rate fixed for 2004 and reflects the global increase in natural-gas prices, payment for the gas imports remains half in cash and half in "goods and equipment" from Ukraine. Turkmenistan also reached agreement on a 25-year contract with Russia in 2004 for the sale of between 6 billion and 7 billion cubic meters of Turkmen gas. RG

BELARUSIAN COURT SENTENCES OPPOSITIONIST TO FIVE YEARS FOR THEFT. A district court in Minsk on 30 December sentenced opposition politician Mikhail Marynich to five years in prison after finding him guilty of stealing computers and other office equipment belonging to the U.S. Embassy, Belarusian and international news agencies reported. Marynich told the court that the case against him was "fabricated by the KGB following an order from the authorities," arguing that the equipment had been provided free of charge by the U.S. Embassy in Minsk to the Dzelavaya Initsyyatyva (Business Initiative) association, of which he was chairman. The U.S. Embassy did not report the computers stolen, and a U.S. State Department statement presented to the court said the embassy had no claims against Marynich. According to Marynich, the sentence is intended to prevent him from participating in the 2006 presidential election. Marynich's lawyers have announced that they will appeal the verdict. Marynich was minister of foreign economic relations (1994-98) and afterward became Belarusian ambassador to Latvia, Estonia, and Finland. In mid-2001, Marynich resigned his ambassadorial post to challenge Lukashenka in that fall's presidential election (see "RFE/RL Belarus and Ukraine Report," 4 January 2005). JM

BELARUS SIGNS GAS-SUPPLY DEAL WITH GAZPROM FOR 2005. Beltranshaz, Belarus's state-owned gas-transport company, and Russia's Gazprom on 30 December signed a contract for the supply of 19.1 billion cubic meters of Russian gas in 2005 at $46.68 per 1,000 cubic meters, Belapan reported. The contract also stipulates the supply of an extra 1.4 billion cubic meters of gas to Belarus "provided there is a technical opportunity." Under the deal, Belarus will collect $0.75 in transit fees per 1,000 cubic meters for every 100 kilometers of gas pipelined via Belarus through Beltranshaz's network and $0.46 for gas transported by the Yamal-Europe pipeline. Both the gas price and the transit fees remain unchanged compared with those in 2004. "[The price] seems to be the same as in 2004, but it has de facto been raised by 18 percent; that is, by the amount of value-added tax, which will now be collected under the country-of-destination principle," Belarusian Deputy Prime Minister Andrey Kabyakou commented (see "RFE/RL Belarus and Ukraine Report," 23 December 2004). JM

UKRAINIAN PRIME MINISTER RESIGNS... Prime Minister Viktor Yanukovych stepped down on 31 December, announcing that he will remain in politics as "an independent politician who legitimately won the elections on 21 November," Ukrainian and international news agencies reported. "Dear compatriots and friends, in light of everything that has happened, it would be senseless for me to stay on as prime minister," Yanukovych said in a televised address to the nation. "The political role of the Yanukovych government -- as a stabilizing force over the past year -- has been all but exhausted.... I think it will be impossible for me to hold any official position in the new government." JM

...BUT REFUSES TO ADMIT PRESIDENTIAL DEFEAT. Yanukovych has refused to concede his defeat in the 26 December presidential poll, in which, according to preliminary results, he obtained 44 percent of the vote compared to his rival Viktor Yushchenko's 52 percent, Ukrainian media reported. Yanukovych challenged Yushchenko's victory by appealing to the Supreme Court and the Central Election Commission (TsVK) against the organization of the 26 December repeat of the rigged 21 November presidential runoff and of election irregularities. However, his complaints were rejected last week. Yanukovych proxy Nestor Shufrych told journalists on 3 January that Yanukovych's election team will appeal the official election results as soon as they are announced by the TsVK. TsVK Chairman Yaroslav Davydovych said the same day that the official results will be released "within the next few days." JM

YUSHCHENKO CELEBRATES NEW YEAR WITH SUPPORTERS ON INDEPENDENCE SQUARE. Viktor Yushchenko told a New Year's rally of his supporters on Independence Square in Kyiv on 31 December that Ukraine is a free country following his victory in the 26 December presidential vote, Ukrainian media reported. "We have been independent for 14 years, but we have not been free. Today we are independent and free. I would like to congratulate you on this, my Ukrainian people," Yushchenko said. The rally was attended by Georgian President Mikheil Saakashvili, who said in an emotional speech delivered to the crowd in Ukrainian that Ukraine's "Orange Revolution" has changed Europe. "Good overcame evil in this square," Saakashvili said. "You had us relive the moments of joy that we sensed during our own, Georgian, revolution." JM

KUCHMA APPEALS TO UKRAINIANS TO WELCOME NEW PRESIDENT. Outgoing President Leonid Kuchma said in a televised New Year's address to the nation on 31 December that Ukraine "has gone through extraordinarily difficult times and really has become different," the UT-1 channel reported. "There will be a new president in Ukraine in 2005," Kuchma said. "And the whole of Ukraine, each region and every citizen, should receive this democratic choice as their very own choice. This person will need your support." JM

YUSHCHENKO VOWS GOOD RELATIONS WITH RUSSIA -- ON ONE CONDITION. Yushchenko told the 31 December issue of the German magazine "Der Spiegel" that Ukraine will continue to develop good relations with Russia, reported on 2 January. "Russia continues to be a strategic partner in the political, economic, and military fields," Yushchenko said. "Our strategy aims to achieve European integration and this is the framework in which we need to resolve all problems together with Russia," he said. "We would like to encourage making mutual investments, removing trade barriers, and resolving problems associated with the influx of workers.... There is, however, one condition: Putin must not block our way into the European Union." JM

...AS SOME DEFEATED CANDIDATES CRY FOUL. Croatian-American businessman Boris Miksic, who ran as an independent, finished third in the 2 January Croatian presidential vote with 17.8 percent of the total, international and regional media reported. He charged that he was cheated out of a second-place finish and called for a protest by his supporters, about 2,000 of whom turned out to demonstrate in Zagreb. He compared the ballot to the tainted first round of voting in the recent Ukrainian presidential elections, claiming that Mesic and the HDZ made a deal at his expense. Three other candidates, who each received only a few percent of the total votes cast, said that they want ballot counting suspended because of what they charged was a violation of electoral legislation by state-run Croatian Television (HTV), which reported the results of an opinion poll on 31 December during the immediate preelection period when campaigning is banned. PM

MOLDOVA READY TO RESUME NEGOTIATIONS WITH TIRASPOL IF EU, U.S. JOIN AS 'PERMANENT OBSERVERS.' Reintegration Minister Vasilii Sova said on 30 December in an interview with the official "Nezavisimaya Moldova" that his country is ready to resume negotiations with Tiraspol if the EU and the United States are granted the status of permanent observers in the discussions, ITAR-TASS reported. "If the proposal is approved by the current participants in the [five-sided] negotiations [Russia, Ukraine, the Organization for Security and Cooperation in Europe, and the two belligerents]," the format of the negotiations can be safeguarded, Sova said. Moldova pulled out of the negotiations in August, saying the five-sided format has repeatedly led to a dead end. MS


RFE/RL Belarus and Ukraine Report
Vol. 7, No. 1, 4 January 2005

A Survey of Developments in Belarus and Ukraine by the Regional Specialists of RFE/RL's Newsline Team


FORGING POLITICAL ALLIANCES IN THE NEW UKRAINE. Ukraine's Central Election Commission has announced that Viktor Yushchenko won 52 percent of the vote in the presidential ballot on 26 December compared to Viktor Yanukovych's 44 percent, according to its preliminary figures. Yanukovych has contested the results with the Central Election Commission and the Supreme Court, claiming that amendments to the presidential election law introduced between the abortive second-round runoff on 21 November and its repeat on 26 December were unconstitutional and deprived millions of disabled Ukrainians from exercising their right to vote from home.

Yushchenko's victory was so convincing, however, that even Yanukovych's election staff does not appear to believe that the Central Election Commission or the Supreme Court will sustain the complaints. So Yushchenko is likely to be inaugurated by mid-January.

But the man who has led Ukraine's amazing political rebirth and survived potentially deadly dioxin poisoning still faces serious political threats.

Apart from awakening grand hopes both at home and abroad that democracy might take deeper root in Ukraine, the "Orange Revolution" has instilled in millions of Ukrainians the firm belief that Yushchenko is truly capable of ousting "criminal clans" from power in Kyiv and making the lives of ordinary Ukrainians better in the short rather than long term -- as he pledged during the election campaign. He will have to deliver substantially on his election promises in 2005 if he wants to improve his political position ahead of the parliament-approved reductions in presidential powers that will take effect in one year and the March 2006 parliamentary elections. Arguably, 2005 will be a year of primarily domestic concerns for Yushchenko. Kyiv's relations with Moscow and Brussels will likely remain on the back burner as Yushchenko grapples with the political legacy of outgoing President Leonid Kuchma. And the domestic problems that Yushchenko will face in the coming year appear immensely complex.

To begin with, Yushchenko needs quickly to build a parliamentary coalition and propose a prime minister who might be acceptable to such a coalition. Both tasks will present major headaches. The main problem is that his parliamentary base, the Our Ukraine bloc, along with its current political allies -- Oleksandr Moroz's Socialist Party, the eponymous political bloc of Yuliya Tymoshenko, and Anatoliy Kinakh's Party of Industrialists and Entrepreneurs -- has just 150 deputies, which is well below the 226 votes needed to pass most resolutions in the 450-seat Verkhovna Rada.

The "Orange Revolution" has prompted numerous defections from previously pro-Yanukovych parliamentary caucuses, but these defectors -- who include a group of some 50 nonaligned deputies -- need yet to be effectively courted by Yushchenko. Still, even absolute success would translate into a total of 200 votes rather than the required 226. Yushchenko must therefore draw at least two other minor parliamentary groups into his camp in order to form a new government on solid footing. Presumably, such parliamentary maneuvers will lead to offers of government posts to people who appear distant from the ideals of the "Orange Revolution" -- or even who stood by his rival's side when the revolution was taking place.

Choosing a prime minister is a difficult problem, too. Yuliya Tymoshenko has made little secret of her willingness to accept the job. The same applies to lawmaker and businessman Petro Poroshenko, who supported Yushchenko's "Orange Revolution" both financially and propagandistically (Poroshenko owns the Channel 5 television station that took much of the credit for having promoted Yushchenko's presidential bid consistently throughout the campaign).

Tymoshenko is widely perceived as a radical and a bitter enemy of pro-Kuchma oligarchs, so her potential premiership could exacerbate tense relations between Yushchenko and the deep-pocketed elements from eastern Ukraine who supported Yanukovych and control a hefty segment of the national economy. Poroshenko is seen as a moderate in comparison to Tymoshenko, but his strong business connections arguably weaken his credibility as a fair-minded political dealer in the post-Kuchma era.

Yushchenko might indeed decide on a less colorful, less controversial, and less politically known than Tymoshenko or Poroshenko for the job of prime minister.

On the other hand, Yushchenko during his presidency will certainly face strong opposition from the political camp of his presidential rival, outgoing Prime Minister Yanukovych. Some 12.8 million Ukrainians voted for Yanukovych on 26 December, and his defeat appears to have inflicted a sort of personal trauma on many of them. The 2004 presidential election has doubtless made Yanukovych a natural opposition leader in Ukraine.

Yanukovych leads the Donetsk-based Party of Regions, which draws its support primarily in Ukraine's eastern and southern regions. But this regional party has every chance to become a major national player after the 2006 parliamentary elections, which are to be held under a fully proportional party-list system and a 3 percent threshold to qualify for parliamentary representation.

The Kyiv-based Razumkov Center conducted two interesting polls recently, one from 6-9 December and the other from 14-19 December, on voter preference on a hypothetical parliamentary ballot. The first poll offered respondents a list of 20 parties, while the other presented the same list of parties with the names of their leaders attached. The first poll found that just four parties -- Our Ukraine (with 28.8 percent backing), Yanukovych's Party of Regions (14.5 percent), Petro Symonenko's Communist Party (6 percent), and Oleksandr Moroz's Socialist Party (4.5 percent) -- could count on overcoming the 3-percent barrier in the current environment.

But the second poll -- with a list of parties and their political leaders -- painted a somewhat different picture. It suggested that six parties would have deputies in the Verkhovna Rada: Party of Regions-Viktor Yanukovych (20.5 percent backing); Our Ukraine-Viktor Pynzenyk (17.1 percent); Socialist Party-Oleksandr Moroz (8 percent); Fatherland Party-Yuliya Tymoshenko (6.7 percent); Communist Party-Petro Symonenko (6.2 percent); and the Popular Agrarian Party-Volodymyr Lytvyn (3.5 percent).

First, the Razumkov Center's December polls highlighted the crucial role of leaders in Ukrainian politics: Party stripes do not appear to be of paramount importance to Ukrainian voters.

Second, the polls disclosed a startling and little-known reality: that the Our Ukraine "brand" belongs legally not to Yushchenko but to his political ally, Viktor Pynzenyk. Pynzenyk appears to have managed to re-register his former group -- the Reforms and Order Party -- with the Justice Ministry under the name of Our Ukraine while everyone else from Yushchenko's Our Ukraine bloc was busy preparing and implementing the "Orange Revolution."

The "appropriation" by Pynzenyk of the Our Ukraine name could became an additional source of political grief for Yushchenko in 2005, after he forms a new government and starts to think about securing political support for himself in the 2006 legislative elections. It is highly unlikely that other parties from the Yushchenko camp would be delighted either to allow Pynzenyk to participate in the election under the victorious bloc so closely associated with the "Orange Revolution" or to agree to field their candidates on Pynzenyk's party ticket. Besides, as the polls suggested, support for Our Ukraine might be significantly lower once voters realize the astounding fact that the Our Ukraine party is not run by Yushchenko.

In other words, Yushchenko should perhaps be as mindful of his allies in 2005 as of his opponents. It is still unclear which side could cause him greater troubles. (Jan Maksymiuk)

CORRECTION: In the 23 December issue of "RFE/RL Belarus and Ukraine Report," the sum of additional election spending by Ukrainian presidential candidate Viktor Yanukovych, as quoted by analyst Taras Kuzio, should be $600 million, not $6 billion.

"I know that the Ukrainian people had only a few decades of real independence in the last 800 years. Burial mounds of heroes, who fought for Ukraine's independence, are scattered all over the Ukrainian land. We have been independent for 14 years, but we have not been free. Today we are independent and free. I would like to congratulate you on this, my Ukrainian people." -- Ukrainian President-elect Viktor Yushchenko on Independence Square in Kyiv on 31 December; quoted by Channel 5.

"My dear fellow countrymen: I want to say to all those living in the west, east, south, north, and center of the country, in the towns and villages of Ukraine, and I appeal to you as the single and undivided Ukrainian people. There will be a new president in Ukraine in 2005. And the whole of Ukraine, each region and every citizen should receive this democratic choice as their very own choice. This person will need your support." -- Outgoing Ukrainian President Leonid Kuchma in his New Year's address on 31 December; quoted by UT-1.

"RFE/RL Belarus and Ukraine Report" is prepared by Jan Maksymiuk on the basis of a variety of sources including reporting by "RFE/RL Newsline" and RFE/RL's broadcast services. It is distributed every Tuesday.