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Events from December 20, 2003 to January 1, 2004

[21.01.04]

On December 19 the Group of High Level (comprising vice prime ministers from 4 countries) in its session in Moscow completed the coordination of the plan of actions for the creation of the Common Economic Space (CES) of Ukraine, Russia, Belarus and Kasakhstan. On December 25 Russia's government approved the agreement on the formation of CES and submitted it to the Russian President.

On December 19 President Leonid Kuchma gave a press conference. He, inter alia, said that it was necessary that the Ukrainian-U.S. relations come back on track of strategic partnership and recollected a number of issues: the Jackson-Vanick amendment, which still is in place with respect to Ukraine; the refusal to grant Ukraine the status of a country with market economy; the U.S. commitment to assist Ukraine in utilization of solid missile fuel (these commitments were taken when Ukraine agreed to renounce its nuclear arsenal), etc.

Kuchma confirmed the existing opinion that the main reason of giving a sack to Vice Prime Minister Vitaliy Haiduk was "his own opinion on the consortium" (it was a reference to Haiduk's pronouncement of his personal opinion that the foundation of the Ukrainian-Russian-German consortium was not advisable).

The 5th Congress of the Ukrainian People's Party was held in Kiev on December 20-21. The delegates decided to nominate Viktor Yushchenko as a presidential nominee in the 2004 elections. An association of a number of smaller parties and creation of a single right-wing party are also planned on the basis of the Yushchenko's bloc Our Ukraine.

A plenary meeting of the Central Committee of the Communist Party of Ukraine took place in Kiev on December 20. The meeting made a decision to support the draft political reform in Symonenko-Medvedchuk's version (see the contents below). The adoption of new election law will be a condition for the support in the case of final voting.

On the following day during a meeting with President Kuchma the leaders of the factions of the parliamentary majority expressed readiness to support this bill.

On December 22 President Kuchma signed the law adopted by the Verkhovna Rada introducing state financing of the political parties. According to the law the annual volume of funding should be 1% of the minimal wage multiplied by the number of citizens included into the list of the electorate at the last elections of the lawmakers.

On December 22 speaker of Ukrainian parliament Volodymyr Lytvyn visited Moscow. He was received by President Vladimir Putin and met with leader of the United Russia Party Boris Gryzlov, Russian President Chief of Staff Dmitry Medvedev and other officials.

On December 23 the Verkhovna Rada had to consider the draft political reform. However, the opposition disrupted the session having broken microphones and staging a scandal in parliament. Several tens of opposition lawmakers spent a night in the session premises.

The opposition as of December 23-24 encompassed three factions: Our Ukraine, the BYut and the SPU while the Communists, earlier part of the opposition, supported the reform.

The three opposition factions addressed the nation with an appeal which said "on December 23 Ukrainian parliament saw an attempt to hatch an anti-people, openly criminal and anti-constitutional conspiracy".

On the same day U.S. ambassador John Herbst speaking to Kiev students expressed a doubt whether it was advisable to change the constitution when only 10 months remained before the elections.

On December 26 in the morning 276 lawmakers adopted in the first reading the so-called "Symonenko-Medvedchuk bill" on the constitutional amendments. Since the automatic voting system had been broken the lawmakers voted by raising their hands. The minutes of the Counting Board were signed by 11 out of 19 of its members.

The most significant constitutional amendments as per the adopted bill are:

• A coalition of the lawmaker factions is formed in the Verkhovna Rada of Ukraine following the results of the elections and based on the agreement and unification of political positions. This coalition will include most lawmakers from the parliament constitutional composition.

• The coalition of the lawmaker factions is formed within one month from the day the first session of the Verkhovna Rada is held. This session will be held after the regular or extraordinary parliamentary elections or within a month after the coalition of the lawmaker factions in the Verkhovna Rada terminates it activity.

• The coalition of the lawmaker factions in compliance with the Constitution submits a proposal to the President on the candidature of the Prime Minister, the personal composition of the Cabinet of Ministers and is responsible for its activities.

• The election of the President will be a responsibility of parliament.

• The parliament rights concerning the formation of the government has been much widened. The President will have the sole right to present for consideration of the parliament the candidatures of the Minister of Defense, the Minister of Foreign Affairs and the Head of Ukraine's Security Service (and they will also be approved by parliament). The President's rights for appointment and dismissal of other top officials (the Prosecutor General, etc.) will also be narrowed.

• Interim provisions: the presidential elections by parliament (after the election of parliament itself) will be held starting from 2006; in 2004 there will be direct nationwide elections of the President for a two-year term of office.

The bill on the reform should be voted for clause by clause at the next session. It is quite probable that not all clauses will be supported by 300 votes.

The three opposition factions declared that they would lodge a protest with the PACE since, as they believed, the voting results had been rigged. On the other hand, coordinator of the majority Stepan Havrysh said that the majority was ready for negotiations with the opposition to iron out the final text of the law.

Verkhovna Rada deputy speaker Oleksand Zinchenko as a token of protest against the decision that was taken announced that he is leaving the parliamentary majority.

A session on Thursday was also held under abnormal conditions, accompanied by the wail of sirens from the opposition. Nevertheless, the lawmakers managed to make an important decision on ratification of the agreement with Israel. The agreement deals with the compensation to be paid to the next of kin of those who died in the aircraft shot down by mistake by a Ukrainian missile in 2001.

There was no session on Friday. The opposition continued to stymie the meeting.

On December 25 the representatives of the three opposition factions held a meeting with the diplomats where ambassadors from 14 countries were present including from the U.S., Italy, Japan and others. At the meeting the opposition set out its version of the events in parliament. The ambassadors from a number of the countries, the U.S. ambassador inclusive, expressed their support for the opposition.

On December 25 the government and the parliamentary majority signed an agreement on the setting up of a coalition in parliament. This agreement should replace a similar agreement concluded a year ago. The agreement sets out priorities in the government's activities for 2004. The strategic guidelines indicate, in particular, the creation of adequate social and economic conditions for the acquiring by Ukraine of a full-fledged membership in the European Union, the cooperation within the framework of the Common Economic Space, the accession to the World Trade Organization, the integration in NATO.

On December 24 Presidents of Ukraine and Russia Leonid Kuchma and Vladimir Putin met in Kerch (Crimea, Ukraine). They signed three important documents: the joint statement; the agreement on cooperation in the Azov Sea and the Strait of Kerch; the instruction to their relevant governments.

The Agreement defines the Azov Sea as internal waters of Ukraine and Russia. There is also an arrangement on setting up a joint venture to carry out operations in the Strait of Kerch (here the final agreement has not been reached yet). The Azov Sea is delimitated on water and on the bottom (it was done following Ukraine's insistence whereas Russia proposed to draw a border line only on the bottom). The military ships of the third countries may enter the Azov Sea only upon the consent of both parties (it was done on Russia's insistence as the strait is controlled by Ukraine).

The governments received the instruction to complete negotiations on the creation of the Common Economic Space (see below). It is planned that as early as next year the free-trade regime will be operational inside the CES.

On December 23 the Canadian Federal Court announced its ruling in favor of selling the Ukrainian aircraft An-124-100 "Ruslan" arrested on June 26 in the Goose Bay airport (the Newfoundland Province, Canada) on a flight commissioned by the Italian Ministry of Defense.

On December 26 Minister of Foreign Affairs of Ukraine Konstantyn Hryshchenko went on a one-day visit to Moscow. A bilateral intergovernment agreement on the settlement of claims that arose as a result of the crash of the aircraft Tu-154 over the Black Sea in October 2001 was signed.

On December 30 the Constitutional Court of Ukraine proclaimed its two important decisions. According to one of them President Kuchma had the right to be nominated at the presidential elections in 2004 (based on the fact that its first presidential term in 1994 began before the present Constitution of 1996 became effective). According to the second one Oleksand Omel'chenko had the right to occupy his position of the head of Kiev City Administration despite his age of 65 (a limiting age for public servants) since the Kiev mayor is an elected position, while the post of the head of the Kiev City Administration is directly related to that of the mayor.

Ukraine and Russia force the creation of the Common Economic Space

Presidents of Ukraine and Russia Leonid Kuchma and Vladimir Putin signed on Wednesday in Kerch a joint instruction of the heads of state of the participating countries of the Common Economic Space according to which the governments of Ukraine, Russia, Belarus and Kazakhstan should complete measures on entering into force of the agreement on the CES formation.

Both presidents made a decision to sign the instruction in the working order without waiting for another meeting of the Four - the presidents of Russia, Ukraine, Belarus an Kazakhstan. This is an indication of the fact that Ukraine and Russia speed up the creation of the CES. It is expected that the two Presidents - of Belarus and Kazakhstan will sign this instruction within the nearest future.

On December 19 the Group of High Level at its session in Moscow completed the coordination of the plan of actions for the creation of the Common Economic Space of Ukraine, Russia, Belarus and Kazakhstan.

The document represents a complex of measures of 116 points which should be covered to finalize decisions adopted by the presidents of four countries. These 116 points are broken down into 22 sections and encompass all aspects of economic activities - from the tariff and customs regulations to securing the freedom of movement for natural persons. It provides for granting national regimes for market activities on the markets of the countries incorporated in the CES, for any company of the countries of the "Four". It is stated that all agreements within the CES are in conformity with the standards of the World Trade Organization.

According to Leonid Kuchma the free-trade regime will be effective between the countries of the Common Economic Space as early as in the future year. In this case, at the first stage certain exceptions from this trade regime will be made (in particular, for Russian oil and gas supplied to Ukraine). However, a fundamental agreement was reached to give up these exceptions in the future.

Thus, the idea of the CES, which was met skeptically not only by the majority of analysts, but even by some members of the Ukrainian government, has acquired clear-cut outlines.

Ukraine, as a matter of fact, ignored the warnings of some representatives of the EU and U.S. diplomats that the accession to the CES might serve as an obstacle for further European integration of Ukraine. This is clear since Ukraine did not receive a definitive answer on its prospects of entering the EU.

In addition, in the forthcoming year the change in trade conditions with the countries - new members of the EU - will be detrimental for Ukraine's economy in the amount of some USD500 million. In this case Ukraine has got a clear message: any compensations of the losses are out of the question. It is only logical that Ukraine is compelled to have a new orientation for its economic ties in the Eastern direction. In this case these are not only intentions - in the current year Ukraine's trade turnover with Russia for the first time in recent years has been on the increase, almost by 40%. Even retaining the exceptions in the free-trade regime when importing Russian energy, Ukraine has real opportunities for a sharp increase of export to Russia of its products of metallurgy, agriculture and engineering.

Taking into account the distribution of forces in the Verkhovna Rada it is obvious enough that the СES agreements will be ratified.

Main economic results of 2003

In 2003 Ukraine's economy continued to develop at a unpredictable high pace.

The GDP increase following the year results, according to preliminary results was almost 8% compared with 4.8% in the forecasts, the increase of the industrial production - 16% instead of 6% contained in the forecasts. In this case the high economic growth was sustained under the situation of the most severe bad harvest of the grain determined, first of all, by weather conditions, which were assessed by the experts as the worst within the last 50 years.

The internal retail trade turnover increased by 20% and construction - by about a quarter.

The engineering has become a leader in the industrial growth, its products increased by more than the third.

For the first time over the years of independence the state budget was implemented both in terms of revenues and expenditures by 100%.

The situation in the country's credit and banking sector has changed cardinally. The growth of deposits amounted to more than 50%, the growth of volumes for crediting natural persons increased 2.5 times and the volume of the NBU foreign exchange reserves increased by more than 50%.

Inflation remained a serious problem; by the results of the year it increased by some 8%. However, it was not marked by monetary nature (it was recognized by the IMF experts) and was related, first of all, to the price rise caused by bad harvest.

The acceleration of the economic growth in the last months of 2003 confirms that rather optimistic governmental forecasts for 2004 were justified (especially taking into consideration the fact that the catastrophically bad harvest of the last year will not come again).

The incomes of the 2004 budget were calculated based on the predicted increase of the GDP by 4.8% although most analysts believe that the real increase will be substantially higher.

There are all the reasons to state that the forthcoming year for Ukraine's economy will not be worse than the last year despite political risks related to a intensification of the political struggle owing to the forthcoming presidential elections and the political reform that has started.

Economic Developments

Britain’s Regal Petroleum Starts Gas Exports From Ukraine. Britains Regal Petroleum, the co-founder of a Ukrainian-British joint venture, has started to export gas from Ukraine according to company’s announcement last week. Regal Petroleum has stated that it has received all the necessary permissions from the Ukrainian government to export gas. The gas is transported through a new 13.2-km pipeline, with a capacity of 4 million cubic meters per annum. The export pipeline connects the joint venture’s gas processing plant in Ukraine with the trunk gas pipeline to Western Europe.

Comment: Regal Petroleum was set up and concentrates its activities in Eastern Europe.

Regal Petroleum’s reported share in the joint venture with a Ukrainian hudrocarbon production company amounts to 75 percent. The venture has proven and possible reserves of gas in northwestern Ukraine amounting to 25 billion cubic meters.

Mawerton Ltd To Buy 25 Percent of Zaporozhstal. Ukraine’s Anti-Monopoly Committee has agreed this week to let British company Mawerton Ltd. by 25 percent of Zaporozhstal, one of Ukraine’s biggest steel works. The deal will give the British company more that 25 percent of votes in Zaporozhstal board. According to Ukraine’s State Securities and Stock Market Commission, Mawerton owned more that 21 percent of the steel works as 1 Janurary 2002.

Comment: Mawerton provides consulting services on metal trade and the metallurgical production market in the United Kingdom as well as other countries.


Current Commentary







Events from June 6 to June 12, 2004 - [17.06.2004]



Events from May 30 to June 5, 2004 - [07.06.2004]



Events from May 21 to 28, 2004 - [05.06.2004]



Events from May 14 to 20, 2004 - [25.05.2004]



Events from May 8 to 13, 2004 - [24.05.2004]



Events from May 1 to May 7, 2004 - [11.05.2004]



Events from April 24 to 30, 2004 - [02.05.2004]



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Events from March 19 to March 26, 2004 - [29.03.2004]



Weekly briefing on key developments in Ukraine - [18.03.2004]



Events from February 1 to 6, 2004 - [08.02.2004]



Events from January 24 to 30, 2004 - [02.02.2004]



Events from January 15 to 23, 2004 - [24.01.2004]



Events from January 5 to January 15, 2004 - [21.01.2004]



Events from December 20, 2003 to January 1, 2004 - [21.01.2004]



Events from December 16 to December 20, 2003 - [25.12.2003]



Events from December 8 to December 15, 2003 - [15.12.2003]



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Events from November 22 to December 1, 2003 - [02.12.2003]




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