Successful?

Here’s some analysis like we get here from time to time. I will take the points one at a time:

Got that deal anytime? Like when Ukraine "overdrew" or borrowed some gaz and never paid it back?

No, the deal I am talking about that they could have gotten at any time was the $95 deal not the $230 deal. That was true at any time prior to them shutting off the flow. They know this and so does everyone else—that is, at least, most everyone else.

I don’t know that anybody knows Ukraine overdrew anything. The way things have been done in the past has been very murky and always worked out in the shadows. Most of it has been by barter and barter always lends itself to misunderstandings, if you’re being generous about what went on, or to manipulation, if you aren’t. You say they overdrew. Ukraine would say that they simply collected for transit fees owed. The Kremlin denies this.

If it’s the reserve you’re talking about, the reserve Ukraine used, there has been a lot of back and forth on that. The Ukrainian government says it was Ukraine’s; the Russians say it was Russia’s. With things happening in the shadows like they have, it’s hard to tell. But Ukraine has had at least a colorable claim to it. The Kremlin of course denies this.

Like when Ukraine said that not only will they raise the rent on the pipes but also on Black Sea fleet bases?

Raising the rent on the pipelines to market rates? Isn’t that the position of the Russian government in all of this? If Russia wanted to move to market rates, then why couldn’t Ukraine? They had a contract? (Pause for laughter.) Of course what Russia means by market rate is the same rate paid by Europe. (With gas though it’s hard to tell what the market rate is; it’s not readily tradable. That’s why it is probably better to refer to it as “the European rate.”) So by the same token, Russia should pay the European rate for gas transport, right? The Kremlin of course denies that Ukraine has the right to do this.

Raising the rates on the Black Sea Fleet is another one of those issues that needs to be aired here fully and hasn’t been. There is evidence that the Russian military is subleasing some of the land in these areas for commercial purposes. In other words, they are working a pretty good deal for themselves on what is supposed to be land leased for the military. So if the Russian military wants to make a go of it commercially on that property, why can’t it be charged the market rate? (Unlike for gas, there is a discernable rate for leased commercial property.) Because they have a signed lease agreement with the government of Ukraine for a certain amount? You mean a contract is a contract?

What did you smoke for breakfast? How in the world would Ukraine pay the gaz market price? Out of Bill & Melinda Gates charitable trust?

Could Ukraine pay the market rate? Of course it could but that would create a lot of economic problems for the country if it had to right now. So what is the argument here? Ukraine is poor and can’t afford it and it depends on the largesse of the Kremlin to keep it set up? Or what?

The problem is that the Kremlin had no real bargaining position. They just can’t take their gas and sell it to the Chinese like they could petroleum. Natural gas is not fungible like other commodities are. It cannot be just loaded up and shipped anywhere to any customer. (At least not unliquified, something Russia can’t do extensively in commercial quantities right now--if it can do it at all.) Natural gas depends on pipelines to get to the customer. There lies the rub and the reason for this whole row: those pipelines run right through Ukraine at this moment. Russia wants to bypass Ukraine going north but they still won’t be able to pump the gas to Europe that needs to be pumped even with the new pipeline. This means that Russia will still be dependent on Ukraine for some time to come to get it gas to Europe. So Russia may want to sell its gas to China, India or anywhere else besides Ukraine. The problem is the pipelines are facing in the wrong direction.

That is where they have miscalculated this time and this is one of the reasons why a number of us think that there had to be a political dimension to this whole thing. Take any year before this one. At years end, Russia has cajoled, blustered, talked loud and even threatened either to get Ukraine to pay or to get some kind of contract. But it has been in a lower key. It was not uncommon to hear about the problem from the Russian side and then to hear about negotiations and a solution reached down to the wire--all under the radar and settled out of sight. This has happened time and time again at the end of the year. This time, however, there were early statements by the Foreign Ministry and then Putin became involved. And the Defense Ministry weighed in on it when Ukraine mentioned the Black Sea Fleet base. In other words, the weight of the whole Russian government was brought to bear on this issue. And in the end, the threat to turn things off turned out not to be the idle threat it had been in the past. They actually did. For the first time, they actually did it.

But they overplayed their hand. One analyst says that because of the way markets are, it is not possible to use natural resources as a stick. Every government that has tried it has found this out. OPEC did at first and it taught the Saudis a lesson they learned from. Russia looks it will find this out to, if it hasn’t already.

So I stick by what I said. They could have gotten the deal they ended up with at anytime but they ended up with much less. And they have all of Europe talking about alternatives including what for some of them had been out of bounds--nuclear power. Sounds like a very successful round of negotiations.

Winners and losers in the Russia-Ukraine gas crisis

In purely financial terms, probably Russia is the winner. When all the figures are computed in the complex arrangement, some analysts say that Ukraine will be paying Russia about $160 per Mcm for the gas it receives from that country, which is what they wanted in the first place, before Gazprom/Kremlin put its black mask and knuckledusters on.

For RosUkrEnergo and its 'unidentified ultimate owners' - a terrific off-the-books earner for the next few years, so a good result for them.

Ukrainians in general, I guess will feel pleased with themselves for standing up to 'older brother'. The tirades of anti-Ukrainian comment on Russian TV were counterproductive, so 'zero points' for the Kremlin's spin-doctors [again].

Yushchenko emerges with credit, statesman-like, shaking off his reputation as a cautious ditherer, his political opponents in Ukraine somewhat disorientated, so for him, a good result. It will be interesting to see the effects on the next lot of Parliamentary Election opinion polls.

For Turkmenistan, which provides about 1/2 of Ukraine's total gas needs, and which could significantly increase production without too much capital investment, any chance of dealing direct with European customers has now disappeared; Turkmenistan’s gas from now on, is completely and formally controlled by Gazprom, so, a looser.

The biggest looser - Putin, for it is he who was undoubtedly responsible for the thuggish tactics of this week when he tried to 'bounce' Ukraine into a cripplingly expensive deal. The order to turn off the taps on 1st January must have come from the very top - the volte-face when the taps were turned on again within 24 hours - a humiliation, almost a fiasco. He achieved nothing apart from negative press and huge tremors of anxiety in Europe and beyond. His boys in Gazprom have not done a bad deal for him, but he must be hurting bad inside…

So soon?

So it looks like they signed a deal--Russia, Ukraine Settle Gas Dispute, to Raise Prices.

Ukraine agreed to almost double the price it pays Russia for gas, settling a dispute that cut shipments to Europe and damaged Russian President Vladimir Putin's reputation as a reliable energy supplier.

The former Soviet republic will pay an average $95 per 1,000 cubic meters for the fuel for five years, up from $50 under a previous arrangement, OAO Gazprom, Russia's state-owned natural-gas monopoly, said in Moscow today.

I wonder if they drank a toast and clapped each other on the back. Russia could have gotten this deal at any time without riling Europe. So they don't get anywhere near their $230 and they don't get any control over the pipelines in Ukraine and they've got Europe considering nuclear power. Sounds like a very successful round of negotiations, doesn't it?

Turkmen gas, and the Russia – Ukraine gas crisis

Although acres of newsprint have been devoted to the Russia-Ukraine gas crisis in the world press lately, not much mention has been made of Turkmenistan, which presently supplies about one half of Ukraine’s gas needs.

Ukrainian and Turkmen agencies report that Naftogaz Ukrainy chairman Oleksiy Ivchenko today met Turmen President Saparmurat Niyazov, and that Presidents Yushchenko and Niyazov, in a telephone conversation, agreed to stick to the previous agreements whereby Turmenistan is to supply 40 Bcm of natural gas to Ukraine at a price of $50/Mcm in 2006. They also discussed the termination of Russian gas supplies to Ukraine.

How this will work out is a mystery, and a big problem for Ukraine, because Gazprom, according to its Chairman Alexei Miller, has purchased 30Bcm of Turkmen gas for delivery in 2006 [even though Russia has the largest gas reserves in the world], yet pipelines westward, which are wholly owned by Gazprom, are only capable of transporting 35-40 Bcm of gas per annum.

Turkmenistan could easily increase gas production with modest investments and export the same quantities of gas as Russia, or even more. At the moment about half of Russia’s total gas production is for domestic purposes. In March 2004 President Yushchenko proposed creating an international consortium to build, own, and operate a new large-capacity gas pipeline from Turkmenistan via Kazakhstan and Russia to Ukraine and on to Western Europe, but this would have challenged Putin's plan of a Eurasian producers' cartel which would enable Russia to monopolize supply and dictate the price of gas delivered to European customers.

It is clear what’s going on here. Russia is attempting to limit Ukraine’s, and Europe’s, gas supplies from Turkmenistan. Gazprom admitted that when they closed off Ukraine’s share of gas deliveries to Europe yesterday they also terminated delivery of Turkmen gas to Ukraine. Ukraine ‘assumed’ that the Turkmen gas was still on stream – as a result pressure fell dramatically at the European end of the pipelines. Today Gazprom confirmed that they are no longer delivering Turkmen gas to Ukraine.

The whole matter of delivery of gas from Turmenistan to Ukraine is very murky indeed. It is controlled by a Swiss-based ‘kick-back’ company RosUkrEnergo created in summer 2004 after talks between Putin and former Ukrainian President Kuchma. It acts as an intermediary between Gazprom and Naftohaz Ukrainy to transit Turkmen gas through Russia into Ukraine. For its services it receives a whopping 13Bcm of Turkmen gas destined for Ukraine per annum, which it then sells on in European markets to provide huge off-the-books slush funds for its highly placed secret Russian and Ukrainian directors. Recently sacked Ukrainian Prime Minister Yulia Tymoshenko said that plugging this scam would go a long way towards solving Ukraine’s gas problems.

There is an urgent need for the EU to show some leadership and formulate an integrated policy for gas deliveries. It's time for some serious bargaining to take place between Russia, the EU countries, Ukraine, and possibly Turkmenistan, to solve this crisis and ensure that it does not occur again.

On again?

The gas is still on and Russia has promised to pump in more supplies to make up for the gas they say has been stolen by Ukraine over the past couple of days. Bloomberg quotes Medvedev, Putin’s crony head of Gasprom, as saying

"By tomorrow evening gas supplies to Europe will be restored in full, in accordance to their contract,'' Gazprom Deputy Chief Executive Alexander Medvedev said at the press conference. "However, the situation in which Ukraine continues to steal gas and we continue to supply European customers can't continue indefinitely.''

Ukraine denies this of course but in this area of the world, both of these positions may be the truth. Gas may be siphoned off and the government not know anything about it—or at least the head of the government. There are other interests here with other power that might be doing this.

But Medvedev continues the stupid statements. By saying it can’t continue suggests that Russia will do what to stop it? Turn off the flow again? Or something “fatal?” If it is European concerns that caused them to turn it on, which it was, is making this kind of noise speaking to European concerns? The answer is a flat no. But it is not commerce that is the issue here, it is Russian prerogatives—that is, Kremlin prerogatives-- in what it considers its own backyard. They are narrowly focused on these and on nothing else—at least until a big European customer puts in a call and reads them the riot act. But even then, after that, they quickly slip back into character and talk stupid. So will they turn it off again? I wouldn’t put it past them.

For those who think it is simply a commercial spat, think again. The Christian Science Monitor:

"We have vast resources and they give us political influence," says Vladimir Zharikhin, deputy director of the state-funded Institute of Commonwealth of Independent States Studies in Moscow. "If we give a lower price to somebody, we have the right to demand political concessions. So, we will give economic aid only to the countries that are loyal to us. This may not be a great geopolitical policy, but it's better than nothing."

And

Mr. Markov [an advisor close to the Kremlin] says the stakes are high, and the Kremlin is unlikely to back off its harsh stance toward Ukraine. "Failure will undermine Russia's image, but victory will strengthen it," he says. "To be a guarantor of energy security,it's important to be firm. If Moscow were to agree to continue paying for Ukraine's anti-Russian behavior, who would ever take us seriously?"

It is about Russia and Russian interests as defined by the Kremlin, that is, short-term and very narrow.

One other thing. Putin said the other day that turning off the gas was not the thing to do or was not going to happen or something like that. (That’s a weak quote I know. I don’t have the exact quote but that is the gist of it.) Now he’s on board and talking tough. This reminds me of Yukos, first a no by Putin then a yes and it suggests to me once again that Putin is not as in charge of things as most people tend to think he is. This is just more evidence that there are competing power centers in the Kremlin that Putin has to broker.

Meanwhile, on the home front, we woke up to a noticeably cooler apartment this morning. I checked the radiator and it was still on and hot but I could hold onto it without getting burned. Last week, I would have been burned. So it is hot but not as hot.

We’ll bundle up a bit.

Gas crisis unfolding quickly

Events in the Russia–Ukraine gas crisis are unfolding quicker than I anticipated. A major reason why gas pressures in European countries [fed by pipelines passing through Ukraine] dropped so precipitously today is that, apparently, no Turkmen gas was pumped from Turkmenistan to Ukraine by Russia. Gazprom have acknowledged that they ‘delivered short’ today, and hurriedly promised to deliver more gas, probably because of some serious behind-the-scenes arm-twisting by Germany and other European countries.

Approximately 36 Bcm [billion cubic meters] of Ukraine’s annual gas consumption is from Turkmenistan, 20Bcm is from domestic gas fields, and 23Bcm is from Russia, much in lieu of cash transit payment. Ukraine exports about 5Bcm.

Worryingly for Ukrainians, a Gazprom spokesman announced yesterday that that all 15 Bcm of gas to be exported from Turkmenistan in the first quarter of 2006 belong to Gazprom. [Details at http://www.rferl.org/featuresarticle/2006/1/FA73C033-A756-4E69-B9C1-350D35F9A531.html ]

A few days earlier Gazprom said that it purchased a big chunk of the total Turkmen gas production for 2006, increasing its imports fourfold from that country, perhaps to make up a shortfall in its own projected production targets. This, together with limited pipeline capacity from Turkmenistan westward, could spell big trouble for Ukraine and deepen the gas crisis even further.

The Ukrainian Ministry of Foreign Affairs has released an uncompromisingly worded statement [which can be read in English at http://www.mfa.gov.ua/mfa/en/publication/content/4977.htm ] putting its side of the disagreement. It accuses Russia of “aiming to exert economic pressure, blackmail, and, ultimately, destabilize the Ukrainian economy and disrupt Russia’s gas supplies to consumers in EU countries”.

The Ukrainian Cabinet has today appointed Ukrainian Parliamentary speaker Volodymyr Lytvyn as a Deputy Chairman of Ukrainian State oil and gas company Naftogaz Ukrainy. Lytvyn was also Parliamentary speaker under former President Kuchma, and the former head of the Kuchma’s Presidential Administration. He is a seasoned ‘fixer’ who is well acquainted with Putin and his Kremlin staff, as well as President Niyazov of Turkmenistan.

For a good insight into the mind of Putin and those pulling the Gazprom strings check out an interview with Andrei Illarionov, the Russian President’s key economic adviser who resigned this week. It's in the current “Time” magazine at http://www.time.com/time/world/printout/0,8816,1145192,00.html He says, “Russia has made it plain it wants Ukraine's gas transporting system. Then, Gazprom says, the prices will go down. This is the same usage of an energy weapon, as OPEC did in November 1973, when they placed the U.S. and Holland under oil embargo for siding with Israel. Prices skyrocketed; Saudi Arabia enjoyed a couple of years of fat profits. Then, the U.S. and other Western countries improved their economies, and adjusted to new prices, while per capita income in Saudi Arabia has sharply dropped since. A country that is prepared to wield energy weapons must know that it is going to lose in the long run. History gives an unequivocal answer to where Russia will slide, should it embark on this road”.

High stakes poker

From Levko:

In a brilliant piece entitled 'Energy question may spell end of the good life for the West' at http://business.timesonline.co.uk/article/0,,9072-1959462,00.html its author David Montagu-Smith speculates:

A key factor in the changing balances of world energy is Russia, and the ambitions of President Putin’s country to reassert its place on the world stage by using its growing muscle as a future energy supplier to the markets of Europe and the US to recover some of the ground and status lost after the demise of the USSR....

...What we believe to have been the definitive triumph of the Western democratic way over the sterile misery of the Soviet system may be turning out not to have been the victorious end of the Cold War after all, but just one battle in an unending struggle for global power and influence.

It is now very clear that this is how today's Kremlin see matters too. Russia has huge borders with often hostile neighbours, a declining population, and lots of 'goodies' buried in their back garden, so this may partly explain their paranoia.

As for the high-stakes poker game between the Kremlin-Gazprom and Ukraine, I believe up until now Putin has overplayed his hand. Yushchenko [for the time being] has called his bluff. New Year Eve’s last minute offer made by Putin on Russian TV - "old price for the first quarter of 2006, but full 'market price' after that, if you sign before midnight," was made ostensibly to show some compassion or flexibility towards a brother nation - but his attitude and true feelings have been clear for many weeks now, so this gesture, probably dreamt up by one of his spin doctors, will ring hollow.

The danger for Putin is that if in the next months, despite valves being shut off, it's 'business as normal' in Ukraine, [in the short term] he will look rather impotent.

In several months Ukraine may well have to start skimming off gas intended for European suppliers, but this, no doubt, will be accompanied by a PR campaign - school children in winter coats and scarves, freezing pensioners in hospitals wards.. this sort of thing. Austrian, German and Italian utility companies will turn to Gazprom for compensation for breach of gas delivery contracts. Of course it will be big industrial consumers, predominantly in the east of Ukraine who first feel the pinch and not domestic and social consumers, as gas pressure falls. If the crisis drifts on, eventually EU countries will have to get involved in any solution, and even if they are even-handed, Putin will be asked to back-off.

There has been little mention in the western media that arrangements for transit of Russian gas through Ukraine are defined by long-term contracts between Gazprom and Naftogaz Ukrainy, valid until 2009. Now that world gas prices are rocketing Gazprom are trying to negate these contracts. Yushchenko should order his press secretaries to put Ukraine's case to the fore, particularly now that western commentators are really sitting up and taking notice of this crisis.

It's maxim that Russians only respect you if you stand up to them. The Ukrainian leadership know their 'older brothers' better that anyone - many of them studied and worked together in old Soviet structures. The Orange leadership must have feelings of bitterness towards Putin for his interference during the Presidential elections [and possibly Yushchenko's poisoning?] - is the gas crisis providing an opportunity for these to be vented?

In the 1960's, well before Siberian fields were commercially developed, Ukraine supplied 70% of the natural gas and oil needs of the former Soviet Union. Because it’s reserves were depleted at that time, it thinks it’s entitled to a favourable deal.

There are rumblings of disquiet in Poland and other new central European EU countries, "If Ukraine is feeling the squeeze now, maybe they'll do the same to us in a year or two's time." Poles feel betrayed and angry on account of the construction of the Baltic gas pipeline bypassing their country, and interpret this as Germany trusting Putin's Russia more than themselves to provide reliable delivery of gas, even though Germany and Poland are now a fellow EU countries. And who will pay the four or fivefold extra cost of laying pipelines and its maintenance in the inhospitable Baltic sea? Why German consumers of course, in their gas bills.

The whole gas crisis is playing very big in European and North American media - the Kremlin is generally speaking, getting, bad press for their bully-boy tactics. Either they didn’t take account of this, or maybe they don’t care. Or maybe Putin gets a kick from this macho posturing before his G8 colleagues, waving his ‘gas weapon’ in the air.

These media stories don’t mention that this particular week is Orthodox Christian Christmas week so many factories, civic buildings etc. are not functioning – it’s next week when folks get back to work.

In Eastern Europe Ukrainians are known for their stubborness. I suspect that Ukrainian authorities are going to 'dig in' and 'sit tight'.

No gas...sort of

So the gas has been turned off. We know this because of the pictures of someone turning a valve near the Ukrainian border broadcast on TV yesterday in Russia. Of course, gas still flows through the pipeline, but it has been reported to be at a lower pressure. So gas flows but Ukraine’s portion is being withheld.

Before we knew for certain Russia had “turned off” the gas yesterday, I could have sworn it was colder in the apartment, which to me was a sure sign they had. So we went around checking the radiators to see if they were cold. They weren’t. And they aren’t today. The government says there is enough gas for a while so domestic consumers won’t feel it, at least for the next little while. After that, who knows.

This creates a lot of uncertainty but you have to admit that it makes things more interesting.

One of the things this could do is to spur reforms across the board. The country needs an energy policy quick and the only way to have an effective energy policy is with reform. Maybe this will be a kick in the rear to get reform moving again. Maybe we hope too much.

Yanukovych has been seen on TV recently with the airing of his best wishes for the country in the new year. He speaks Ukrainian and manages a smile that doesn’t come off as a smirk. Must have been practicing for this moment. Maybe he has a Russian language version for the east. If not, you gotta wonder how it all plays there.

He hasn’t been known much for having good advisors. As a matter of, they have been spectacularly abysmal even the Russian versions he had in the last election. But I think he thinks he just has to hang around and stay out of jail to win the PMship in March. And the polls say he is right—for now. That he still is around and still viable says nothing for his strategy and a lot for the fact that the government and the others don’t have one. Yanukovych is still the butt of jokes, but even a fool can win if the opposition is in disarray. And that is what it looks like now—on both counts.

Yuschenko’s speech on New Years Eve was a nice one all told. He walked out of Marinsky Palace, out the gate and across the plaza to a podium flanked by female singers singing the Carol of the Bells. (“Ring Christmas bells, merrily ring, tell all the world, Jesus is king…”) It looked like Bush or Reagan walking down the corridor to the East room for a speech or press conference. It looked pretty impressive. Kuchma was usually sitting at his desk in real party boss style trying to be nice but not quite doing it. This looked more meaningful.

The speech started as a laundry list of accomplishments which I wish he would have chucked. The second half was better. His speech at the Maidan celebration suffered from the same problems. It would have been better in both cases to have given the last half first and then moved on to tout the accomplishments. That might sound weird to an ear attuned to US presidential speeches, which do the same things, but here he’s got to get the people’s ears before he can tell them what he’s done. And he hasn’t gotten their ears yet. He has to speak to them, soul to soul like he did before, in the olden times. That might mean he may have to get rid of some Western trained advisors but that is what he ought to do. Cleverness won’t cut it right now.

Anyway, in light of developments, new fur fashions to wear indoors might be a good business idea.

Courage!

More commenter analysis

Here's some more analysis from a commenter who signs himself LEvko. It belongs up here:

The Ukraine-Russia gas crisis is part of a trial of strength in the wake of Kremlin's humiliation during and after last year's Orange Revolution - "The Empire Striking Back?"

Putin's Kremlin has rather overplayed its hand so early in this poker game
- Western European countries are already getting anxious about their gas supplies.

A piece in today's 'FT' on the gas crisis states: "The Austrian government
on Wednesday attempted to calm fears of gas shortages across Europe as Ukraine's fuel and energy minister arrived in Moscow for emergency talks aimed at finding
a solution to a row over prices that could see Russia cut exports. Martin Bartenstein, economics minister, said ensuring energy supplies would be a priority of Austria's presidency of the European Union from January 1. "Europe needs more investment and greater diversification of its energy sources," he said.

Suez, the Franco-Belgian energy group, said the dispute was an "alarm bell" for Europe's politicians over the risk of becoming too dependent on Russian gas imports. Gerard Mestrallet, Suez chief executive, said: "Geographical concentration of supply at a time when our dependence is growing does not set the stage for prices to ebb from the high levels they have reached in recent months.

"Echoing these sentiments, the German Embassador in Ukraine, in an interview in today's Ukraininan 'Delo' newspaper is clearly sympathetic to Ukraine's plight, considers Gazprom's attitude unreasonable, its ultimatums unacceptable, and suggests gas price increases should be staged. Worryingly for Russia, he says, "..Russia and Ukraine are our partners, and if they mess us about, we will look for energy sources in other places.

"Putin and his Kremlin associates, for it is they who are pulling the strings, by uncompromisingly threatening to terminate gas supplies to Ukraine and recklessly increasing the price of gas from $160 to $230 per Mcm, have nailed their colours to the mast and left little 'wiggle room' in any further negotiations. Any lower figure when a deal is finally done will look like defeat and more loss of face for Putin when dealing in Ukrainian matters.

Apparently if no deal is reached by 1st January, in a propaganda stunt straight from the Khruschev era, some Russian TV channels will transmit live pictures of the theatrical turning off of valves on pipelines supposedly transporting gas to Ukraine.

As in any dispute where goods or services are provided by long-term suppliers to consumers, 'status quo ante' conditions normally apply until agreement is achieved, and then back-dated financial adjustments and repayments made. I suspect that EU Embassadors are beginning to lean on the Kremlin telling them to bear this in mind, and get things sorted.

European consumers, transit countries, and supplier countries whether they like it or not are mutually interdependent and are bound together is this dispute. In my opinion the Ukrainian authorities are doing OK in trying to get as good a deal for themselves as possible, I hope they don't get too cocky. Yushchenko's comments to the press tend to be bland, and [deliberately?] obfuscating, so maybe they won't.

On the internal politics front in the run-up to the VR elections, statements from Yanukovych have been somewhat contradictory. Although he considers $230 per Mcm unacceptable and " a blow below the belt," he blames the current government for this crisis. How it is affecting voters' preferences I'm not sure. It's all most interesting..

LEvko: This is the kind of comment that I would like to see as a blog post. If you have any interest, please contact me and maybe we can get you access to post here.

Russia prepares to turn off gas to Ukraine?

So is it official? --Russia prepares to turn off gas to Ukraine. Come 10 a.m. tomorrow Russia will shut off the gas supplies to Ukraine? And it will be televised?

It would be hard to know how they can shut it off. I guess they could just refuse to send any gas through the Ukrainian pipeline but that would affect the end-user Europeans. Or they could subtract, I guess, the amount of gas to be supplied to Ukraine from the total. But Ukraine says it has rights to 15% to pay the transit fee. And more could be siphoned off and not all of it would be with the approval of the government. That is how it has happened before.

It just astounds me though how the Kremlin can risk upsetting the Europeans like this. It can't possibly help either with its diplomatic relations or with its commercial relations. Its a damn them all strategy in effect, though they may think that pointing a finger at Ukraine is enough to remove any responsibility. It isn't. Russia has to be a dependable supplier for Europe or they will look at alternatives. And there is already some indication that Europeans are doing just that.

How about this for a resolution? Russia says it turns off the gas and there is an agreement in the next day or two for less than what Russia demands. The Kremlin talks it up as in the best interests of all parties to have a deal and thereby avoids a black eye--in their view. But that would be the view of an isolated Kremlin that sees the world in stark us-vs.-them terms. The damage has already been done.

Who knows though if such a result will take place. The Kremlin--I don't think the term "Russians" describes really the interests behind all of this--has signed a deal for Turkmen gas that will leave very little for Ukraine to be able to purchase. They are closing the noose a bit tighter it looks like.

I think it's clear that when it comes to Ukraine the Kremlin has lost its mind.

Of course, others who support Kremlin interests think differently about this. They argue that Ukraine has stiffed them at every turn in everything that they have done. Of course, they figure this only from the point of the Orange Revolution. What happened before that was just alright with them. But that shows what really sticks in their craw--freedom and independence for Ukraine.

A play for the Crimea?

Review of Ukraine base lease 'fatal'--Russia

Ukrainian President Viktor Yushchenko, who is resisting Russia's demand for a nearly five-fold increase in gas prices in 2006, has hinted Ukraine could hit back by reconsidering the terms of leasing the Sevastopol base in the Crimean peninsula.

"The agreement on the Black Sea fleet base is one part of a bilateral treaty, the second part of which contains recognition of mutual borders," Sergei Ivanov said in televised comments. "Trying to revise the treaty would be fatal."

The 1997 pact gave new legal status to the historical home base of the Black Sea fleet, which Russia inherited from the Soviet Union, and ruled out Moscow's territorial claims to Ukraine.

One wonders what the Kremlin means by all this. Does it mean that Russia will make a play for the Crimea? Are they going to invade? When we were there, close down by where the Russian fleet lies at acnhor we came upon a new monument celebrating the "Russian city" Sevastopol's 300th anniversary. And the Russian flag flies not only over the fleet but also over the train station there. (When we asked someone on the train we were with, who said he was Ukrainian through and through even though he lived in the Crimea and spoke Russian predominantly, why the flag flew over the train station, he was perplexed by it. I don't think he had taken note of it before.)

Maybe they could take the Crimea back. Maybe the people in Crimea would welcome them back. (The Tartars might not feel all that comfortable doing it, one would think.) I guess that would solve the Tuzla problem once and for all.

But this is just irresponsible on the part of the Kremlin, if they want to take their place in the world. I guess though they want their place to be on their own terms. And those terms sound an awful lot like empire.

Tymoshenko pointed at the Russians as the culprits every time something went wrong. She was wrong on all counts and is one other reason why she is unfit to govern. Ukraine needs good relations with Russia and Russia shouldn't be blamed for everything to stir up the people.

But Russia does deserve blame here. One commenter here says that Russia shouldn't subsidize a country that kicks them at every turn. This is a breathtaking charge. For one thing, it suggests that Russia is not as big a power as it asserts itself to be that it cannot ignore a country that is smaller than it is, poorer than it is, with not much in terms of any military that could challenge it.

But the problem really is that it's got the morality skewed badly. A guy has someone pinned down, beating him, gets a face full of spit for his troubles. "Can I really give a guy like that a break who would spit in my face?" His friends shake their heads. You can hear this talk from inmates quite a bit. "Well, if he hadn't gotten in my way, he'd be alive today." Or, "It was the way he looked at me. If he hadn't looked at me like that he'd be alive today." Or, better, from the rapist: "She had it coming to her." They have their points don't they? In an amoral world, yes.

I can't see that Russia comes out of this better off. Maybe Europe will bury its head in the sand and ignore it as long as the gas keeps coming. But that can't be true for all of Europe. For the newer states, this just confirms what they feel already about Russia. And maybe they would be as bothersome as a couple of ticks on a steers hide for all they could do in Europe. And thsi would not be the case for all Europeans. Some are advocating moving away from Russian dependence right now. Would that be good for Russia?

United Press International - NewsTrack - Ukrainian slaves rescued from Russian ship

This--United Press International - NewsTrack - Ukrainian slaves rescued from Russian ship --reminds me of a joke I posted here before that has made the rounds here in Ukraine.

A Ukrainian and a Russian are both in the desert in need of water. They come upon a bottle filled with it buried partially in the sand. Grabbing it, the Russian turns to the Ukrainian and says, "Let's share this like brothers!" The Ukrainian responds, "I'd prefer fifty-fifty."

The New Crimean War? More on natural gas

Here's some more on the natural gas crisis here--WSJ.com - The New Crimean War.

As to why, the article states:

First, Russia seeks to influence Ukraine's March 2006 parliamentary elections by suggesting to Ukrainian voters that the current government in Kiev is economically incompetent and its pro-Western tilt harmful to consumers.

Second, the Kremlin seeks to discredit Ukraine's "Orange" government among Russian citizens in order to inoculate its population from the contagion of democratic revolution.

Third, Russia seeks to drive a wedge between Europe and Ukraine by painting the Kiev government as reckless and unreliable.

If this is what they're thinking, they are playing a game of high risk. Is it necessarily all that clear that the results they think will come about will in fact occur? Point the finger at Ukraine if things go south and expect the world to see Ukraine as the culprit. Not very smart.

One thing about Saudi Arabia they have been smart about is not to push the price of oil too high that it creates incentives to conserve or to seek alternatives. That is smart from a business point of view. But Russian natural resources are being used as political tools by an insular Kremlin that miscalculates chronically.

Here's one for you: Why would the Kremlin support Iran in the face of Iranian support for Chechen terrorists? Seems like the same kind of thinking. What look like short-term gains trump anything that might be had in the long run. But that is the Kremlin.

A change in the blog

I am thinking about making a change here in the next few weeks. I want to make this a co-blogger affair. There are any number of people out there who have made comments on the site who have some good insights into Ukraine and into this area of the world. It is those kind of insights I think would be something to offer readers on a more consistent basis.

There is a lot going on around here and I don't have all that much time to track it all. This is not only true for Ukraine but also for Central Asia and for Russia. These are all neighbors and for some of them, the effects of the Orange Revolution are still being felt, if not in imminent revolution, then in a certain paranoia that is influencing policy still. And Europe is an issue too since Ukraine is moving in that direction. All of these countries are places of interest for this humble little blog.

If you would prefer anonymity, that is a possibility too. We could work up s pseudonym for you to work under.

So anyway, if you have any interest, let me know. I am looking for from 2 to 4 others. Email me at foreignnotes at hotmail dot com.

Merry Christmas

A very Merry Christmas to everyone.

Even though it was all uncertainty for awhile, though our youngest daughter didn't give up hope in the face of repeated cross examination and skepticism from her father, Santa Clause visited our humble square of air and brought us all presents.

Of course, we have jumped the gun on it all. Christmas here isn't until January 7th. But Ded Moroz. Ukraine's Santa Claus, comes on January 1st. So we are ahead of the Christmas season wave here. The kids don't mind it though--not one bit.

Is it blackmail?

Some in the Russian press object to calling the demand for price increases blackmail. Technically, they may have a case, but that is not all they are saying. This from ITAR-Tass:

The Ukrainian TV had broadcast statements on "the Kremlin blackmail"throughout last week without caring to explain why the demand to honestly pay for the gas it consumes is regarded as blackmail in Ukraine, which is now a market-economy country.

Ukraine is not being honest because it is not paying for what it gets now? Of course, the price paid for now is the price mutually agreed upon in 2004 I think it was. So it is dishonest to pay an agreed to price? In the Kremlin's world where all is Russian interests narrowly conceived, it looks like it is. And wasn't that agreement to extend to 2009? Seems like it was. So is it dishonest to raise the issue that legally speaking the agreed to price is binding? Or is it only binding as long as it is in Russian interests, as conceived by the Kremlin? What about all that talk from Putin about rule of law? So much lip service being paid to it by the Kremlin. If it is in Russian interests, the rule of law bends to do the Kremlin's bidding. Or is the feeling of the Kremlin and Russian elites that rule of law should only be for Russians? (Or those capable of exercising it, which seems to be the present formulation. It's yours if you have the power to keep it.)

And what about this market economy business they argue? Wasn't Ukraine a market economy back when it signed the agreement? Or are they saying it wasn't back then? If they aren't a market economy then a price differential should be the norm? But if it is a market economy, then pay the international rate? Is it just a coincidence that all non-market economies in the area are in line with the Kremlin? This is just so much opportunism looking around for a justification.

And you can spare me the Russophobe label here. When the interests of the elite are in issue, the term "phobia" is dragged out and put to good use. So when Chernobyl exploded, any statement about the potential effects of radiation were termed "radiatophobia." If they had had the power to do it then, anyone talking about it would have been committed for observation by pliant psychologists. But this is just another case of bending everything to serve Kremlin interests. It's just more of the same.

Much more gas analysis

Here some more analysis of the gas crisis here--One Gas Mask For All. Yulia MOSTOVAYA. Zerkalo Nedeli On The WEB. And it is a crisis.

This is not to say that economically Ukraine wouldn't be better off to eat the higher prices. It would be much better off, in the long run. But it needs to be in manageable bites. Maybe that is impossible to do--industries and governments are not usually motivated to do what they aren't forced to do. But economic devastation could be a real possibility. And Yuschenko and the gains of the Orange Revolution might not be the only casualties. Democracy could also be a casualty. The great cynical irony is that after the Orange Revolution, Russian analysts sneered that Ukraine would dabble in democracy and that it would then be discredited leaving Ukraine on the more natural path that Russia blazed with Putin. "You'll be with us in the end," was what they said.

It looks like it won't be the result of any kind of Slavic inevitability or historical necessity but because of Russian meddling. (And if you don't think it is meddling, just look at the prices Belarus and others who toe the line pay.) They will give history a big shove and then talk about the inevitability of it all. It seems like that is a result no one should want in Ukraine.

Of course, they could just cede the pipeline to Russia if that is what they are really after. Easy to resolve then. But that only makes sure you get eaten last, to paraphrase Winston Churchill.

So the government has to mobilize. But it looks like nothing is being done. And the opposition is looking to what will amount to a carving up of the cadaver. Criminally irresponsible still.

Does Europe see this all with any degree of concern? If appeasement seems to come to mind readily there might be a reason for it. Hunker down and maybe they'll pass us by. If the argument that Lavrov has made that they will use it for their near neighbors gives them any feeling of relief they are naive. Using resources as a tool of foreign policy has no natural limit. If it is in their interest to use them against Ukraine, when it is in their interests again, they will be used again. Anything else is living in a Disneyland world. All is joyous and wonderful inside and all the problems are left outside--for a hefty price. But those problems still press in and eventually you have to come out and deal with them.

Some other good gas analysis

Here's some very good analysis of the gas problem here by a commenter to the last blog post of mine. I thought it should be up here on its own.

Dear Scott - Your comments describing the Ukraine-Russia gas crisis are most interesting and quite sobering. As I see it Ukraine has a [semi] monopoly position as a transit country, and Russia is a [semi] monopoly supplier, so the situation is developing into a high stakes poker game, the prize being the Ukrainian gas transit system. Are we as close to gas supply disruption as your piece suggests? Curtailment of gas supply, even if temporary, to many high volume gas consuming industrial processes, particularly continous processes, can be disastrous.

European consumers have supply contracts with Gazprom, and not with Ukrainian companies, so wouldn't they be legally liable for losses incurred due to non delivery of gas, rather than Ukrainian companies? As you say the vituperative statements emerging from Gazprom and the rest must be unnerving the Europeans too. Nobody likes as bully and a blackmailer.

My guess is that for the moment Russia has too much to loose by reducing gas shipment through Ukrainian pipelines, and Ukraine has too much to loose if it starts
reducing throughput of gas, so this is going to drag on for a while.

Some commentators say that Putin is trying to influence next Spring's VR elections. Would he be so crude as to suggest, 'Vote for Yanuk, and you'll get cheap gas, vote for the others, and you pay 'top whack' for gas'. I don't think so. I think he knows that he has already lost Ukraine. Akhmetov and the rest must be just as worried about steep gas price increases, as everyone else. Their effects would be felt particularly hard in Eastern Ukraine - Yanuk's home turf. I think that the local populus would feel doubly betrayed by Russia if their factories were closed and domestic radiators were cold this winter.

I might have some more comment on this later. I have been busy this weekend with new bundle of joy matters so I haven't been around here much.

Hardball on natural gas

Here's some more of the same on Russian gas to Ukraine--KREMLIN HAS UPPER HAND IN GAS NEGOTIATIONS WITH UKRAINE - Eurasia Daily Monitor.

Triggering that round of presidential telephone calls was the breakdown of negotiations on Russian gas supply to Ukraine and gas transit via Ukraine to European Union countries. On December 5-6 in Moscow, Naftohaz Ukrainy chairman Oleksiy Ivchenko and Gazprom's management took irreconcilable positions on the supply and transit agreements for 2006. Without a Russia-Ukraine transit agreement taking effect on January 1, 2006, it is not clear how or on what terms Russian gas can reach the European Union.

In a remarkably vituperative press statement, Gazprom charged that the Ukrainian side was being "totally unconstructive, playing a very dangerous game, holding the Ukrainian people hostage [and] endangering the energy security of European consumers of Russian gas" (Interfax, December 6). With the January 1 deadline fast approaching, Moscow expects the EU to lean on Kyiv. Russian Prime Minister Mikhail Fradkov, in Brussels for a joint meeting of the European Commission and the Russian government, complained about Ukraine and warned the EU of "possible delays in Russian gas deliveries to Europe" because of Kyiv's position. He asked the EU to use its "convincing arguments in advising Ukraine to ensure unimpeded transit of gas to Europe" (Interfax, December 7).

Ukraine may face national bankruptcy if the Russian price hikes and cash-only payments take effect overnight, as Moscow now demands. Ukraine's gas bill to Russia would in that case rise from some $1.25 billion to an estimated $4.5 billion annually. Moreover, Ukraine's metallurgical and chemical sectors -- the main industrial consumers of gas -- could be forced out of operation, warns Union of Industrialists and Entrepreneurs chairman Anatoly Kinakh, currently Secretary of Ukraine's National Security and Defense Council. According to Kinakh, the
chemical industry overall would operate at a loss if the price of gas exceeds $95 per 1,000 cubic meters, and the metallurgical sector overall would become loss-making if the gas costs more than $103 per 1,000 cubic meters. These two sectors jointly account for 30% of Ukraine's annual GDP and 45% of the country's export revenue, according to Kinakh's estimates (Interfax-Ukraine, December 9). Moscow at this point demands $160 per 1,000 cubic meters of gas.

However, rather than bankrupting Ukraine, Gazprom may well be aiming for
a deal to acquire part-ownership of Ukraine's transit pipeline system, in return for conceding soft terms on gas supply to Ukraine. The Kremlin could score a major net strategic gain in this event.

I think the Russians believe they have the upperhand when it comes to the negotiations here. Ukraine can't go to anyone else for its supplies. Russia is it. So they have to deal. And Russia wants to increase the price threefold and have threatened to cut off supplies by January 1st if their price demand is not met. They say they will just send it to the EU.

If Ukraine cuts of all gas transiting to the EU and the EU complains, the Russians will say, "It's not us!" and point to Ukraine. I think they expect the EU to lean on Ukraine because of the potential for a shutoff. (They get 40% of their requirements from Russia.) And the EU just might do this. "It's only business. Nothing personal." To think they might want to risk jeopardizing their gas supplies to help Ukraine in the face of a Russian powerplay might just be too much to expect. Principle is one thing when you are warm and comfy and your industry is not subject to work stoppages. But it is quite another thing when the populace is faced with natural gas shortages and the specter of paying a much higher price or risk freezing in their homes.

But, as uncharacteristic as it may sound, the EU might take Ukraine's side in this. It might think it has more in common with Ukraine than it does with Russia and it might think its interests are more in line with nurturing the growth of democracy here than with aligning itself with Russia in this dispute.

But that might split the EU. Germany has shown itself eager to please Russia. They may stand to lose the most if supplies are cut off. They will probably deal on their own. Could they block any kind of effort on the part of EU institutions to respond in favor of Ukraine? Maybe. That would bother the newer additions like Poland, Czechoslovakia and the Baltic states no end. I think they would see it as treachery. Maybe Germany would see this as so much buzzing of gnats around their national head. "Just do it an let the gnats buzz. It may be a nuisance but nothing more." But would they not lose anything from this? The newer additions don't have all that much power so there might not be all that much they can do about it. But it could constitute a fundamental breach for them and might not bode well for the future of the EU. Can it survive if all countries seek only their own narrow interests at the expense of the other countries?

I think that there is a downside for Russia in this. If the EU gets the idea that Russia is willing to risk the shutting off of supplies to the EU because of some power play with the countries it considers to be in its sphere of influence, I don't think that would go over well. Some in the EU think that it must decrease its dependence on Russian gas supplies right now. They may have a hard time doing it through other suppliers. But they might look to decrease dependency through the use of alternatives. Would that be a good thing for Russia? Or do they think they can just sell it to someone else?

But sitting here, I would be prone to tell Russia to take our last offer and if they don't like it to cut off the supply. I would schedule an address to the nation and tell the people that the Russians are doing it to us again, that we need to hunker down to be able to weather this much as we have other agressions by the usual parties, uh, party.

Then I would retaliate by blocking the supplies to the EU and call it a self defense measure. We would then see what happens. It could be that the Russians might not like the result.

But I am sitting here with nothing riding on what I might think. The possibility that people could freeze in their homes and that industry would be stopped here in Ukraine would be hanging heavily over all of this. Anything to avoid that result would probably be most likely.

This could have much broader implications for the country than the elections in March. We'll see.

Ukraine Bird Flu Outbreak Spreads

It looks like it's getting closer--Ukraine Bird Flu Outbreak Spreads.

Ukraine's bird flu outbreak appeared to have escalated Monday as health officials reported new cases of domestic foul found dead in two cities and 19 villages on the Crimean peninsula.

The bird flu virus had been confirmed only in nine of the villages, said Irina Shakhno, spokeswoman for the Emergency Situations Ministry's Crimean office.

The Health Ministry said that reports were coming in about domestic birds found dead in 10 other villages, the regional capital, Simferopol, and another city, Feodosia. It was not immediately clear how many birds had died.

Feodosia is along the coast. Simferopol, on the other hand, is in the middle of the peninsula. Is it creeping this way? Who knows but it started out in the Danube delta area in southwestern Ukraine near Romania. Romania was where the first outbreaks were in the area. The Crimea is closer to Kiev than that though it isn't in a straight line.

And we are having chicken tonight.

Putin Talks Tough Over Ukraine Gas

More natural gas talk from the Russians--Putin Talks Tough Over Ukraine Gas

President Vladimir Putin struck a hard line Thursday in a dispute with Ukraine over natural gas supplies, saying that the country could afford to pay the market price for Russian gas.

Cabinet officials reported to Putin that Russia and Ukraine had failed to strike a deal on Russian natural gas supplies to Ukraine next year. 'Difficult work is under way and no solution has been found yet,' Industry and Energy Minister Viktor Khristenko said.

Can Ukraine afford to pay for natural gas at world market rates? That would mean a tripling of the price that Ukraine has paid in the past. And they might be able to do it in absolute terms. But that increase in cost would make industries that were once competitive, competitive no longer. Maybe that is a good thing economically, but it will be a severe shock to the whole system and people. One Russian analyst said that the prevalence now of mortgages for homes along with the increase in prices Russians are paying means that Russians may have to mortgage their homes to pay for the increased costs of things like energy. That might end up being true here. And there would be a major shake-out of industries and workers would suffer. Economists might say it is a kind of shock therapy needed to more rationalize the economy and that Ukraine and Ukrainians would benefit in the long run. And maybe they would, economically. But what it might do politically here would run from a house cleaning at least to disaster at most. Yuschenko will get the blame and anybody involved with him. It would make him radioactive politically. Democracy might also be blamed much as it was in Russia for all the economic problems. They could look for a strong man to set things right again.

The irony would be that Russian analysts have made the argument that Ukraine would follow them from the bright sunlight uplands of democratic freedom to the twilight world of the firm handed uncle that keeps everything straight. (Well, maybe they didn't put it quite that way.) "Just wait," they say, "what you see happening in Russia is in your future too." And it could happen because of Russian gas.

This is the one area where Tymoshenko would be right in putting this all down to clear Russian heavyhandedness attempting to affect the policies of Ukraine. But she is silent about it. I wonder why?

Moderating comments

I have taken to switching on the moderate comments function on this blog. I have found to my utter disgust that the comment spam rats have shown up and chewed holes in just about everything. Some old posts of mine have close to 200 spam comments. And a lot of them have some.

How in the world do you get rid of those except for one at a time? I could selectively turn off comments but that is a lot of work. Having to moderate the comments is a bit of an inconvenience to any commenters here, but there aren't all that many so the inconcenvenience to the few is outweighed by the ability to prevent any new incursions.

I only wish I could just fumigate the place. Ticks me off not a little bit.

Yushchenko to Stay Out of 2006 Vote

This interesting--Yushchenko to Stay Out of 2006 Vote--not so much for the fact that Yuschenko will stay out of the elections--I don't know what that means practically--but for the change in the poll numbers for the Our Ukraine party. A week or so ago, they were trailing Tymoshenko's party by about the same difference that they now lead. Maybe some of the successes are starting to make headway with the voters.

The Party of Yanukovych leads and they are blitzing the radio with political ads. (We have only heard the ones on the radio. Don't know if they have been doing the same thing on TV.) Their message is that things were better when we were in charge. That has a lot of traction now because of the economy and because there has been no effective rebuttal. But if, hopefully, when the pro-government parties get into gear, pasting Yanukovych's picture on the screen in any number of ways and linking him back with the thuggery that he was responsible for would be an effective response. I don't know why they haven't done it now except that maybe they are still canvassing who will be in what coalition and who will agree to do what in support. But they have to get moving on this.

Any increase in support that Yanukovych has is because there has been no effective response. As a matter of fact, there hasn't been any kind of response. The enemies have all been in the family, it seems like, and all the plotting and strategy has been directed against them. This has allowed a resurgence in support of Yanukovych's party.

So what gives? Is he a joke or isn't he as I have said? The answer is still yes but anything more said on this will have to wait.

Business uncertainty

Here's an article on Andy Grove, ex-head of Intel, that deals with managing in uncertainty. I call it the "business uncertainty principle," a borrowing from subatomic physics. The basic idea is that business doesn't progress by adding facts, it progresses by adding constructs. Those constructs are views of the world and determine, in the end, what facts are.

It's all that reinvention talk that guys like Peters make the big bucks talking about. I take it from a thinking perspective. In any event, you can't really mange uncertainty, you can only respond to it in ways that preserve your options. And Grove has a pretty good record of doing this consistently.

Why the lull

I haven't been posting here as much recently because my wife is in the hospital and dealing with that and family is much more important.

There are still things going on here that need comment. There's a poll out that says Yanukovych would be PM if the election were held today. That flies in the face of what I have said about him. So that needs to be explained a bit. And there are other things. There's still a lot to talk about here.

I'll work them in if I have the time.

EU Market Economy Status

This is good news--EU Views Ukraine as Market Economy:

"The European Union agreed Thursday to recognize Ukraine as a free market economy, a status the country sought to give it an economic and political foothold in the EU.

The prized status, which still must be formalized, presents a major victory for Ukraine's pro-western President Viktor Yushchenko, but also for Ukrainian businesses seeking to trade with Western Europe, who have been hampered by anti-dumping rules. "

This means that the EU will not be dealing with Ukraine at arms length with things like anti-dumping. It's a nice step and a bit of confirmation that things are on the right track. The cynic though might say that it is a case of the EU propping up Yuschenko. I'd take it either way.

The celebration

Looks like the rumor was wrong. There was lots of orange down on the square last night.

Some of the speakers who were passionate during the revolution up there on the stage last night seemed to have lost a lot of the fire they had back then. Were they reacting to what they think the people think? Or have they just lost it? Don't know which it is.

Tymoshenko hasn't lost it. She made her case last night though I didn't listen much to it. When Yuschenko spoke, she stood behind him with what looked like tears in her eyes.

Yuschenko gave a laundry list speech at first. It was a "this is what we have done" kind of beginning. A bit boring and didn't really speak to the mood in the country right now. After that was over, he went on to an explanation about his motivations for picking the people he did and what happened when he dismissed them. I thought it was heartfelt and should have been where he started. By the time he got there, I think he lost a lot of people who compared the positive gains he says the country has made to their own lives and found the difference to be telling.

I know that they have listened to the Clinton spin people recently. I think a lot of what was done in that administration to make the president's case was a wreckless slashing and burning on all sides without much regard to the effect it had on the institutions of government and on the people.

But to have someone here talking to Yuschenko that could help shape his message and approach is a good idea no matter where it comes from. Yuschenko needs that and he needs some discipline too to get him to control his outbursts. Last night for example, when he got on the stage, some in the crowd chanted, "Yulia! Yulia! Yulia!" He responded with, "You can continue and I'll listen. When you finish, I'll begin." It is what he felt but it won't help to make him any new friends.

That is the same thing he did in that affair about his son. Talking that way to a news organization that supported him during the revolution didn't serve him well. That that news organization now says it is in opposition to the Ysuchenko government should be laid entirely at the feet of Yuschenko. It didn't need to happen.

He said something else that was on a par. He may feel it, but he's gotta control saying something about it. That may be impossible because to suppress it might seem dishonest. He needs friends and that is hard to do when you are in their faces for what are petty things.

I do though think he set the right tone later in the speech. He was forthright and candid I think about the government and what happened. And he ended up the speech with a reemphasis on the direction the country needed to take. It was much of what was stated in the revolution last year.

Those who listened to it I think would have to come away from it thinking that Yuschenko is still sincerely engaged in trying to correct the problems of the country. That he doesn't have more to show for the time he has been involved is a very real and a very bad problem. And it is all to be laid up to his mistakes. But I think the mistakes came from trying to do the right thing. He vacillated between government unity and making the right decisions. His hand was forced and unity was the casualty. It should have been but much, much earlier.

My wife thought he was the only speaker who sounded like he did last year on the square. I think he did too. We'll see what effect it has.

We listened to the speech with people who are disenchanted with Yuschenko. That might be the majority of Ukrainians, I don't know. Their lives haven't changed much and things have gotten more expensive. For this they blame not primarily Tymoshenko, though she is getting it too, but Yuschenko. These particular people, the ones we had over, still support Tymoshenko because they saw her as getting something done.

I think I may not have been the best host last night. (They were at our place.) In a bit of heat, I kept saying to them, "Ask Tymoshenko where the investment went." That she was doing something is true but it amounted to nothing better than rearranging the deck chairs on that big sinking ship. Investment is needed for the pie to grow here and for people's lives to get better. But she with her careless populism scared a lot of it away. And her statist managing of the economy got them all shortages and inflation as a bonus. A pure disaster.

There is irony there too. She blamed the Russians for a number of the problems of the Ukrainian economy. But it is the Russians who are the only ones who can stomach the perceived risks in the Ukrainian economy. (Like I have said before, a lot of the risks are only perception. We think they have been vastly overstated.) So she blamed the Russians for it all and then instituted polices that made it inevitable that the Russians would take a significant role in the economy. But now Russia isn't the problem anymore for her I guess. She went there and saw how wonderful it all was there for herself.

A lot of people say that corruption hasn't changed at all and that that was the major pledge of Yuschenko on Maidan last year. And that is the truth on both counts. The problem is that corruption was never as much a problem of systems and structure as it was one of culture. What this means is that there was only so much that could be done by Yuschenko in the first place. And some of it has been done, to his credit. The rest of it has to come from a change in the culture.

Corruption was not simply a problem of Kuchma or of Yanukovych or of the militsya who stopped the car looking for a bribe to let it go. It has always been a problem of the people of Ukraine. For every official who wants a bribe for something, there is someone willing to pay it. And these would include even those who stood out in the cold cheering on Yuschenko. They would be the first to condemn Yanukovych for paying officials to get votes. But when it comes to getting their children into the right school or to getting their child a degree or to selling their apartment at the time they need to or to getting that piece of paper that allows them to do something they want to do, everyone, everyone, is willing to pay what it takes to whomever it takes to get it done. But corruption something the other guy does, the bad guy, not me. My motives are pure. But it is all corruption and it is all a problem, all of it. It distorts policy and creates a drag on the economy. And it creates costs that all people are paying for now, costs that are keeping the lot of them in poverty and subjecting them to rule by the whims of stupid bureacrats who can't do anything other than manage paper but who have power and know how to use it for their own benefit. (OK, so they aren't stupid in that either.) And that means, in the end, government by the rich and for the rich.

But it's the other guys, not me.

There is more to say on this but I don't have more time. We are expecting a baby in the next couple of weeks and that means making the rounds to doctors and other places to get ready for it. Not much time left after all that.

Things at the Kremlin

Here's something interesting about the thinking of Kremlin officials. Another Massive Dose of Kremlin Diagnoses.

Maybe it is the natural tendency of any court to focus inward so that the reality for them becomes the reality of court life. It happened with Louis XIII and XIV. They are the great examples of it. Louis the XIV's court, for instance, had it in spades. Marie Antoinette is supposed to have said when informed the people were starving, "Let them eat cake!" But what she really said was something like they should try brioche which is a delicate type of bread or cake that she and the court ate. In other words, they should try eating what I eat when I am hungry. She lived in a complete fantasy world unrelated to any reality. And when things got bad and they tried to escape, the whole thing was treated as some sort of game they might play in the parlor rooms of the palace. They were recognized and their way blocked by revolutionaries. In the end, that fantasy world came butt up against the reality of the guillotine.

The same thing could be said for Nicholas' court. And this is not for tzars and tzarinas and sun kings only. The same thing happens in the administration of democratically elected presidents. The extreme example is Nixon, but then you have Kennedy's Bay of Pigs which was a response to the dynamics in the administration more than it was to the reality on the ground. And there are other examples.

But the same thing is true of big corporations. How much time is spent fighting the fires of office politics as opposed to doing the work of the company? Glen Reynolds makes this point:

...In a small organization, people deal mostly with customers and suppliers. They get ahead mostly by making both (but especially the customers) happy. In big organizations, people mostly deal with other people within the organization, and they get ahead mostly by making those people happy. Pleasing customers is a way to get ahead only to the extent that it also pleases the bosses, and if you have to choose whom to please, you're better off pleasing your boss than your customer.

So it happens everywhere. Does that fact let the Kremlin off the hook? No because the extent of the unreality suggests a certain willfulness about it. And the potential for real mischief is a lot greater than it is with others. To have the Soviet era paranoia like they do in an age when the evils of that system are clear, seems to have more to do with the fact that they prefer it rather than that they are forced to it by circumstances or that it reflects some sort of reality. It hearkens back to the good old days of empire. How satisfying that is.

Anyway, these things tend to come up against reality eventually. The question is what form will that eventually take?

Orange Revolution celebration

There's going to be a celebration of the Orange Revolution this next Monday and Tuesday down on the Maidan. There will be some of the same artists who performed during the revolution. There won't be any color orange though from what we hear. Maybe it's that it's too identified with Yuschenko and they don't want to identify it with him. Or maybe it's that they want to be all inclusive and reach out to the east, a West and East together kind of thing. Either way it will be funny--an Orange Revolution celebration without the color orange.

Maybe we'll see the return of those American made boots and drug filled oranges that filled the imaginations of people in the east, courtesy of Mrs. Yanukovych. Something like this:

I saw last night upon the Square
Some boots, spiked citrus that was not there.
They were not there again today,
Oh how I wish they'd go away!

(Apologies to whoever wrote the original. "I saw last night upon the stair/A little man who was not there..." I think it was a physicist.)

Some of the people in the tent near the Presidential Admin building had a sense of humor. They had oranges and boots hanging around. One guy walked around with a boot on a stick. A real poke in Yanukovych's eye.

Those were the good old days.

Piracy

A Ukrainian ship is being held for ransom right now. This article--SOS as pirate motherships take to the high seas seeking cargo and hostages - [Sunday Herald]--suggests piracy is bad right now and set to get worse.

Global piracy is now one of the biggest threats to world shipping, far eclipsing the risk from terrorism, and Somalia "a war-torn realm in almost complete anarchy" has fast become one of the world's pirate hot spots. Since March 15 this year, there have been 32 attacks off Somalia. In 2004, there were just two attacks, in 2003, three, and in 2002, six. In the first nine months of 2005, there were 205 pirate attacks worldwide. Murders by pirates are also rising. In 2004, 30 crew members were killed. In 2003, the figure was 21.

The favoured tactic of the Somali pirates is to capture the vessel and crew, take it to one of their safe havens around Mogadishu and hold the hostages for ransoms of hundreds of thousands of pounds. Today, some seven vessels and more than 100 sailors, from countries including Burma, Indonesia, the Philippines and the Ukraine, are held captive by the pirates pending the ransom payment. When the ransom is received the ship, cargo and crew are all freed.

And there was a recent attack on a cruise ship. It was repelled when they used a sonic gun capable of damaging hearing at 300 yards. I guess they were a bit concerned they might not be able to use their iPods ever again so they beat it out of there.

I guess the sound was unpleasant enough for them but what if they had had ear plugs or were listening to some theme music while they rampaged? Sounds a bit too neutral a weapon to me. Maybe they'll develop something that fires asbestos into the air as the pirates approach. Concerned about cancer they will break off.

Andrew Linnington of the UK maritime union Numast said the waters off Somalia should be declared a war zone. "It's got to the stage where it's anarchy," he said.

The International Maritime Bureau has made a direct request to the Royal Navy to intervene in east African waters. The Ministry of Defence promised that if there were navy vessels in the area and intelligence of piracy then the Royal Navy "would undertake action in pursuit of pirates and help to deal with the problem."

UK shipping minister Stephen Ladyman is supporting a move by the International Maritime Organisation for the UN Security Council to pass a resolution to deal with Somali piracy. UK ships are now under advice to keep a minimum of 150 nautical miles from the Somali coast.

If they Security Council votes a resolution and the Somali warlords violate it what then? I hear that violating a UN resolution is not a sufficient casus belli. But maybe I heard wrong.

I once used an example of pirates seizing a ship in my international business law class. I think the students thought it to be an anachronism. Looks like it wasn't.

Bird flu

This doesn’t sound very good—Bird Flu Triggers Immune System “Storm.” (Hat tip: Glen Reynolds.)

As concern mounts over the potential spread of avian flu to humans, researchers believe they've discovered one reason why the infection can prove so deadly.

Experiments with human cells have found the H5N1 virus can trigger levels of inflammatory proteins called cytokines and chemokines that are more than 10 times higher than those that occur during a bout of the common flu.

This massive increase in cytokine and chemokine activity can inflame airways, making it hard to breathe. It also contributes to the unusual severity of the avian flu, which can result in life-threatening pneumonia and acute respiratory distress….

"This is basically a cytokine storm induced by this specific virus, which then leads to respiratory distress syndrome," Osterholm said. "This also makes sense of why you tend to see a preponderance of severe illness in those who tend to be the healthiest, because the ability to increase the production of cytokines is actually higher in those who are not immune-compromised. It's more likely in those who are otherwise healthy."

Basically, the healthier you are the sicker you become because of increased cytokine production. That turns things on its head. For other illnesses, being in good health lessens the effects. Not with bird flu it looks like.

This is not good.

Bird flu has been found within ten miles of Ukraine’s southern border in Romania. I kid with people in the US that we are eyeing the birds that land on our balcony suspiciously. Not any more, the kidding that is. This looks serious and we could be part of the initial surge of it, if it crosses the human threshold. But this doesn’t look good on that score.

Market economy status--EU

This is very, very good news. Commission Clears Ukraine for Improved Trade Relations.

The European Union is set to lower its defences against imports from Ukraine in a sign that Brussels is finally providing concrete help for Kiev after the Orange Revolution.

The European Commission has decided that Ukraine deserves the title of "market economy status" - a move that reduces Brussels' scope to levy hefty anti-dumping duties on Ukrainian imports. Such a classification has been one of Kiev's main objectives this year. The EU is Ukraine's biggest trading partner; annual bilateral trade stands at $22bn (€18.6bn, £12.6bn), ahead of the $20bn trade between Ukraine and Russia.

"Ukraine now fulfils all the criteria to be granted market economy status," says an internal Commission paper seen by the Financial Times. "This means that Ukraine will be treated as a full-fledged market economy in all trade defence investigations," once the measure has come into force. The Commission expects the process will be completed by the end of this year or early next year.

Viktor Yushchenko, Ukraine's president, has sought greater help from the EU to consolidate the country's democratic swing, but Brussels has been dismayed by disarray within the Ukrainian administration and has been reluctant to encourage
Ukrainian hopes for EU membership.

I am busy now so I don't have time to talk about this. I'll get back to it later. Score one for Yuschenko though.

Looting history

Looks like state owned assets aren't the only thing that has been looted in Ukraine. Historical sites and artifacts have been too--Black Earth, Black archeology, Black Times.

We have been to Chersones and it is impressive. A Greek city along the shores of the Black Sea in the Crimea. But pots and pieces of pottery sit out in the weather, in a chicken wire enclosure to prevent theft, I am sure. But they sit there with the paint or tint fading on them. There are other artifacts in the museum but it looked to me as if there is a lot of neglect.

And a lot of apathy. Make sure the museum is opened and closed on time and that the fee is paid, but that's about it. We saw no digs there and no one suggested anything like that was in the offing.

We wandered all over the ruins and could have dug a hole without anyone seeing us in the middle of the day (midwinter.) And you can get in along the beach from either side so, if a surreptitious dig is at night, it will be easy to get in, dig and get out without anyone seeing.

It is hard to know what can be done about it. Even if they hired guards, those guards could be coerced into letting them loot. Money or threats, the standard. No one's going to want to risk life or limb for any artifact, especially if he can be paid instead. So it's hard to see that as any solution.

So what is to be done?

The anniversary of the revolution

Today is the anniversary of the revolution of 1917, the most famous revolution around these parts prior to this past year.

There are some communists gathering on Maidan downtown right now to celebrate it. They say there are about 30,000 of them there. They apparently started out in Arsenalna, the place where the revolution started in Ukraine (or at least in Kiev.) They fired a few shots off in celebration—not from guns but with some large bore fireworks like they use at all times of the year. The problem is that they had no permission to gather there and do that so the police ran them off.

And I don’t think they have permission to gather in Maidan either so it might be fun to see what comes of that. Of course, for more than 70 years, they didn’t have to have permission to gather anywhere, the communists didn’t. Getting permission now just must seem to them to be a mite disrespectful of the movement. That’s dissing them.

But thirty thousand are a lot of people to just clear off with police, even riot police. So they’ll probably stay and have their rally and talk about the good old days when it all meant something. Then they can dream of their renaissance much like American southerners did. But, I am afraid, that kind of dream is going to end like the dream of those southerners. It ain’t gonna happen, no how, no way.

That is not to say that Ukraine has become immune to authoritarian systems of government. It hasn’t. If Yuschenko and the reformers don’t reform, there is a very real risk of a thug showing up and taking charge, especially if there is an economic downturn.  It’s just to say that it won’t be done in the name of communism. Communism is dead; thuggery as a governing principle is not.

No noise

Pssst! Do you hear that? That's the sound of no cabinet arguments in public about government policy. There haven't been any since the cabinet shuffle and that is a good thing for Yuschenko. I guess you might say, paraphrasing what was said about a migration of a whole people, "Yuschenko dismissed his government of his own free will, because he had to." And it has at least worked to make the sounds issuing from government more unified. That is good.

Now he just needs to make his case. He has the time and the calm now to do it.

An upbeat analysis

Here's an optimistic analysis I would pretty much agree with--Viktor Gets His Groove Back. (Subscription req'd.--the pdf is available here. )

Automated comment idiocies

We have been hit pretty hard by automated comments around here. Some of them are pretty idiotic.

"Nice post! I address the same thing at my blog!" There follows a link to a site called Business Lawyer. I guess they got the lawyer right but missed pretty much everything else.

Or the one from an adult site asking for tips on blogging--finger to mouth and demure look, no doubt--that then says, "I have bookmarked you!" It just sends chills up my spine thinking about it.

Give me a break.

Busy, busy, busy

I have been very busy over the past week and have not had time to post much here. The good news though is that there has not been much to post about. But there is some.

The government finally seems to be talking with a single voice for one. There has been none of the old back and forth in the press between ministers and the president that I have heard like there used to be. That is a good thing.

And the Kryvorizstahl mill sale went off without a hitch. Some analysts seem to be saying that the sale is a victory for Yuschenko that should help him in the elections this spring. I don't know how a sale of the steel mill will increase his attractiveness to the people in the face of what has gone on, but it can be one piece to be added to other pieces--like economic and political stability, two others-- that might all add up to victory then. Steady, consistent effort to get things done might just pay off. And it would be new.

So I don't know how much of a victory the sale represents. But what it does do is to begin to demonstrate seriousness on the part of the government in making the climate here more investment friendly. This sale goes a long way towards making that case. And that is a good thing.

I will say it again: It is much better to have the power to make things happen than to sit around waiting for something to go wrong in order to make political hay out of it.

In other news, Yuschenko's Our Ukraine is forming a youth organization. Tymoshenko is following suit. "I'll see your youth organization and raise you, what?" Nothing. Yuschenko signs an agreement with Yanukovych which he says recognizes the east as having legitimate interests in the government, an east that is pro Russia, and Tymoshenko responds by visiting Putin in Russia and bringing back a glowing report on Putin as president. She seems to be on the back end of the wave.

More of the same, but different--Russia

This doesn't look good--UNIAN-News from Ukraine.

Russia's Foreign Minister Sergei Lavrov said on Wednesday, Oct. 12, that the main diplomatic resources of Russia are natural gas, oil and electric power and promised to use “all of the means of economic pressure” on disloyal CIS neighbors. According to Nezavisimaya Gazeta (Independent Gazette) daily, Lavrov made these statements at a closed meeting of Federation Council, upper house of the Russian parliament, according to MosNews.

There was some talk a few months back about what the appropriate Russian response should be to the recent government dismissals in Ukraine. There were three possibilities. The first one was that Russia should go for the jugular while Ukraine is weak by upping the price of natural gas to world levels. That would create economic chaos and lead the fall of the government and disenchantment with the revolution. Russia would then sweep in and pick up the pieces.

Otheeh other end was the idea that Ukrainshoulddl be dealt with diplomatically just as other states deal with other states diplomatically. That requires thinking of Ukraine as an equal. For some Russians. especially those in the Kremlin, that seems impossible to do.

The tird apporach was somewhere in between these two.

The first would be devastating to the economy. The price paid by Ukraine right now for natural gas is less than a third the world price. It is partly due to the low cost of energy that Ukraine's export success has depended. Raising the price of natural gas would make a lot of export commodities like steel uncompetitive.

And it would raise the cost of living for Ukrainians as well. Right now the cost to heat an apartment is pretty low by American standards but the people here are living on a lot smaller incomes. They might be able to pay the price right now but if it were tripled or quadrupled, what would they do? It gets pretty cold here in the winter. And a lot of people use gas for cooking. Could they afford to if the price hit world levels? I doubt it. Heating a home and cooking might become unaffordable.

But does this statement by Lavrov mean the Russians intend to do it? They have been threatening this for a number of months, so the threat of it is nothing new. But that threat has always been in the context of price negotiations on the natural gas. Now that threat is coming from the Foreign Office. That might mean the Kremlin has settled on the policy. Looks like it's door number one.

Decline in the hinterlands

We spent a part of the previous weekend in the village at my in-law’s place. While there, my father-in-law informed me that they had had an investor interested in leasing land there and putting in a chicken farm. He would have used the cooperative buildings and equipment and depended on the cooperativistas land for his business needs. It all would have been leased and it would have been state of the art. What is perhaps more significant is that it would have employed close to 200 persons. That is an awful lot of people for a village that numbers not much more than that.

But I say “would have” because it isn’t going to happen. The cooperative that would have been “co-opted” for the purpose polled its members and a number of them came back with a “no.” They thought life was fine as it is, that they get about a metric ton of grain from the coop as it is and that having a chicken farm was not something that would add anything to their lives. And that was it as far as the investor goes. He is now off looking for some other place. And this little village languishes.

I was stunned when I heard it. It’s not a case of their entering the twentieth century; progress is good and all that. That is not why I was stunned. They do have a life. It’s not something we would consider to be a life, but it is a life to them and enjoyable to them. If it were simply a matter of progress, I wouldn’t have been so struck by it.

The problem is not progress, the problem is keeping the young people there in the village. I have written about this before but more and more of the young are leaving the villages to make their way in the larger cities. Some would see that as a good thing. But we are talking about their getting jobs that pay at the most $200 for what skills they bring and a lot will make less than that. And they are coming to the large cities to live where? With relatives? If they have them which is not certain. They end up having to find a room because renting an apartment is just out of the question. For two room apartments, and that means just two rooms--kitchen and bathroom excepted--the rent is over $250 a month in Kiev, last we looked. And it keeps going up in price. (Some think the price will be $300 by year’s end.) So goodbye to all their hard earned pay for the whole month to make their rental payment.

And don’t even think about buying a home, which here is an apartment. Mortgages can be found but they are not all that widespread and the interest rates are 17% with an inflation index to make sure the bank gets its money, all of its money, back with interest no matter the economic conditions of the country. There aren’t many who can afford that kind of thing, not coming from the village anyway. It is cheaper in some of the other cities and in some of the outlying areas of Kiev, but not enough to make a go of it at $200 a month or less.

That company was offering the same pay for people to work on the chicken farm in that village. $200 a month in that village and in any village in the Ukraine is a very good salary. (In Western Ukraine, it would be a very, very good salary.) They could afford a house there after not too many months of saving, though maybe not a new white brick home that the more affluent have built. And they would have their plot of land nearby for their vegetables and maybe some animals. Their electricity costs and gas costs would be only a few dollars a month. With all of those advantages, they would be putting quite a bit of money away, relatively speaking. So the young people who might be lured away to life in the city could stay there in the village.

That is my problem with the whole thing. It isn’t the older people that’s the issue at all. It is the younger ones. And the fact that they voted what was simply their own very narrow interests, not thinking about the fate of their own village, is beyond me. They will live to an old age, though some of them not so old because of the harshness of the life, and then die off. One by one the houses will be vacant and then there will be no village. Their children might, might, come back at times to visit the old homestead. But that is extremely doubtful-- they will be too busy trying to scratch out a life for themselves in the city to have much time for that.

Kyiv scams

Here's something to keep in mind for anyone visiting--Kyiv scams

I have been hit by numbers 3 and 4. I didn't know how some people in St. Petersburg could have gotten both my card number and PIN number. This article explained it.

Something to think about.

Yushchenko will not fight loss of own authority

This is probably the right thing to do--:: Yushchenko will not fight loss of own authority and deputy immunity :: Ukrayinska Pravda--especially for this reason:

"I gave my word that no destructive steps will be taken towards the constitutional initiatives in question. I do not want to challenge these amendments, because I do not want 47 million Ukrainians to think that Yushchenko is thinking about preserving his authority," assured the president.

I had thought earlier that it would be a good thing for him to repudiate the reforms because he was going to need all the power he could get. (I know, I know, that had the potential for making him a Ukrainian Putin and me a bit inconsistent. But if someone tells you one day to take an umbrella and on another not too, is it that his judgment is bad or does it have something to do with the weather?)

He might have been able to do it before, but clearly he can't do it now. And it might not be a bad idea anyway. Some reform is necessary and now might be as good a time as any. And to allow a president to take power to himself would not be moving in the right direction, even though it might be for good reasons and the person trustworthy.

Is there such a person really? Doesn't absolute power corrupt absolutely? Maybe not and yes it does but not in every single case. There are a few notable exceptions, George Washington for one. (Wasn't it Napoleon who said, "They expected me to be another Washington"?) But my argument was that the risk of ending up with the kind of system they had here was outweighed by the potential benefits that could come from effective and quick reforms. In other words, to risk that Yuschenko became another Kuchma was not much of a risk in the face of what could be gained if he did what he said he would do.

So I think he is right and I think he is doing the right thing. The "probably" is a nod to what I thought might be the good thing to do. Not realistic now even if it were the thing to have done.

It's the economy stupid

At least it should be here. Yuschenko is saying the right things about it--Yushchenko Makes Plea for Growth

Ukrainian President Viktor Yushchenko urged his new government on Wednesday to create favorable conditions for business to kick-start slumping growth and bring
back reluctant foreign investors.

Chairing a meeting of the team assembled after last month's dismissal of former Orange Revolution ally Yulia Tymoshenko, he told ministers to concentrate on the economy and steer clear of politics ahead of March's parliamentary election.

"If we want to provide proper European wages and pensions we have to ensure economic growth," Yushchenko told the session.

"To ensure economic growth we must mobilize financial resources in the form of investment. And to mobilize them we need to have clear procedures for Ukrainian business."

Yushchenko said the ousted government, riven by months of infighting, had done little to improve the business climate. "Two-thirds of the measures which impeded business were in fact government orders," he said.

Some themes II

2. The dismissal of the government was a crisis. This was the tack of some articles. Others framed it in terms of ultimate doom and catastrophe. In none of the articles I read, until I got to the analyses for investors, was anything good said about it.

But the government dismissal was not a crisis; it resolved a crisis. The crisis was actually the previous 8 months or so of the government. Lots of ministers saying lots of things and all seemed to be pulling in different directions.

There were any number of problems but the one that seemed to hang around the most was the re-privatization issue. I had thought after the election that it was not politically possible for Yuschenko to avoid re-privatizing some of the enterprises sold off during the Kuchma era. It had been a centerpiece of his campaign and it also represented a reassertion of some justice after what had gone on in the previous administration and for many years in the past. But the figure out of the gate was 3,000. There was no way that was going to fly with investors and business. No one wants to put money into something where the title is suspect right off the bat. And, in the context of this area of the world, showing that the government had both the power and the will—the means, motive and opportunity--to re-privatize is not going to reassure anyone that title to anything will ever be more than suspect. If they do it once, they can do it again if the will is there. And with the kind of populism that was a part of Tymoshenko’s government, the will to do so would always hang around in the background ready to hand if needed or wanted. At least that would be the feeling.

No, the crisis was the previous government. The new government has created the sense of much more stability. They all seem to be talking with a single voice right now. And that has made financial analysts less wary.

3. Tymoshenko is the winner in all of this. The polls seem to say that. Her party seems to have 20% of the electorate while Yuschenko is currently at about 14%. This is significant and if the election were held today, she would be forming the new government.

But the election is not being held today. It will be held in March, 6 months away. Those 6 months are an eternity in democracies. Lots of things can happen in the meantime that can change those poll numbers. And the point is, a point lost on a number of people, that Yuschenko is in power and has the power to make the kinds of changes that can affect those poll numbers. Tymoshenko, on the other hand, has no power to affect anything. She can call a press conference and talk about it all, but the power is with Yuschenko and his government and that can make all the difference. Of course he actually has to do something positive but to be able to do something is better than waiting around for something to bad to happen to capitalize on it.

Isn’t it possible that Tymoshenko realized this and that is the reason for the offer to Yuschenko on the new government?

The funny thing is that some of her appeal came from the fact that she was seen as sticking it to the Russians. But now that she has made her way north and found some kind of an accomdation with Putin and with Russia, what will that do to her appeal? After this, will the activists still see her in the same light? Yuschenko may have become more pragmatic but she seems to have followed suit. What will the OR purists have to say about that?

To be continued…