US-Ukraine Business Council

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ACTION UKRAINE REPORT - AUR

An International Newsletter, The Latest, Up-To-Date
In-Depth Ukrainian News, Analysis and Commentary

Ukrainian History, Culture, Arts, Business, Religion,
Sports, Government, and Politics, in Ukraine and Around the World

ACTION UKRAINE REPORT - AUR - Number 901

Mr. Morgan Williams, Publisher and Editor, SigmaBleyzer

WASHINGTON, D.C., WEDNESDAY, AUGUST 27, 2008

INDEX OF ARTICLES ------

Clicking on the title of any article takes you directly to the article.

Return to Index by clicking on Return to Index at the end of each article

1. UKRAINIAN ECONOMY STANDS IMPACT OF WORLD CRISIS SAYS

MINISTER OF ECONOMY BOHDAN DANYLYSHYN

UkrInform - Economic News online, Kyiv, Ukraine, Sunday, August 17, 2008

2. UKRAINE UNLIKELY TO FACE MORTGAGE CRISIS, SAYS BANKING EXPERT

Interfax Ukraine, Kyiv, Ukraine, Thursday, August 14, 2008

3. WORLD BANK CHANGES FORECAST FOR UKRAINE'S INFLATION IN 2008 TO 21.5%, GDP GROWTH TO 6%

Interfax Ukraine, Kyiv, Ukraine, Saturday, July 23, 2008

4. U.S. VICE PRESIDENT CHENEY TO VISIT UKRAINE ON SEPTEMBER 4-5

Interfax Ukraine News, Kyiv, Ukraine, Monday, August 25, 2008

5. UKRAINE'S NATIONAL SECURITY AND DEFENSE COUNCIL SECRETARY,

RAISA BOHATYRIVOA, TO VISIT UNITED STATES ON AUGUST 24-30

Will meet with members of the U.S.-Ukraine Business Council (USUBC)

Interfax Ukraine News, Kyiv, Ukraine, Friday, August 22, 2008

6. COMPETITION LAUNCHED FOR MAJOR NEW RESEARCH & EDUCATION CENTER FOR ENERGY

EFFICIENCY IN UKRAINE BY U.S. CIVILIAN RESEARCH & DEVELOPMENT FOUNDATION (CRDF)

U.S.-Ukraine Business Council (USUBC), Washington, D.C., Wednesday, August 27, 2008

7. WHAT NEXT FOR TRADE AFTER WTO FAILURE?
In order to stay relevant, the World Trade Organization must stress

efficiency, liberalize initiatives, and adapt to changing realities

By Shanker Singham, Partner, Squire, Sanders & Dempsey

Business Week magazine, New York, NY, Wed, August 13, 2008

8. STATE OF THE UNION: A BEAR ENERGY MARKET

Commentary & Analysis: By Zeyno Baran, Director

Center for Eurasian Policy, Hudson Institute, Washington, D.C.

The Wall Street Journal, New York, NY, Tuesday, August 26, 2008

9. RUSSIA'S GRIP ON ENERGY

EDITORIAL: Financial Times, London, UK, Tuesday, August 26 2008

10. OVERSEAS PRIVATE INVESTMENT CORPORATION (OPIC) STILL CLOSED FOR UKRAINE

Settle the claim now and open OPIC for Ukraine

U.S.-Ukraine Business Council (USUBC), Washington, D.C., Wednesday, August 27, 2008

11. VOLIA CABLE & SIGMABLEYZER'S REGIONAL CABLE BUSINESS MERGE

TO FORM PRE-EMINENT UKRAINIAN CABLE PROVIDER
Providence Equity Partners Increases Its Investment in the Combined Entity to over

$300 million, Making the Largest Private Equity Investment in Ukraine
By BusinessWire, Kyiv, Ukraine, Monday, July 28, 2008

12. RUSSIA’S POTENTIAL EVOLUTION AND AMERICA’S AND UKRAINE’S NATIONAL SECURITY
OP-ED: By Victor Basiuk, The Ukrainian Weekly newspaper, Vol. LXXVI, No. 34

Parsippany, New Jersey, Sunday, August 24, 2008

13. WANTED: A PLAN FOR UKRAINE
Brussels Blog: By Tony Barber, Financial Times, London, UK, Mon, Aug 25, 2008

14. RUSSIA'S AGGRESSION IS A CHALLENGE TO WORLD ORDER

Opinion: U.S. Senator Lindsey Graham and U.S. Senator Joe Lieberman

The Wall Street Journal, NY, NY, Tuesday, August 26, 2008; Page A21

15. EASTERN EUROPE CAN DEFEND ITSELF
Opinion: By Max Boot, The Wall Street Journal

New York, New York, Monday, August 25, 2008; Page A13

16. NATO IS UKRAINE'S BEST OPTION

Op-Ed: by George Woloshyn, Special to Kyiv Post

Kyiv Post, Kyiv, Ukraine, Thursday, Aug 21, 2008

17. DIVIDED MEANS CONQUERED
Ukraine must overcome a history of in-fighting and debilitating disunity if it is to resist Russia

Peter Dickinson, Business Ukraine magazine, Kyiv, Ukraine, Monday, August 25, 2008

18. THE PUTIN DOCTRINE, COMING TO TERMS WITH UKRAINE'S NEW GEOPOLITICAL REALITIES
Analysis & Commentary: By Taras Kuzio
BusinessUkraine magazine, Kyiv, Ukraine, Monday, August 25, 2008

19. UKRAINE FEARS BEING NEXT ON RUSSIA'S HIT LIST
By Askold Krushelnycky, Sebastopol, Ukraine
The Sunday Times, London, UK, Sunday, August 24, 2008

20. UKRAINE: THE POLITICS OF NATIONAL RUIN

Analysis & Commentary: By James Sherr

Head of the Russia & Eurasia Programme of the Royal Institute of International Affairs

Zerkalo Nedeli (Mirror-Weekly, Kyiv, Ukraine, # 28 (707) 2 - 8 August 2008

21. RUSSIA FACES WESTERN PRESSURE OVER GEORGIA
Senior British official flies to Ukraine to build a coalition

By Jon Boyle, Reuters, Moscow, Russia, Tuesday, August 26, 2008

22. PARTY OF REGION'S LEADER VIKTOR YANUKOVYCH CALLS ON UKRAINE TO

RECOGNIZE SOUTH OSSETIA'S AND ABKHAZIA'S INDEPENDENCE FROM GEORGIA

Ukrainian News -on-line, Kyiv, Ukraine, Tuesday, August 26, 2008

23. GEORGIAN ASSOCIATION IN THE UNITED STATES SENDS

LETTER TO U.S. PRESIDENT GEORGE BUSH

Washington, D.C. Thursday, August 21, 2008
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1 . UKRAINIAN ECONOMY STANDS IMPACT OF WORLD CRISIS

SAYS MINISTER OF ECONOMY BOHDAN DANYLYSHYN

UkrInform - Economic News online, Kyiv, Ukraine, Sunday, August 17, 2008

KYIV -The July results confirm the fact that the Ukrainian economy stood the impact of world crisis, energetic, food and financial, the Minister of Economy, Bohdan Danylyshyn stated, having noted that the real GDP growth has been accelerated over January-July 2008 and made up 6.5 percent against 6.3 percent over January-June 2008.

Among the types of economic activities, the highest rates of the gross value added are demonstrated by trade (11.8 percent), agriculture (10.8 percent), processing industry (8.4 percent), transport and communications (8.4 percent). Real growth of industrial production volumes makes up 7.3 percent by results of January-July.

For the Ukrainian industry high production rates are peculiar to types of activities, products of which have an investment trend, the minister noted. Primarily, it is machine building, growth rates make up 28.7 percent. Over seven months, the machine building sector ensured over half of total industrial growth, in particular, production of vehicles and equipment increased by 39.2 percent.

Growth of chemical and petrochemical industry deserves a special attention, taking into consideration dependence of this sphere on a price of imported natural gas. In total, growth of production volumes was by 5.2 percent ensured by expansion of the domestic market capacity and a favorable foreign economic situation.

In July, a trend of growth in the volumes of metallurgical production continued (by 3.5 percent over January-July against 3.3 percent in January-June 2008 as compared to a relevant period of 2007), which proves that the sector entered a trajectory of sustainable growth and is a pledge of dynamic development of adjacent types of industrial activities in the following periods, Danylyshyn underscored.

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2. UKRAINE UNLIKELY TO FACE MORTGAGE CRISIS, SAYS BANKING EXPERT

Interfax Ukraine, Kyiv, Ukraine, Thursday, August 14, 2008

KYIV - Ukraine is unlikely to face mortgage crisis, according to the press service of Ukrsotsbank (part of UniCredit Group, Kyiv) referring to Iryna Kniazeva, the bank's deputy board chairman.

According to Kniazeva, the growth in rates on mortgage crediting is linked not only with the mortgage crisis in the United States, but with the internal economic situation in the country, in particular, the fall in the US dollar against the hryvnia and the deficit of banking capital on the market.

"I think that at present there is no prerequisite for a fall in mortgage rates in our country, as here there is no oversupply, in contrast, for example, with the United States. The number of those who need new flats significantly exceeds the quantity of constructed housing. Besides, the current situation on the market will force developers to build less due to funding difficulties. Of course, after a time there will again be price hikes," the press release reads, citing Kniazeva.

Currently, some developers have interrupted projects, cut investment into construction development, and that will lead to a fall in house commissioning, an increase in demand, and a rise in house prices in one-and-a-half to two years, Kniazeva said.

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3. WORLD BANK CHANGES FORECAST FOR UKRAINE'S

INFLATION IN 2008 TO 21.5%, GDP GROWTH TO 6%

Interfax Ukraine, Kyiv, Ukraine, July 23, 2008

KYIV - The World Bank has raised its forecast for Ukraine's GDP growth in 2008 from 5.5% to 6%. At the same time, the bank revised its forecast for this year's inflation in Ukraine from 17.2% to 21.5%, bank expert Ruslan Piontkovsky said at a press conference in Kyiv on July 18.

"According to our current forecast, GDP will grow by 6% this year… As it seems to us, Ukraine is on the right track for reining in the pace of inflation … We forecast that by the end of the current year, it [inflation] will be 21.5%," Piontkovsky said.

As the World Bank said in a press release, according to its updated forecast, the inflation forecast in 2009 was increased from 13% to 15.3%, whereas for 2010 it was cut from 9.9% to 9.8%.

At the same time, the World Bank reduced its forecast for Ukraine's GDP growth in 2009 from 5% to 4.5%, whereas a projection for 2010 was improved from 4.5%, to 5%.

"Our inflation forecast [for 2008] is also up, since even with food prices ebbing down as the good harvest is brought to market, macro-policies remain insufficiently tight for a faster pace of disinflation, and electoral pressures may prevent a further tightening during 2008," the World Bank says.

The bank also reviewed the forecast for the balance of the account of current operations - its deficit in 2008 may hit 8.4% of GDP (former forecasts had it at 8.7%), in 2009 it will be 11.3% of GDP, and in 2010 it will be 11.1% of GDP (previously 11.3%).

"…the CA [current account] deficit moves above 11% of GDP, requiring external financing of some $25 billion," say World Bank expert. "We expect gradually stabilizing international markets and Ukraine's strong underlying value proposition to ensure this continues to be met through FDI [foreign direct investment] and private lending."

According to World Bank Director for Ukraine, Belarus and Moldova Martin Raiser, the World Bank approves of the National Bank of Ukraine's switch to the policy of a greater flexibility of the official forex rate of the hryvnia.

He said the World Bank believes Ukraine has taken the right decision to shift to a more flexible forex rate. "A fiscally prudent budget and tight monetary policy are core ingredients for the gradual adjustment to take hold," say World Bank experts.

"Absent a further widening of the exchange rate band, the NBU will need to rely on tightening prudential regulations to further slow the pace of credit growth and curb short-term capital inflows, whilst monitoring liquidity in the banking sector.

But the burden of adjustment will remain on fiscal policy, which should target real income increases in the 2009 budget in line with underlying productivity growth, implying a modest increase in nominal wages and social transfers. This would help stabilize inflationary expectations and contain the further deterioration of the CA."

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4. U.S. VICE PRESIDENT CHENEY TO VISIT UKRAINE ON SEPTEMBER 4-5

Interfax Ukraine News, Kyiv, Ukraine, Monday, August 25, 2008

KYIV - Under preliminary agreements, U.S. Vice President Richard Cheney is to make a working visit to Ukraine on September 4-5, the press service of the Ukrainian president reported on Monday.

During the visit, the U.S. Vice President and Ukrainian President Viktor Yuschenko will hold an eye-to-eye meeting and take part in the talks of the two delegations.

"The state and the prospects of the Ukrainian-U.S. relations will be discussed, as well as the settlement of the situation in Georgia, issues of international security and the strengthening of transatlantic ties," Yuschenko's press service reported.
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U.S.-Ukraine Business Council (USUBC): http://www.usubc.org

Promoting U.S.-Ukraine business relations & investment since 1995.

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5. UKRAINE'S NATIONAL SECURITY AND DEFENSE COUNCIL SECRETARY,

RAISA BOHATYRIVOA, TO VISIT UNITED STATES ON AUGUST 24-30

Will meet with members of the U.S.-Ukraine Business Council (USUBC)

Interfax Ukraine News, Kyiv, Ukraine, Friday, August 22, 2008

KYIV- National Security and Defense Council Secretary Raisa Bohatyriova will pay a working visit to the United States on August 24-30, the Council said on Friday.

She will participate in the International Leaders Forum in Denver, the State of Colorado, at the invitation of the U.S. National Democratic Institute for
International Affairs (NDI).

During her visit, Bohatyriova will have a chance to familiarize herself with the work of the assembly of the U.S. Democratic Party. A ceremony to
nominate a presidential candidate from the Democrats will take place during the meeting.

"The NSDC secretary's visit foresees meetings and talks on a wide range of burning issues of international and regional security, as well as bilateral
cooperation in security, economy, energy, and other sectors," the council said.

Bohatyriova is scheduled to meet with Assistant to the President for National Security Affairs Stephen Hadley, Deputy Assistant to the Vice President for National Security Affairs Joseph Wood, Under Secretary of State for Political Affairs Nicholas Burns, Under Secretary of Defense for Policy Eric Edelman, as well as U.S. senators and congressmen, and representatives from political teams of U.S. presidential candidates.

The program of the visit also includes meetings with influential non-governmental organizations, particularly the Project on Transitional Democracies, leading analytical centers in the United States, the US-Ukraine Business Council (USUBC), and representatives of the Ukrainian Diaspora.

Bohatyriova will hold a roundtable with U.S. leading political experts and give exclusive interviews to the BBC and the Voice of America television
companies.
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6. COMPETITION LAUNCHED FOR MAJOR NEW RESEARCH & EDUCATION

CENTER FOR ENERGY EFFICIENCY IN UKRAINE BY U.S. CIVILIAN RESEARCH

& DEVELOPMENT FOUNDATION (CRDF)

U.S.-Ukraine Business Council (USUBC), Washington, D.C., Wednesday, August 27, 2008

WASHINGTON, D.C. - The U.S. Civilian Research & Development Foundation (CRDF) has announced a competition to select and establish a major research and education center for energy efficiency in Ukraine. This center will be the second in a planned series of new research and education centers in Ukraine that will address key economic priority areas.

"The CREST (Cooperation in Research and Education in Science and Technology) centers are jointly funded by public and private sector partners. CRDF welcomes interest from any members of the U.S.-Ukraine Business Council (USUBC) or other companies who may wish to consider serving as partners for future research and education centers in Ukraine, " according to Morgan Williams, SigmaBleyzer, who serves as president of USUBC.

The new CREST Center for Energy Efficiency, to be selected in late 2008 through a peer-reviewed competition among Ukrainian universities, will develop innovative solutions and new technologies for energy conservation and efficiency while educating young scientists in this important field.

The CREST Center for Energy Efficiency has been made possible with the generous support of the U.S. Agency for International Development (USAID) from the American people, CRDF, and the Ministry of Education and Science in Ukraine (MESU).

Modeled on a similar CRDF program in Russia, the goal of the CREST program is to strengthen research capabilities in science and technology, promote the integration of research and education, and increase academic and private sector collaboration in Ukrainian higher education institutions.

The CREST Center for Energy Efficiency will be the second CREST center since May 2007, following the establishment of the first CREST center at the National Mining University in Dnipropetrovsk, focused on mine safety and environmentally sound mining practices.

CRDF and the MESU have identified several high priority areas of science and technology in which to establish additional CREST centers, including energy, agricultural sciences, information and communication technologies, and public health. CRDF is currently seeking additional support and partners for these centers.

CRDF is a nonprofit organization authorized by the U.S. Congress and established in 1995 by the National Science Foundation. This unique public-private partnership promotes international scientific and technical collaboration through grants, technical resources and training. CRDF is based in Arlington, Virginia with offices in Kyiv, Ukraine; Moscow and St. Petersburg, Russia; and Astana, Kazakhstan.

USUBC president Williams said, "the CREST program is directed and managed by Dr. Marilyn Pifer, a molecular biologist with more than two decades of experience in promoting U.S. science and technology collaboration with Eurasian countries, and who resided in Ukraine from 1998 to 2001. CRDF has been an active member of the U.S.-Ukraine Business Council (USUBC), Washington, D.C. (www.usubc.org) since 2007.

For more information on how your company can be involved in the CRDF CREST program, please contact Ashley Dougherty at adougherty@crdf.org or 703-526-6766, Arlington, VA or for the CRDF Ukraine office in Kyiv please contact Natalia Artiukhovskaya at nartiukhovskaya@crdf.org.ua or 38-044-253-7223. Additional information CRDF is available on their website http://www.crdf.org/.

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7. WHAT NEXT FOR TRADE AFTER WTO FAILURE?
In order to stay relevant, the World Trade Organization must stress efficiency,

liberalize initiatives, and adapt to changing realities

By Shanker Singham, Partner, Squire, Sanders & Dempsey

Business Week magazine, New York, NY, Wed, August 13, 2008

The collapse in the Doha round (BusinessWeek.com, 7/30/08) of trade negotiations has given us cause to take stock of the multilateral trade agenda and the problems that have dogged it since the failed WTO meeting in 1999 in Seattle. Unfortunately, looking back over the last near-decade in the multilateral trade negotiations, there have been very few bright spots.

Indeed the only one, the launch of the Doha round in November 2001, has proven to be a false dawn, resulting as much from a reaction to the horrors of September 11 as from a realization of the need to liberalize trade by the WTO's members.

What is clear from the last decade is that trade negotiators have fallen almost completely under the spell of mercantilism—that exports are good, imports are bad, and tariff reductions are concessions to be given only when something else is won from a trading partner. It is true that mercantilism has been always with us.

In the early days of trade negotiation, however, the fact that tariffs could be gradually reduced by harnessing this mercantilist impulse for a positive purpose was part of the genius of the system.

A NEW FRAMEWORK IS NEEDED

As tariffs have come down and the new barriers become inside-the-border barriers, regulatory protection, and market distortions, the architecture of the trading system (at least on the multilateral level) cannot cope with the complex new reality.

The train of trade in the 21st century is different, but we insist on driving that train on the old lines. Instead we must change the lines, and develop a new architecture to frame the real trade issues of the day.

That architecture must now find a way of harnessing the very real mercantilist impulse in nations, which has always been with us, to ratchet down internal barriers, distortions, and anticompetitive practices.

Here are a number of ways that this might be done.

[1] On agricultural negotiations, the historic bugbear of global trade, reductions in developed-country subsidy programs must be accompanied by a reduction in the overall global measure of market distortion faced by agricultural companies in these countries. The goal must be to secure not only liberalized agricultural trade, but also competitive markets in agriculture.

As we have seen, working only on traditional agricultural tariffs and subsidies, while neglecting other market distortions such as regulatory bars and support for state-owned companies, will sink further discussions.

[2] Dealing with market distortions is not a mere add-on to the trade negotiation process. It is a vital part of discussions and the architecture must recognize this. Trade negotiators must recognize the role of market distortions.

[3] Willing countries must take the lead in crafting a set of agreements on public-sector restraints of trade that are uncompetitive or otherwise unjustified. These kinds of barriers are huge distorters of global trade and it is simply not rational not to deal with them.

Every step should be taken to encourage other WTO members to join these disciplines, but their failure to do so should not hold back those who wish to proceed.

[4] Countries must offer much more liberalization and liberalizing initiatives in the industrial goods and services area. Services trade is growing at a tremendous pace, and will soon be the dominant force in global trade.

It is regulatory barriers that distort services trade, and these must be dealt with comprehensively in negotiations. Those countries that liberalize these areas and lower their regulatory barriers will benefit enormously from doing so.

[5] In these days of rising food prices, and rising transportation costs, we must recognize the role that efficiency plays in solving many of these problems. China uses much more oil to generate the same level of economic growth as the U.S., for example.

Anything that would make the Chinese economy more efficient will help reduce demand to levels that are more sustainable. Competitive markets deliver efficiency, and will help with some of the world's most pressing problems now.

ADAPTING TO CHANGING REALITIES

From the days of Adam Smith and David Ricardo, trade liberalization has been about reducing trade barriers so that the forces of competition could be liberated to lower prices for consumers and lift the poor out of poverty.

Trade liberalization's goals have not changed. By incorporating the points noted above, we can more clearly bring into focus for WTO members the fact that the overarching goal of free trade is to enhance consumer welfare and empower individual companies and their workers.

Future generations are counting on the trade system to evolve and adapt to changing realities, and to deal with the most pernicious problems that result in a lack of efficiency and damage trade.

If we do not make the necessary adjustments now, when we have a chance to do so, the WTO will find itself increasingly irrelevant to the world's economic problems. Ultimately it is the poorest among us who will pay the price for our failure to act now.

NOTE: Shanker Singham is a partner in the economic regulation practice of the global law firm of Squire, Sanders & Dempsey. Squire, Sanders & Dempsey is a member of the U.S.-Ukraine Business Council (USUBC), Washington, D.C. Singham spoke at a recent workshop in Washington sponsored by USUBC.

LINK: http://www.businessweek.com/globalbiz/content/aug2008/gb20080813_489963.htm?campaign_id=rss_daily

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8. STATE OF THE UNION: A BEAR ENERGY MARKET

COMMENTARY & ANALYSIS: By Zeyno Baran, Director

Center for Eurasian Policy, Hudson Institute, Washington, D.C.

The Wall Street Journal, New York, NY, Tuesday, August 26, 2008

Along with a rapid military victory in Georgia, Vladimir Putin succeeded with another weapon in Russia's effort to divide and conquer Europe: energy.
Despite claims of unity on the crisis in the Caucasus, energy is a clear dividing line on the Continent.

Countries that have long-term gas partnerships with Russia -- primarily the West Europeans -- chose the "both sides are to blame" approach to the war in Georgia. Countries that are more eager to diversify their sources of energy supply away from Russia -- most of the East and Central Europeans -- evinced the necessary moral clarity about Moscow's preplanned invasion.

We saw the same fault line at the NATO summit in April that failed to offer a membership action plan (MAP) to either Georgia or Ukraine, further emboldening Mr. Putin to provoke the Georgians into an unwinnable war. It is simply not possible for the European Union to be united in what Russia considers to be its "sphere of influence" unless the Kremlin's gas leverage over the Continent is broken.

Russia is Europe's single largest supplier of natural gas. As there is no global market for gas, the construction of costly pipelines effectively locks consumers into lengthy contracts with producers. This means that Moscow can (and does) easily manipulate dependence into political and economic leverage.

Germany, for example, imports almost 40% of its gas from Russia -- the most of any West European country -- and plans to increase this figure to over 60% by 2020. Six East European countries are entirely dependent on Russia for their natural gas imports. Yet they are also the most vocal about the EU's need to diversify away from Russia.

That's because they know Russia can turn off the taps in a second -- as in Latvia in 2003, Lithuania in 2006 and the Czech Republic in 2008 -- with little reaction from Brussels. Russia managed to divide the EU by being a reliable supplier to Western Europe, while continuing to treat Eastern Europe as its "backyard."

Despite Russia's repeated use of energy as a political weapon in Eastern Europe, Western Europeans keep repeating the mantra that Russia has been a reliable supplier to "Europe." They also choose to ignore that natural-gas giant Gazprom serves as the Kremlin's leading foreign-policy arm.

The company is primarily state-owned, and many members of Gazprom's leadership are current or former government officials. The Kremlin's present occupant, Dmitry Medvedev, until recently was the chairman of Gazprom. His replacement there is former Prime Minister Viktor Zubkov.

The Russian plan is rather simple: Punish countries that refuse to come under its influence by building new gas pipelines that bypass them, while rewarding countries and political leaders that cooperate with Russia with lucrative energy deals.

Maintaining a monopoly over the transport of Caspian gas to Europe is essential for Moscow to ensure that all those countries that have submitted to a Russian "partnership" will acquiesce to the return of the former Soviet space to the Kremlin's control.

Mr. Putin has visited each of the relevant European countries to persuade them to join his energy projects. Nord Stream is one such example. When completed in 2011, that pipeline will connect Russia and Germany through the Baltic Sea, skirting Poland and the Baltic states.

One of the leaders of this politically divisive joint enterprise is Gerhard Schröder, who extended a €1 billion government credit guarantee to the pipeline project just prior to stepping down as German chancellor in 2005. Germany, and especially Foreign Minister Frank-Walter Steinmeier, Mr. Schröder's former chief of staff and like his old boss a Social-Democrat, opposed the MAP for Georgia and is reluctant to take a firm position toward Russia.

Just last week, while Finnish Foreign Minister Alexander Stubb was shuttling between Moscow and Tbilisi in his capacity as chairman of the OSCE, Nord Stream announced the hiring of former Finnish Prime Minister Paavo Lipponen.

Moscow also tried to hire former Italian Premier Romano Prodi as chairman of a second gas pipeline, South Stream. Mr. Prodi turned down the job, but his successor Silvio Berlusconi is a longtime Putin ally who supports designating South Stream as a "European project." Once officially accepted by Brussels, South Stream may even get EU funding. Not surprisingly, the Berlusconi government has reacted to the Russian invasion of Georgia with moral equivocation.

The future of South Stream -- which will connect Russia and Bulgaria via the Black Sea, isolating Ukraine -- will bear heavily on the prospects of a truly European project, the Nabucco pipeline.

Mr. Putin came up with South Stream to keep Nabucco from being built. Scheduled to be completed by 2013, Nabucco would transport Azerbaijani and Central Asian gas to Europe. The two pipelines would follow roughly the same route, ending in Austria, but Nabucco would bypass Russian control.

So, over the past year Mr. Putin has cut bilateral deals with each country along the route, undermining Nabucco's viability. Moscow has also been much more active than Europe in courting the Caspian rim countries that have the gas each pipeline needs.

If South Stream is built first, it will pull all available Caspian gas supplies with it. Nabucco could still be built to carry Middle Eastern gas, but Russia will have ensured continued control over Caspian gas reaching Europe.

And because Nabucco is being privately funded, its investors would likely walk away if its gas sourcing is shaky. State-owned Gazprom, though, is willing to finance a project even if it isn't commercially viable -- so long as it supports the Kremlin's strategic goals. No Nabucco means no gas diversification for East Europe, which will continue to be subjected to Russia's power plays while Moscow caters to their West European brethren.

France took a Russia-first position at the NATO summit and, despite President Nicolas Sarkozy's strong trans-Atlantic position, brokered a cease-fire between Russia and Georgia that was very much in the Kremlin's interest. But Mr. Sarkozy now seems to have understood that he was played.

German Chancellor Angela Merkel, too, is finally giving clear support for Georgia's NATO membership as Russia's occupation of the country is in its third week.

Only a united Europe could stop Russia from cutting bilateral deals that are advantageous for individual countries but disastrous for the EU as a whole. Only a united Europe could hold Gazprom accountable to transparency and competition rules, stopping the firm from dictating its terms and playing one EU country against the other.

The EU correctly points out that Russia needs European energy consumers just as much as Europe needs Russian energy suppliers. Moscow, though, has managed to turn this mutual dependence into one-sided leverage. It's time to reverse this trend.

Ultimately, it all comes down to political will in Western Europe -- and the longer Russian tanks remain in Georgia, the clearer it becomes that such will is lacking.

LINK http://online.wsj.com/article/SB121970256946770749.html?mod=opinion_main_commentaries

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9. RUSSIA'S GRIP ON ENERGY

EDITORIAL: Financial Times, London, UK, Tuesday, August 26 2008

Russia has produced some of the world's top chess players - and its invasion of Georgia is a brutally effective gambit in the new Great Game. It has prompted the fastest investor pull-out in a decade, but Moscow may care little about that.

Longer-term strategic goals have been achieved. In one move, Moscow has reasserted its influence over energy supply routes, and suppliers, from the Caspian basin and Central Asia.

Russia has re-established a hold over the narrow strategic corridor of the southern Caucasus. If, as is still possible, Georgia's president Mikheil Saakashvili is deposed and replaced by a more pro-Russian candidate, its control will be cemented.

Georgia alleges (though Moscow denies) that during the conflict Russia attempted to bomb the 1m barrels-a-day Baku-Tbilisi-Ceyhan pipeline - the only important export route for Caspian oil bypassing Russia.

Russia's ability and willingness to wage war close to the BTC will make companies, lenders and investors think hard about backing new pipelines through the region. Nabucco, the gas pipeline plan championed by the European Union, could well lose out to Russia's rival South Stream.

Among other western-leaning former Soviet states, Ukraine may see the conflict as a further incentive to embed itself in the Euro-Atlantic community. But key energy suppliers such as Azerbaijan and Kazakhstan, which flirted with the US while retaining authoritarian political systems akin to Russia's, are likely to tilt back towards Moscow.

So may Turkmenistan, which Washington has wooed since the death of its eccentric dictator in 2006. Uzbekistan has already returned to Moscow's orbit.

All this follows Gazprom's shrewd courtship of other gas producers from Libya to Nigeria - aiming if not to form a "gas Opec", then at least to play a co-ordinating role. For Gazprom shareholders (of whom there are plenty in the west), that looks positive. For the EU and US, striving to diversify energy suppliers, it looks a lot like checkmate.

LINK: http://www.ft.com/cms/s/1/31b75636-7306-11dd-983b-0000779fd18c.html

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10. OVERSEAS PRIVATE INVESTMENT CORPORATION (OPIC)

STILL CLOSED FOR UKRAINE

Settle the claim now and open OPIC for Ukraine

U.S.-Ukraine Business Council (USUBC), Washington, D.C., Wednesday, August 27, 2008

WASHINGTON, D.C. - One of the top issues for the U.S.-Ukraine Business Council (USUBC) over the past several years has been the closure for Ukraine of the major economic and business development support programs of the U.S. government's Overseas Private Investment Corporation (OPIC) (http://www.opic.gov/). OPIC's programs ares still not open for Ukraine in July of 2008. The government of Ukraine should settle the small OPIC claim immediately and get OPIC programs open for Ukraine. This is a win-win for everyone.

USUBC has been speaking out about this critical issue at meetings, in Washington and Kyiv, with every top Ukrainian and U.S. government official who has some responsibility regarding this major problem for a long time.

USUBC was told directly in several meetings this year by top officials in the Ukrainian government and in the U.S. government that resolving the OPIC issue was a top priority. Strong indications were given to USUBC that the OPIC issue would be solved by late March or certainly by May 2008 at the latest.

But, now in late August 2008 endless meetings are still be held from time-to-time between the two government about how to resolve the claim OPIC has with the government of Ukraine. A claim which has been around since 1999.

USUBC urges the two governments to find a way to settle the issue now and get the OPIC working once again for the benefit of American businesses and for Ukraine. The dispute has gone on long enough. Many business development and expansion programs for Ukraine are on hold because OPIC is closed...jobs are being lost, tax revenue is not being generated, investment and economic growth suffer as a result.

An article about the OPIC issue, written by Jim Davis and published by the Business Ukraine magazine in Kyiv back in February 2008, is still very

relevant:

UKRAINE'S OUTSTANDING OPIC DEBT: A BARRIER TO INTERNATIONAL INVESTMENT

By Jim Davis, Business Ukraine magazine, Kyiv, Ukraine, Monday, February 11, 2008

Amid all the fanfare that has accompanied the signing of a protocol which will bring Ukraine WTO membership, it is worth noting that a disagreement over a relatively small amount of money has made it impossible for Ukraine to enjoy the benefits of an obscure but extremely important agency of the United States government, the Overseas Private Investment Corporation (OPIC).

Estimates made by well-informed persons involved in the process relating to OPIC would suggest that had the problem could have been resolved when it
first arose in 1999, Ukraine could have gained an absolute minimum of an additional USD 5 - 10 billion in foreign direct investment - and probably a lot more than that.

The issue could have been solved years ago, but it was as is so often the case it is a problem for which no one had primary responsibility on the Ukrainian side.

All those, i.e. the various ministers, who had parts of the responsibility within their jurisdictions failed to understand the overall importance of the issue and therefore guarded their own turf rather than that of the state as a whole.

The end result has been to deny the Ukrainian economy one of the tools that could have been attracting investment into the country ever since, with a
potential opportunity cost running into the billions of dollars.

A SIMPLE PROBLEM MADE COMPLEX
The matter involves the non-payment of a state debt incurred by the Ministry of Defence about ten years ago at a time when the needs of various ministries were seriously under-funded and ministers were prone to making deals first and worrying about payment later.

The debt in question was covered by OPIC political risk insurance. OPIC paid the claim to the insured U.S. supplier and looked to Ukraine to ultimately
make good on the original agreement, as was called for in the Ukraine-OPIC agreement.

The amount of the claim, approximately USD 17 million, is quite small when viewed in the light of the overall budget of Ukraine. For the uninitiated, USD 17 million might appear to be a sum that could be dealt with in a simple meeting among ministers of any government.

However, there is no single ministry nor any single minister who has ever been tasked with dealing with the problem in a priority manner, so time and
time again the issue has been discussed at seemingly high-level meetings between U.S. ambassadors and embassy staff on one side and various ministers and prime ministers on the other.

The matter is further complicated by the nature of Ukraine's budget process. No government has wanted to debate the debt in parliament so it has never
been made a part of any annual state budget.

With no line item listing of the debt, some other mechanism would need to be found in order to keep a payment from being illegal under the existing
legislation of the state budget act. So far, no creative payment mechanism has been found that would meet the needs of both sides of the disagreement.

The most recent top-level discussions came during a visit to the United States by then-Prime Minister Viktor Yanukovych in late 2006.

At the time Yanukovych promised U.S. officials during discussions that the matter would have his personal attention and would be settled in a very short time. However, the Yanukovych government neither paid the amount owed nor requested or agreed to negotiations to adjust the amount owed.

ABOUT OPIC

OPIC is an independent U.S. government agency whose mission is to mobilise and facilitate the participation of U. S. private capital and skills in the
economic and social development of less developed countries and areas, and countries in transition from non-market to market economies.

OPIC assists U.S. companies by providing financing (from large structured finance to small business loans), political risk insurance, and investment
funds. OPIC complements the private sector in managing risks associated with foreign direct investment and supports U.S. foreign policy.

Since its establishment in 1971, OPIC programmes have grown and expanded to encompass the support of development in over 150 countries. In 2007, OPIC assisted 70 projects in 38 countries and regions involving a wide range of industries. Of all the projects underway around the world in 2006, 87% or 61 projects involved U.S. small businesses in 35 U.S. states.

Many OPIC projects involve U.S. procurements, but it is also small and medium-sized enterprise (SME) projects in recipient cooperating countries
that receive the greatest benefits. For example, in Kazakhstan, OPIC provided debt financing for a USD 1.89 million investment in the Asian Credit Fund (ACF), a non-banking microfinance institution established by the Mercy Corps.

In Azerbaijan, OPIC provided financing to SOAKredit LLC (SOA), an independent limited liability non-credit organisation. SOA's purpose is to

implement an innovative finance programme primarily designed to stimulate local business growth and facilitate Azerbaijan's transition from a demand
to a market economy.

In Russia, OPIC is providing financing to ZAO Europlan (Europlan), the leading leaser of equipment and vehicles to SMEs throughout the Russian
Federation, to support a planned USD 450 million expansion.

CREATING CONFIDENCE, OFFERING SECURITY

Nadir Shaikh, Chairman of the Board of Citibank Ukraine, explained that SME firms and medium-sized projects are the ones that would benefit most if
Ukraine settles its dispute with OPIC.

Shaikh has been one of the persons most active in promoting a settlement with OPIC and as recently as two weeks ago participated in a meeting with
senior government officials where this matter was discussed.

"We know from experience that the largest foreign firms come here fully prepared to finance their own way into the Ukrainian market. Their investments are based on advice from the most sophisticated sources in their own companies or from professional advisors such as investment banks. It is the smaller foreign investors who need the type of help and risk coverage that OPIC is able to give.

"Making OPIC political risk insurance available would, for example, would give many smaller foreign investors the kind of backing that would first
help convince their own boards of the viability of investments in Ukraine, and would also assist them in finding financing for projects here or in their home country.

"In addition, it would help Ukrainian companies to get access to financing that could be provided by such banks as Citibank, based on OPIC risk coverage programmes.

"Settling the current dispute requires a firm decision and political will on the part of government to find a financing mechanism to pay the current claim. I am optimistic that the efforts of the current government are more likely to find a solution to this problem," Shaikh concluded.

A RELATIVELY TRIFLING DEBT

One of the most interesting elements in the OPIC-Ukraine issue is the flexibility exhibited by OPIC in attempting to settle the claim. On several occasions various Ukrainian governments have been told that while USD 17 million is the amount actually owed, OPIC is willing to engage in negotiations that could lead to a solution that would mean a substantially reduced settlement.

Even with the clearest signals possible from OPIC, no Ukrainian government over the last ten years has been willing or able to find the will to effect a settlement.

The issue has not been filed away in a long forgotten filing cabinet, either. Morgan Williams, president of the U.S.-Ukraine Business Council (USUBC) said that the OPIC issue has been a matter of discussion between the two governments in every meeting that he has attended in Washington or Kyiv in recent years.

"On January 31, while addressing a meeting of the USUBC that included representatives of the American Chamber of Commerce and U.S. embassy officials, Vice-Prime Minister Nemyrya made a point of telling the audience that he was fully aware of the problem and that he expects a solution to be
found soon. We sincerely hope that is correct.

"OPIC programmes are being used all over the world to spur development and USUBC thinks that the inability of Ukraine to solve its OPIC problem has
cost the country at least one billion and perhaps several billions of dollars in lost investment opportunities. In effect, a failure to solve the OPIC issue has a negative effect on Ukraine's ability to create jobs and wealth for all of Ukraine's citizens.

"For example, in the autumn of 2005 OPIC conceived and was ready to implement a USD 100 million private equity fund programme for Ukraine.

"I have been told on the back channel by top U.S. government officials in Washington that the total value of OPIC programmes that could be implemented here within a relatively short time might have a total value of as much as USD 500 million.

"However, it is the government of Ukraine that must turn the key to open what is literally a treasure trove of new investment and risk guarantee

0pportunities. I hope it will make the effort necessary to find the solution needed," Williams concluded.

LINK: http://www.businessukraine.com.ua/ukraine-s-outstanding-opic-debt
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U.S.-Ukraine Business Council (USUBC) www.usubc.org.

Promoting Ukraine & U.S.-Ukraine business & investment relations since 1995.

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11. VOLIA CABLE & SIGMABLEYZER'S REGIONAL CABLE BUSINESS MERGE TO FORM PRE-EMINENT UKRAINIAN CABLE PROVIDER
Providence Equity Partners Increases Its Investment in the Combined Entity
to over $300 million, Making the Largest Private Equity Investment in Ukraine

By BusinessWire, Kyiv, Ukraine, Monday, July 28, 2008

KYIV, Ukraine - Volia Cable (Aquorn Limited) and SigmaBleyzer's regional cable operations (Oisiw Limited) are merging to form Ukraine's pre-eminent
cable provider with operations in over 15 of Ukraine's largest cities. As a result of the merger, the combined business, to be named Volia Limited, will
provide television service as well as high-speed Internet access to over 2.5 million Ukrainian households.

In a separate transaction, Providence Equity Partners, the world's leading media and communications private equity firm, is making an additional
investment in Volia bringing its total investment in the combined entity to over US$300 million. The transaction has been approved by the Antimonopoly
Committee of Ukraine.

"We are very pleased to extend our partnership with Providence, a leading private equity investor and one of the largest and most experienced owners
of media and communications companies globally," said Michael Bleyzer, President and CEO of SigmaBleyzer.

"Merging our two cable businesses makes a lot of strategic sense and will allow us to provide best in class service from a unified operating platform
to our subscribers. We see Providence's increased investment in Ukrainian cable also as a vote of confidence in the Ukrainian economy."

"The combination of Volia Cable and SigmaBleyzer's regional cable operations creates a cable company uniquely positioned to meet the rapidly expanding demand in Ukraine for the most advanced television and broadband services," said Jonathan M. Nelson, Providence Chief Executive Officer. "We are pleased to expand our commitment to Volia and look forward to continuing to work with Michael and Sergey and their teams to build value at Volia over the long-term."

Sergey Boyko, President of Volia Cable, will be leading the combined business and said: "I see tremendous potential in the combined operations. We now have the platform and scale to build a unified cable brand across Ukraine and bring to the regional cities the same level and quality of service that our subscribers in Kyiv have come to rely upon." Goldman Sachs International acted as financial advisor to Oisiw Limited.

ABOUT PROVIDENCE EQUITY PARTNERS
Providence Equity Partners is the leading global private equity firm specializing in equity investments in media, entertainment, communications and information companies around the world. The principals of Providence manage funds with approximately $22 billion in equity commitments and have
invested in more than 100 companies operating in over 20 countries since the firm's inception in 1989.

Significant investments include Bell Canada, Bresnan Broadband Holdings, Casema, Com Hem, Digiturk, Education Management Corporation, eircom,
FreedomCommunications, Hulu, Idea Cellular, Kabel Deutschland, Metro-Goldwyn-Mayer, NexTag, Ono, Open Solutions, PanAmSat, ProSiebenSat.1,
Recoletos, TDC, Univision, VoiceStream Wireless, Warner Music Group, Western Wireless and Yankees Entertainment and Sports Network. Providence
is headquartered in Providence, RI (USA) and has offices in New York, Los Angeles, London, Hong Kong and New Delhi.

ABOUT VOLIA LIMITED
Volia Limited is the number one cable TV and Broadband Internet provider in Ukraine. As a result of the merger, the combined entity will have about 2.5
million homes passed and 1.8 million RGUs. Volia Limited provides services such as analog cable TV, digital cable TV, high-speed cable Internet access,
VoIP and data services. New services, such as VoD and PPV, are under development and will be implemented in the future.

Volia Limited was created through the consolidation of a number of companies acquired by SigmaBleyzer over the past few years. Since acquisition, Volia
has worked on integrating and upgrading the activities of the original cable operators.

ABOUT SIGMABLEYZER
Operating in the region for over a decade, SigmaBleyzer is one of the largest and most experienced private equity investors in Eastern Europe. With the strength of the company's local infrastructure, western-style management and knowledge of local markets, SigmaBleyzer has created one of the best investment management companies in the region.

SigmaBleyzer manages funds and special purpose investment vehicles with approximately $1 billion in commitments and has made investments in over
100 companies in Ukraine since 1994.

As a manager of a family of private equity funds currently investing in Ukraine, Romania, Bulgaria and Kazakhstan, SigmaBleyzer utilizes a hybrid
investment approach developed specifically for emerging markets and focused on simultaneous value creation at the micro or enterprise level and at the
macro level.

Because of this unique approach and strong on-the-ground presence in a region where many of its investors could not have invested directly, SigmaBleyzer brings one of the most attractive pipelines of investment opportunities found anywhere to its client base.

With offices in Kyiv and Kharkiv (Ukraine); Sofia (Bulgaria), Bucharest (Romania), Astana (Kazakhstan), and a back office in Houston, Texas, SigmaBleyzer has the infrastructure in its countries of operation to successfully manage portfolio companies to help them reach their full potential, while creating value for the investors, shareholders, employees and other stakeholders.

LINK: http://www.broadcastnewsroom.com:80/articles/viewarticle.jsp?id=466264

NOTE: SigmaBleyzer is a member of the U.S.-Ukraine Business Council, Washington, D.C.
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12. RUSSIA’S POTENTIAL EVOLUTION AND AMERICA’S

AND UKRAINE’S NATIONAL SECURITY

OP-ED: By Victor Basiuk, The Ukrainian Weekly newspaper, Vol. LXXVI, No. 34

Parsippany, New Jersey, Sunday, August 24, 2008

Henry A. Kissinger, former Secretary of State, recently visited Russia and wrote a column in The Washington Post under the title “Finding Common Ground With Russia” (July 8). In it, he raises two issues directly relevant to America’s and Ukraine’s national security: Russia’s potential evolution towards democracy and Ukraine’s joining of NATO. Mr. Kissinger’s views on these issues need to be addressed.

Mr. Kissinger believes that, with the accession of Dmitry Medvedev to the presidency, Russia has entered “a transition from a phase of consolidation to a period of modernization.” With the two centers of power now emerging – Putin and Medvedev – it appears “to be the beginning of an evolution toward a form of checks and balances,’ and, hence, eventual democracy.

Mr. Kissinger considers “Russian policy under Putin as driven by a quest for a reliable strategic partner, with America being the preferred choice.” He views the Sochi declaration between Putin and Bush as an emerging partnership between the two countries.

So as not to impede it as well as the evolution of Russia towards democracy, Mr. Kissinger advocates a postponement of Ukraine’s joining NATO, since bringing the Western security system close to Moscow “will inhibit the solving of all other issues.”

The above analysis by Mr. Kissinger overlooks certain fundamentals of Russia’s evolutionary process and Russian-Ukrainian relations. The struggle between the Slavophiles and Westernizers within Russia goes back to the early 19th century. The Slavophiles believed that Russia is unique, its culture is superior to Western culture, it is a Third Rome.

The Slavophiles were autocratic supporters of the Pan-Slavic movement, which sought unification of all Slavic peoples under the domination of Russia. The Westernizers believed that Russia’s development depended on the adoption of Western technology and liberalism.

After the break-up of the Soviet Union, Slavophile thinking was revived in Russia in the form of culturology. Taught in the former departments of Marxism-Leninism in secondary schools and universities, culturology has, in effect, become a successor to communism as an ideology in Russia. It is compulsory in primary and secondary schools and it is nearly always a required course in the first year of university.

The Russian Ministry of Education sets up the standards to obtain diplomas in culturology. including doctoral degrees. Like Slavophile teachings, culturlogy rejects Western universalism, insists on Russia’s messianic destiny, and views Russia as “a world apart.”

Culturology is an instrument of power and it helps the Russian authoritarian regime control its population. At this point, the principal instrument of Russia’s power, domestic and international, is oil, and Russia capitalizes on it in a way that strongly suggests Cold War mentality among Russia’s top leaders. Besides using oil and gas as an instrument of political power with regard to the “near abroad” and Western Europe, Russia is converting its oil power into military power.

On July 25 of this year, the commander-in-chief of the Russian Navy, Admiral Vladimir Vysotskiy, gave an interview to RIA Novosti, where he said that Russia is significantly expanding its navy. Priority is given to a new generation of strategic nuclear submarines. Russia is also building advanced destroyers and aircraft carriers. The naval programs have high priority, are fully funded, and the first nuclear submarine armed with new ballistic missiles Bulava-M will soon join the Northern Fleet.

The Russian Navy considers it necessary to have 5 or 6 aircraft carriers, and not just one aviation cruiser as is the case now. While another oil-rich country – Saudi Arabia – is investing billions of dollars into building new cities with multiple industries so as to diversity its economy, Russia does not seem to be interested in that kind of activity.

Does the above suggest that, contrary to Mr. Kissinger’s contention, the evolutionary process is bypassing Russia? This is not so, but we cannot expect that democracy will come from the top of the present regime – it must come from the bottom, society itself.

It is too optimistic to hope that a former KGB colonel would anoint as his successor to the presidency someone who would create a system of checks and balances to his own power. In a world characterized by rapidly growing interdependence, societal evolution in Russia has to come from both internal and external forces.

There is evidence that, culturology notwithstanding, there is a degree of progression towards closer ties to the West in Russia, especially in the younger generation. A public opinion poll conducted in late June 2008 by the All-Russian Center of Appraisal of Public Opinion indicated that 41% of young people of 18 to 24 years of age consider that, for the Russians, Europe is a common home. and 48% are in favor of a European road for the development of the country.

Among the total respondents, 45% believe that Russia is a part of Europe, and in the 21st century their destinies will be closely intertwined. However, almost an equal number (42%) consider Russia as a unique Eurasian civilization whose center of interests in the future will be directed eastward.

Mr. Kissinger is correct in maintaining that public exhortations and a continuous pressure on Russia are counterproductive for the process of societal evolution. Craving for freedom is a very powerful internal societal mover in the evolution towards democracy; it produced peaceful “color revolutions” in three former Soviet republics – Georgia, Ukraine and Kyrgyzstan. It exists in Russian society just as it exists in other societies; it is a part of human nature.

However, in Russia craving for freedom is laced with a historical baggage: hundreds of years of autocracy. As a result, many Russians feel more comfortable when decisions are made for them, when there is a “batyushka” (father) to give them order and security. Autocracy has almost become a part of the value system of many Russians. Russian society thus needs more external help than others.

The West must develop policies to unleash the craving for freedom among the Russians; otherwise the evolution towards democracy will be significantly slowed down, confined mainly to generational changes. Such policies might include greater efforts to increase personal contacts of the Russians with Westerners.

To that end, the U.S. government might encourage Russia to diversify its economy, which would bring more foreign investment and foreigners to Russia.

Travel and educational exchanges could be increased. Activities that would, directly or indirectly, stimulate the development of civil society in Russia need to be supported since such a society creates a fertile ground for freedom.

The free market economy, which now exists in Russia, creates a useful precondition for the development of a civil society in Russia, although one must face the reality of the Russian government’s periodic interference with its functioning as well with other activities that might encourage a craving for freedom. Removal or relaxation of such interference could be used as a “soft power” bargaining chip in dealing with Russia.

In the longer run, the United States could neutralize the control by the Russian authoritarian government over its population through oil and oil’s use as an instrument of power in foreign affairs without a direct confrontation with Russia. The United States at present is developing a strategy to free itself from dependence on foreign oil.

America could set its goal higher -- replacement of oil as the principal source of energy by alternative fuels on a global scale. A promising source in this regard is methane from methane hydrates, which could be commercially produced within five years.

Methane hydrates, a substance consisting of methane mixed with ice and found on the continental shelves at the depth of 500 meters and below in most areas of the world, have a total energy content of nearly twice of that of all the known deposits of oil, coal, and natural gas combined.

According to present estimates, only 5 to 15 percent of methane hydrates are commercially exploitable, but even at this percentage the potential is vast. Methane is readily convertible into gasoline and aviation fuel.

Only when strong preconditions for democracy develop in society and become compelling, would the Russian authoritarian government react to them and move in the direction of reforms.

Mikhail Gorbachev did not come to power and initiate his far-reaching reforms until it became obvious to the top Soviet leadership that the Soviet command economy was no longer workable in a highly complex technological setting and it could not generate adequate resources to meet the armaments competition initiated by Ronald Reagan. No such compelling conditions exist at present.

With regard to Ukraine: Mr. Kissinger’s assumption that the principal reason Russia is strenuously opposed to Ukraine’s joining NATO is national security overlooks the complexity of Russian-Ukrainian relations and strategic objectives of the Russian government. Yes, national security is an important factor, but Russia already has three former Soviet republics – Latvia, Lithuania, and Estonia – which are on its borders and are members of NATO.

The principal reason Russia does not want Ukraine to join NATO is that, if Ukraine becomes a member of NATO, Russia will lose forever a chance that Ukraine, with its very substantial economic and technological resources, will become its vassal, if not a full-fledged member of the Russian Federation. Moreover, there are strong socio-political reasons for such objections.

For hundreds of years, Russian children were taught – and are still being taught – in schools that “Kyiv is the mother of Russian cities.” It is difficult for their parents to explain why Kyiv is abroad and is not even connected with Russia.

It is equally difficult for many patriotic Russians to accept that Russia’s history starts in 14th century, with the then barbaric Principality of Muscovy, and not with Kyiv, which three centuries earlier, under Prince Yaroslav the Wise, was already the capital of a major, economically and culturally flourishing European country.

The influence of Russia in Ukraine is strong. At present, the Party of the Regions, headed by the pro-Russian former Prime Minister Viktor Yunukovych, is the largest party in Ukraine and holds plurality in the Ukrainian Parliament. When Yanukovych was in power, he was helping the Russian government and business infiltrate Ukraine economically and culturally.

Then President Putin was helping Yanukovych to get reelected and congratulated him before he was actually reelected, but then the Orange Revolution cancelled the fraudulent election. The present government of Prime Minister Yulia Tymoshenko has been formed on a very slim democratic coalition in the Parliament – the margin of only two votes. But two parliamentarians of the coalition have resigned and, although the coalition formally still exists, it is in a very precarious position.

Russia’s pressure on Ukraine not to join NATO is very strong. In February 2008, the then Russian President Putin said that, if Ukraine joins NATO, Russia may have to target Ukraine with nuclear missiles. The Russian State Duma appealed to President Medvedev and the government to consider abrogating the 1997 Treaty of Friendship, Cooperation and Partnership with Ukraine if Ukraine’s plan to join NATO is approved.

A centerpiece of this treaty is the recognition of territorial integrity of Ukraine. In interviews and public statements, Yuriy Luzhkov, the Mayor of Moscow, said that Ukraine “seized” Crimea and it should go back to Russia.

A critical point in Ukraine’s joining NATO is the approval of a Membership Action Plan (MAP) at the December 2008 NATO summit, which was rejected at the April Bucharest NATO summit. The MAP merely delineates steps to join NATO, and not the joining itself.

Quite correctly, Mr. Kissinger points out that Russia’s expansionist policies in the past were facilitated by the weakness of nearly all countries on Russia’s border, a condition which has largely disappeared. And yet Ukraine comprises a potential window for Russia’s expansion, and a strong motivation for such expansion on the part of Russia exists.

If Russia is successful in extending its influence – and perhaps more – into Ukraine, this would embolden expansionist groups and individuals in Russia and impede its evolution to democracy.

The present Ukrainian democratic government is trying to close that window by joining NATO and, eventually, the European Union (EU). I think that, contrary to Mr. Kissinger, it would be in the best interest of U.S. and Ukrainian national security to expedite the process.

As things stand, it will take years to join NATO, and many more years to join the EU. If the process is shortened, it will reduce the period of Ukraine being a bone of contention and a source of friction between the West and Russia.

Moreover, as today Ukraine celebrates its 17th Independence Day, Ukraine’s joining NATO soon would ensure that subsequent celebrations will be real, and not just a veneer of subordination to its northern neighbor. And this way Russia will get sooner reconciled to the fact that Ukraine is a part of the West, as it became reconciled to the Baltic republics and its former East European satellites to joining the Alliance.

As a member of NATO Ukraine will be more free of the influence of pro-Russian forces and will develop more rapidly into a mature, vibrant democracy, potentially becoming an important catalyst in the evolution of democracy in Russia.

NOTE: Victor Basiuk is a consultant on science, technology, and national security policy in the Washington, D.C. area. He taught at Columbia University and in Washington he worked for the White House, the State Department, and the Department of Defense. Dr. Basiuk is the author of "Technology, World Politics, and American Policy" and at present he is writing a book on After World Dominance, Whither America?

LINK: The Ukrainian Weekly Archive: www.ukrweekly.com
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13. WANTED: A PLAN FOR UKRAINE

BRUSSELS BLOG: By Tony Barber, Financial Times, London, UK, Mon, Aug 25, 2008

Among the lessons to be drawn from the Russian-Georgian war is that the next flashpoint between the European Union and Russia may turn out to be Ukraine. There is a particular risk of trouble over Crimea, the Ukrainian peninsula where ethnic Russians are in the majority and where Russia's Black Sea fleet has a 20-year lease on bases that is due to expire in 2017.

To help avert a crisis in Ukraine, the EU badly needs to come up with a convincing strategy for rescuing the country from the geopolitical no man's land in which it has languished since the Soviet Union's demise in 1991.

Russia's military intervention in Georgia underscores the Kremlin's determination to rebuild its influence in former Soviet republics on its western and southern borders. Ukraine - with 46m people and a culture and history intimately connected to that of Russia - is the biggest prize of them all.

Unfortunately, the EU's plans for Ukraine are at present anything but convincing. At an EU foreign ministers' meeting in Brussels last month, the
27-nation bloc even found itself debating whether to state the obvious and call Ukraine a European country. The snag is that to do so would imply that
Ukraine has the right to eventual EU membership, a prospect that some EU member-states can't stomach.

EU and Ukrainian leaders are due to meet in the French town of Evian on September 9 and sign an association agreement on closer relations. But this
accord will be deliberately ambiguous about whether or not it puts Ukraine on a track leading one day to EU accession.

A new report by the European Council on Foreign Relations think-tank argues that the EU cannot afford any more delays in defining and deepening its ties
with Ukraine. It proposes giving Ukraine access to the EU's four freedoms (freedom of movement of goods, people, services and capital) and a roadmap
for visa-free travel.

It advises the EU to commit itself to consulting and assisting Ukraine in the event of a challenge to the country's sovereignty and territorial integrity. It recommends support for Ukraine's efforts to secure the peaceful withdrawal of the Russian Black Sea fleet from Crimea.

Above all, the report advocates that the Ukraine should be offered a "clearer perspective" towards a Nato membership action plan, and states that the EU should recognise Ukraine's right to join the EU. None of these steps would be intended as a provocation to Russia, whose sheer size and regional weight leave the EU with no choice but to pursue a policy of long-term diplomatic and commercial engagement with Moscow.

The report's recommendations make a lot of sense. However, they may overstate the EU's ability to apply its famed "soft power" in a country that is right on Russia's doorstep and permeated with Russian influence. Equally, they may underestimate Russia's probable response to any hint that Ukraine is drawing close to Nato.

All in all, one has to fear that a crisis in Ukraine, like this month's fighting in Georgia, will flare up long before the EU's member-states have forged a consensus on what they want to do.

LINK: http://blogs.ft.com:80/brusselsblog/2008/08/wanted-a-plan-for-ukraine/

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14. RUSSIA'S AGGRESSION IS A CHALLENGE TO WORLD ORDER

OPINION: U.S. Senator Lindsey Graham and U.S. Senator Joe Lieberman

The Wall Street Journal, NY, NY, Tuesday, August 26, 2008; Page A21

In the wake of Russia's invasion of Georgia, the United States and its trans-Atlantic allies have rightly focused on two urgent and immediate tasks: getting Russian soldiers out, and humanitarian aid in.

But having just returned from Georgia, Ukraine and Poland, where we met with leaders of these countries, we believe it is imperative for the West to look beyond the day-to-day management of this crisis. The longer-term strategic consequences, some of which are already being felt far beyond the Caucasus, have to be addressed.

Russia's aggression is not just a threat to a tiny democracy on the edge of Europe. It is a challenge to the political order and values at the heart of the continent.

For more than 60 years, from World War II through the Cold War to our intervention in the former Yugoslavia in the 1990s, the U.S. has fostered and fought for the creation of a Europe that is whole, free and at peace.

This stands as one of the greatest strategic achievements of the 20th century: the gradual transformation of a continent, once the scene of the most violent and destructive wars ever waged, into an oasis of peace and prosperity where borders are open and uncontested and aggression unthinkable.

Russia's invasion of Georgia represents the most serious challenge to this political order since Slobodan Milosevic unleashed the demons of ethnic nationalism in the Balkans. What is happening in Georgia today, therefore, is not simply a territorial dispute. It is a struggle about whether a new dividing line is drawn across Europe: between nations that are free to determine their own destinies, and nations that are consigned to the Kremlin's autocratic orbit.

That is the reason countries like Poland, Ukraine and the Baltic States are watching what happens in the Caucasus so closely. We heard that last week in Warsaw, Kiev and Tbilisi. There is no doubt in the minds of leaders in Ukraine and Poland -- if Moscow succeeds in Georgia, they may be next.

There is disturbing evidence Russia is already laying the groundwork to apply the same arguments used to justify its intervention in Georgia to other parts of its near abroad -- most ominously in Crimea. This strategically important peninsula is part of Ukraine, but with a large ethnic Russian population and the headquarters of Russia's Black Sea Fleet at Sevastopol.

The first priority of America and Europe must be to prevent the Kremlin from achieving its strategic objectives in Georgia.

Having been deterred from marching on Tbilisi and militarily overthrowing the democratically elected government there, Russian forces spent last week destroying the country's infrastructure, including roads, bridges, port and security facilities. This was more than random looting. It was a deliberate campaign to collapse the economy of Georgia, in the hope of taking the government down with it.

The humanitarian supplies the U.S. military is now ferrying to Georgia are critically important to the innocent men, women and children displaced by the fighting, some of whom we saw last week.

Also needed, immediately, is a joint commitment by the U.S. and the European Union to fund a large-scale, comprehensive reconstruction plan -- developed by the Georgian government, in consultation with the World Bank, IMF and other international authorities -- and for the U.S. Congress to support this plan as soon as it returns to session in September.

Any assistance plan must also include the rebuilding of Georgia's security forces. Our past aid to the Georgian military focused on supporting the light, counterterrorism-oriented forces that facilitate Tbilisi's contribution to coalition operations in Iraq. We avoided giving the types of security aid that could have been used to blunt Russia's conventional onslaught. It is time for that to change.

Specifically, the Georgian military should be given the antiaircraft and antiarmor systems necessary to deter any renewed Russian aggression. These defensive capabilities will help to prevent this conflict from erupting again, and make clear we will not allow the Russians to forcibly redraw the boundaries of sovereign nations.

Our response to the invasion of Georgia must include regional actions to reassure Russia's rattled neighbors and strengthen trans-Atlantic solidarity. This means reinvigorating NATO as a military alliance, not just a political one.

Contingency planning for the defense of all member states against conventional and unconventional attack, including cyber warfare, needs to be revived. The credibility of Article Five of the NATO Charter -- that an attack against one really can and will be treated as an attack against all -- needs to be bolstered.

The U.S. must also reaffirm its commitment to allies that have been the targets of Russian bullying because of their willingness to work with Washington. The recent missile-defense agreement between Poland and the U.S., for instance, is not aimed at Russia. But this has not stopped senior Russian officials from speaking openly about military retaliation against Warsaw.

Irrespective of our political differences over missile defense, Democrats and Republicans should join together in Congress to pledge solidarity with Poland, along with the Czech Republic, against these outrageous Russian threats.

Finally, the U.S. and Europe need a new trans-Atlantic energy alliance. In recent years, Russia has proven all too willing to use its oil and gas resources as a weapon, and to try to consolidate control over the strategic energy corridors to the West. By working together, an alliance can frustrate these designs and diminish our dependence on the foreign oil that is responsible for the higher energy prices here at home.

In crafting a response to the Georgia crisis, we must above all reaffirm our conviction that Russia need not be a competitor or an adversary. Since the collapse of the Soviet Union, Democratic and Republican administrations have engaged Russia, sending billions of dollars to speed its economic recovery and welcoming its integration into the flagship institutions of the international community. We did this because we believed that a strong, prosperous Russia can be a strategic partner and a friend. We still do.

But Russia's leaders have made a different choice. While we stand ready to rebuild relations with Moscow and work together on shared challenges, Russia's current course will only alienate and isolate it from the rest of the world.

We believe history will judge the Russian invasion of Georgia as a serious strategic miscalculation. Although it is for the moment flush with oil wealth, Russia's political elite remains kleptocratic, and its aggression exposed as much weakness as strength. The invasion of Georgia will not only have a unifying effect on the West, it also made clear that Russia -- unlike the Soviet Union -- has few real allies of strategic worth.

To date, the only countries to defend Russia's actions in the Caucasus have been Cuba and Belarus -- and the latter, only after the Kremlin publicly complained about its silence.

In the long run, a Russia that tries to define its greatness in terms of spheres of influence, client states and forced fealty to Moscow will fail -- impoverishing its citizens in the process. The question is only how long until Russia's leaders rediscover this lesson from their own history.

Until they do, the watchword of the West must be solidarity: solidarity with the people of Georgia and its democratically elected government, solidarity with our allies throughout the region, and above all, solidarity with the values that have given meaning to our trans-Atlantic community of democracies and our vision of a European continent that is whole, free and at peace.

NOTE: Mr. Graham is a Republican senator from South Carolina. Mr. Lieberman is an Independent Democratic senator from Connecticut.

LINK: http://online.wsj.com/article/SB121970826711471167.html

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15. EASTERN EUROPE CAN DEFEND ITSELF

OPINION: By Max Boot, The Wall Street Journal

New York, New York, Monday, August 25, 2008; Page A13

Eastern Europeans are rightly alarmed about the brazenness and success of the Russian blitzkrieg into Georgia. For many living in Russia's shadow, this is reviving traumatic memories -- of 1968 for Czechs, 1956 for Hungarians, 1939 for Poles. It does not help that senior Russian generals are threatening to rain nuclear annihilation on Ukraine and Poland if they refuse to toe the Kremlin's line.

Even those states which, unlike Georgia and Ukraine, are already in NATO can take scant comfort. As Poland's foreign minister, Radek Sikorski, says, "Parchments and treaties are all very well, but we have a history in Poland of fighting alone and being left to our own devices by our allies."

Warsaw's response has been to draw closer to the United States, by rapidly concluding an agreement in long drawn-out negotiations over the basing of U.S. interceptor missiles on Polish soil. That's a good start, but it's a move of symbolic import only. The small number of interceptors are designed to shoot down an equally small number of Iranian missiles -- not the overwhelming numbers that Russia deploys.

Poland and other states should be under no illusion they can count on the U.S. in a crisis. In the past we left Poland, Hungary and Czechoslovakia in the lurch. More recently we haven't done much to help Georgia.

The only thing that the frontline states can count on is their own willingness to fight for independence. But willingness alone is not enough. They also need the means to fight, and at the moment they don't have them. We have already seen how the tiny Georgian armed forces -- with fewer than 30,000 men -- were routed by the Russian invaders.

What gets ignored is that Georgia, although a small country (population: 4.6 million), has the potential to do far more for its defense. According to the CIA's World Factbook, Georgia has over 900,000 men between the ages of 16 and 49. It could easily create a larger military force than it has, but that would require spending more on defense. By the CIA's estimate, its defense budget was just 0.59% of GDP in 2005.

Georgia's military spending has grown in recent years, but not Eastern Europe's. According to the International Institute of Strategic Studies, only one country in Eastern Europe spends more than 2% of GDP on defense. That would be Bulgaria at 2.2%. Romania is in second place at 1.9%, followed by Poland at 1.8%.

Nor do these countries maintain large standing forces. Poland has 7.9 million males of military age but only 127,266 active-duty personnel in its armed forces. Hungary could mobilize 1.9 million men but has only 32,300 in uniform. Bulgaria has 1.3 million potential soldiers but only 40,747 actual soldiers. And so on.

There is one exception to this demilitarizing trend. Russia, which has more than a million soldiers under arms, has been increasing its defense budget from the lows of the immediate post-Soviet era. Based on official figures it spends at least 2.5% of GDP on its military. But if you add in expenditures on paramilitary forces and other items, the total comes closer to 4% -- roughly the same percentage that the U.S. is spending.

Small states have often shown the ability to humble great powers. In 1920, under the inspired leadership of Marshal Josef Pilsudski, the Poles staged a brilliant counterattack to save Warsaw and drive the Red Army off their soil.

In the winter war of 1939-1940 the plucky Finns held off Soviet invaders, forcing the Kremlin to settle for a slice of its territory rather than all of it. More recently, the Afghan mujahedeen drove the Red Army out of their country altogether, thereby helping to bring down the Soviet Union.

But if they have any hope of emulating such feats -- or, more precisely, of deterring the Russians from threatening them in the first place by making it clear that they could emulate such feats -- today's Eastern Europeans have to do much more to prepare a robust defense. They should double their military spending to make themselves into porcupine states that even the Russian bear can't swallow.

The U.S. can help, as we helped the Afghans in the 1980s and as the French helped the Poles in 1920. That will require a readjustment in our military assistance strategy, which has been to create in Eastern Europe miniature copies of our own armed forces.

Our hope, largely realized, has been that these states will help us in our own military commitments in Afghanistan, Iraq and elsewhere. But in addition to developing NATO-style expeditionary capacity, these states need to be able to conduct a defense in depth.

That means having large reserves ready for fast call-up and plenty of defensive weapons -- in particular portable missile systems such as the Stinger and Javelin capable of inflicting great damage on Russia's lumbering air and armor forces. That's more important than fielding their own tanks or fighter aircraft.

We should offer to sell them these relatively inexpensive defensive systems, and to provide the advisory services to make the best use of them. But the first step has to be for the Eastern Europeans to make a larger commitment to their own defense.

NOTE: Mr. Boot, a senior fellow at the Council on Foreign Relations, is the author, most recently, of "War Made New: Technology, Warfare, and the Course of History, 1500 to Today" (Gotham Books, 2006).

LINK: http://online.wsj.com/article/SB121962284006967693.html

OP-ED: by George Woloshyn, Special to Kyiv Post

Kyiv Post, Kyiv, Ukraine, Thursday, Aug 21, 2008

Russia’s naked aggression against Georgia may very well be a test of a similar strategy to be applied in the near future against its much bigger prize: Ukraine. The tiny (population 70,000) “breakaway” (with Russian support) province of South Ossetia could easily be the Sevastopol or even Crimea of the future declaring its “independence” from Ukraine.

Russian troops via its Sevastopol naval base would represent themselves as “peacekeepers” (to “protect” Russian nationals). Russia would hand out Russian citizenship to whoever asks for it and, lo and behold, a pretext is set in place for wholesale intervention by Russian forces, including the bombing of Ukrainian population centers.

The current Georgian scenario may have turned out entirely differently if Georgia had become a member of NATO. Russia knows that taking on a NATO member means a direct military challenge to Europe and North America, with unpredictable consequences for Russia.

That is why it is time for all patriotic Ukrainians, regardless of their political leanings, to move as quickly as possible for NATO entry. This is no longer an intellectual exercise. Georgia should convince us that NATO is essential to the peace, freedom and independence of Ukraine.

NATO is simply a defense alliance of 26 countries which agree to resolve their disputes peacefully, and to come to each other’s defense when attacked. The final decision to contribute troops or equipment to a NATOled operation is left to each member state. All NATO decisions are taken jointly by member states on the basis of consensus.

NATO does not maintain its own military force but relies on voluntary contributions by member states. Each member state contributes towards NATO’s daytoday costs, which are estimated to be 0.5 percent of the total defense expenditure of NATO countries. In fact, member states generally enjoy markedly reduced defense expenditures because, rather than stand alone, each can rely on the support of other states when threatened.

Ukraine, more than any other European country, needs NATO. It is one of two countries against which Russia has made repeated and direct territorial claims and threats. (The other is Georgia.) It is one of two countries that has been the object of a broadbased Russian domestic and international campaign of unprecedented slander, subversion and intrusion into almost every facet of its life.

Russian military forces in Ukraine ignore Ukrainian laws, as they ignore Georgian sovereignty over South Ossetia. Its political leaders openly encourage and support fragmentation of its territorial integrity, as in Georgia. And its media has been systematically stoking popular antiUkrainian hysteria.

Russia understands that Ukrainian membership in NATO will – once and for all – remove Ukraine from its hegemony. Its unreconstructed imperialists, who still consider Ukrainian statehood to be a transitory aberration, will have to give up their dreams of Russian domination and exploitation of Ukraine. Its threats against Ukraine will prove meaningless, as all such threats will be considered threats against 26 other nations.

Although, in theory, membership in NATO is not a requirement for eventual entry into the European Union, in reality NATO membership would greatly facilitate such integration and make it virtually impossible for Europeans to withhold EU membership.

Both the European public and its political leaders would become comfortable with the idea of Ukrainian contribution to European security and full Ukrainian participation in Europe’s economic and cultural life would naturally follow.

Those who claim that NATO membership will entangle Ukraine in foreign military operations are either ignorant of the basic terms of the treaty or intent on disinformation. For example, all 26 NATO members and 14 other countries (including Ukraine) have been involved in Afghanistan. Afghanistan is considered an official NATO operation. Yet, each state decides on the extent and form of its participation.

NATO member states have contributed as few as nine individuals and as many as several thousands. Half of the member states have fewer than 500 personnel in Afghanistan, hardly the sort of “entanglement” that would pose a problem for Ukraine. In fact, it may even prove of great value in providing “real world” experience in military tactics and technology.

Those who fear U.S. domination in NATO should only consider the case of Iraq. Despite strong U.S. urgings and incentives, only 10 NATO states have contributed forces to the U.S.led “coalition of the willing” in Iraq. Apparently, the other 16 members were not very “willing” and have decided to stay out.

In short, the simple fact remains that NATO membership requires Ukrainian participation only in the defense of threatened NATO member states….all other military operations are discretionary with each member state. Although NATO and the Warsaw Pact are often considered as analogous organizations, they were very different creatures.

NATO participation is voluntary, based on consensus, and entirely defensive in nature. Can anyone imagine a communist Bulgaria or Romania insisting on withholding troops from the Warsaw Pact?

But what about Russian objections to NATO membership for Ukraine? It’s time for Russians to get over it. They pose the biggest – probably the only – threat to Ukrainian independence and their concerns should have the least bearing on Ukraine’s choice of a defensive alliance. Russian foreign policy has always been that of a pragmatic bully.

They will squeeze those who are vulnerable (like Georgia), but seek good relations with those who are of equal or greater strength. Ukraine can only gain their respect as an equal within a defensive alliance such as NATO. A decision against NATO membership will only exacerbate relations with Russia, not improve them.

Europe’s and Ukraine’s answer to Russian brutality and aggression in Central Asia should be expedited and full membership in NATO.

NOTE: George Woloshyn, a native of Kupnovychi, Ukraine, is an American citizen living in Linden, Virginia.

LINK: http://www.kyivpost.com/opinion/oped/29442/

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17. DIVIDED MEANS CONQUERED
Ukraine must overcome a history of in-fighting and debilitating disunity if it is to resist Russia

Peter Dickinson, Business Ukraine magazine, Kyiv, Ukraine, Monday, August 25, 2008

Throughout its troubled history Ukraine has repeatedly been undone by the splintering of its national forces into competing interests, leaving the country wide open to foreign domination via the tried and tested methods of divide and rule.

This lack of unity shattered the power of the once-thriving Kyiv Rus civilisation long before the Mongols arrived to deliver the coup de grace, and in later centuries put paid to numerous Cossack attempts at nation-building as Tsars and Polish noblemen bribed and cajoled regional chieftains with wealth and honours into turning against their fellow-countrymen.

In more recent years this debilitating national characteristic has come to be seen exclusively through the prism of the Russia vs Europe divide, but in reality this tradition of in-fighting and betrayal far outdates modern political considerations and is as Ukrainian as embroidered shirts and salo.

A divided land ripe for the taking

It therefore comes as no surprise to find that as Ukraine prepares to face the threat of renewed Russian encroachment, the country is once more divided and apparently ripe for the taking.

The President and Prime Minister are engaged in a Cold War which threatens to break out into open hostilities at any moment, while the pro-Russian opposition Party of Regions sits back and enjoys the show, entering the fray from time to time to stir up ethnic tensions or attempt to break up the already dysfunctional governing coalition.

Rarely has a country appeared so ill-prepared to face an external threat. The divisions within the country cannot all be explained by mere reference to language, religion or even a preference for alliance with Russia or the West.

While these factors all play a role in shaping the battles taking place for the soul of modern Ukraine, they have been magnified and exploited by the country’s traditional clannish political interests and the subterranean power struggles which continue to shape the national debate.

Little effort has been made to focus on positives like the way in which independent Ukraine has managed to avoid the ethnic bloodshed which has plagued much of the former USSR, or the huge strides that have been made to protect freedom of speech and freedom of conscience in the country.

These successes, coupled with the growth of a grass roots democratic culture, could serve as imposing foundation stones in a modern nation-building process, providing Ukrainians with a strong sense of identity imbued with a respect for the highest values of European civilisation that stands in stark contrast to the authoritarian instincts of their Eurasian neighbours.

Instead, we have a President who appears focused on a polarising interpretation of ethnic Ukrainian identity and a political class more interested in pillaging the country than building a nation. That, in short, is a recipe for impending disaster.

The folly of 1994: disarmed and betrayed

With the Russian bear looming ever larger on the horizon, it is particularly timely to remember that, back in the dark days of 1994, Ukraine was the first and only nation in world history to opt for unilateral nuclear disarmament. This decision was accompanied by guarantees from the West and the Kremlin to safeguard Ukraine’s territorial integrity.

These promises have clearly been forgotten, both by the Russian demagogues who call for the annexation of Crimea and south east Ukraine, and by the European powers who refuse to offer the country the security of roadmaps towards EU and NATO membership.

In an age when we are often told that the proliferation of weapons of mass destruction has become one of the great threats to global security, it is almost incredible that Ukraine’s noble gesture should be disregarded in such a callous and deceitful manner.

One wonders how the situation would alter if the Ukrainian government were to announce that it had, in fact, kept a few warheads in reserve, but unfortunately it seems that the country’s nuclear disarmament programme was the sole military undertaking carried out in 1990s Ukraine which did not involve massive corruption and duplicity.

The sad truth is that Ukraine cannot rely on international support in its struggle to resist Russia. Events in Georgia emphatically demonstrated that the West is also suffering from its own prolonged bout of disunity. Ukraine’s only remaining hope is that the threat of resurgent Russian imperialism will galvanize the country’s leadership before it is too late.

NOTE: Letters to the editor are welcomed at peter.dickinson@nfmg.co.uk.

LINK: http://www.businessukraine.com.ua/divided-means-conquered

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18. THE PUTIN DOCTRINE, COMING TO TERMS WITH

UKRAINE'S NEW GEOPOLITICAL REALITIES

ANALYSIS & COMMENTARY: By Taras Kuzio
BusinessUkraine magazine, Kyiv, Ukraine, Monday, August 25, 2008

This month is the fortieth anniversary of the Soviet invasion of Czechoslovakia, with Moscow's justification later defined in the West as the Brezhnev Doctrine. A new version of this imperial posturing is now beginning to gain international notoriety in the wake of the Russian invasion of Georgia.

This "Putin Doctrine" consists of four inter-locking policies: provoking ethnic clashes, introducing its own troops as so-called "peacekeepers",
distributing Russian passports and arming separatists. The Crimean peninsula has an ethnic Russian majority, 10,000 Russian Black Sea Fleet personnel and a regional parliament dominated by the pro-Russian Party of Regions.

Posing a threat to all post-Soviet societies

The Putin Doctrine's assertion of the right to intervene in defence of Russian minorities is a direct threat to Ukraine, Latvia and Estonia where Russian speakers (in Russian parlance "compatriots") number around a third of the population.

Ukraine's Crimea or Estonia's Narva could be the next flashpoints. Russia has said that it plans to hold a referendum in Georgia's separatist enclaves, no doubt modelled on that it held in Chechnya three years ago to international disdain, that would support their independence, or annexation by Russia.

This element of the Putin Doctrine could in turn be applied to other frozen conflicts in the former Soviet Union or to the Crimea. As a result, the Georgian-Russian crisis has important strategic ramifications for Ukraine.

Although Ukraine and Georgia are separated by geography both leaders, Georgia's Mikheil Saakashvili and Ukraine's Viktor Yushchenko, came to power
within the space of one year in near-identical popular uprisings against electoral fraud that came to be known as the Rose and Orange revolutions.

Many Russians, exposed to state-controlled television, believed the neo-Soviet line that these revolutions were part of a US-conspiracy to surround Russia and move into its 'rightful' sphere of influence. NATO enlargement was in Russia's eyes the second stage in this US-backed conspiracy to undermine Russia.
A colour revolution double act

Mr. Saakashvili and Mr. Yushchenko are also close personal friends and allies who have given each other sustenance and moral support in the face of
Russian antagonism and adversity. Mr. Saakashvili stood on the Maidan during the Orange Revolution and spoke to the protestors in Ukrainian. Earlier that
year during Ukraine's most violent electoral campaign to date, Mr. Yushchenko and Mrs. Tymoshenko visited Mr. Saakashvili in Georgia.

With Russian tanks poised perilously close to the Georgian capital Tbilisi, Mr. Yushchenko, together with the leaders of Poland, Lithuania, Latvia and
Estonia, told a mass rally of Georgians that they stood united in the face of Russia's new imperialism.

All six countries had their own individual centuries of despotic rule by Tsars and Commissars. Mr. Yushchenko was the most courageous of the five:
after all, the other four countries were members of NATO and could, if Russia attacked their countries, count on NATO's article five to defend
them.

Ukraine and Georgia: A post-Soviet partnership

If Georgia is forced into losing sovereignty over South Ossetia, the Saakashvili regime could be overthrown and replaced by a regime more pliant to Moscow. Pro-Russian Georgian leaders (implicated in assassination attempts on former President Eduard Shevardnadze) are waiting in Moscow for
such an opportunity to return. The removal of Mr. Saakashvili would be a personal blow to President Yushchenko.

However, it is important to remember that Ukraine and Georgia's close relationship predates the rise of Saakashvili and Yushchenko, who are portrayed by Russia's leaders and state-controlled media as mere American stooges. Their predecessors, Eduard Shevardnadze and Leonid Kuchma, may have
sought to be more accommodating to Russia but nevertheless relations between the Tbilisi-Kyiv axis and Moscow remained continually strained.

Russia's accusations that Ukraine had armed Georgian forces attempts to pin the blame on Saakashvili-Yushchenko but ignores the fact that military
cooperation between both countries has existed for over a decade. Communist Party leader Piotr Symonenko said during the height of the Georgian-Russian conflict that he thought there was a need to institute criminal charges over the illegal transfer of weapons to Georgia.

What these accusations ignore is that, "military-technical cooperation between Ukraine and Georgia, which has taken place over the last 15 years, took place within the parameters of international law." (Zerkalo Nedeli, August 9).

Arms supplies to Georgia began under President Leonid Kuchma and President Shevardnadze and over a decade before Mr. Yushchenko and Mikheil Saakashvili came to power. Ukraine trained Georgian officers including officers trained to use anti-aircraft systems. Cooperation increased during the Anatoliy Kinakh and Viktor Yanukovych governments of 2001-2004.

Both of them were in power when Ukraine exported anti-aircraft defense systems to Georgia in 2002. Georgia allocated USD 12 million for their
purchase from Ukraine and they were stationed on the Georgian-Russian border. Mr. Kinakh publicly admitted to the existence of the arms deal with
Georgia.

The Kremlin and GUAM: Fear and loathing

The GUAM grouping (named after its members Georgia, Ukraine, Azerbaijan, Moldova) regional alliance that so infuriated Russia was set up by Mr.
Shevardnadze and Mr. Kuchma and inaugurated with great fanfare at NATO's fiftieth anniversary summit in Washington DC. GUAM received strong
encouragement from the US. High levels of US military cooperation with Georgia and Ukraine long predate the two countries' colour revolutions.

During the recent conflict Ukraine was the only CIS country to openly come out in support of embattled Georgia. This is not surprising for common
wisdom in Kyiv is that Ukraine could be the next target for the Putin Doctrine.

One of the strategic imperatives behind the creation of GUAM was the presence of frozen conflicts in three of its members, Georgia, Azerbaijan
and Moldova, and Russian territorial claims against Ukraine's Crimea and Sevastopol. If South Ossetia and Abkhazia are to be recognised as
independent by Russia, as seems likely, then what of the Trans-Dniestr and Crimea?

The fall, or severe weakening of the Saakashvili regime through a post-conflict economic crisis, would destroy the already fragile GUAM regional group. Uzbekistan left it in 2005 and Moldova, led by a Communist president willing to negotiate deals with Russia over its separatist Trans-Dniestr enclave, has become a neutral and passive member of GUAM.

A pro-Russian Georgian regime would not remain in GUAM and the organisation would therefore collapse, demolishing plans unveiled at a June Kyiv summit for an energy corridor from Azerbaijan to Ukraine and central Europe.

An end to alternative energy options?

The Georgian-Ukrainian alliance has focused on alternative sources of energy to reduce dependency on Russian oil and gas. A GUAM summit in Kyiv two
months ago produced detailed plans to make operational the Odesa to Brody pipeline with Azeri oil supplied through Georgia to Ukraine and Poland.
Russia's illegal occupation of Georgia close to the pipeline threatens the energy independence of these countries and indirectly, therefore, energy security for Europe.

The Putin Doctrine's next target could be the Crimea. The State Duma made territorial claims against Sevastopol as recently as two months ago. During
NATO's Bucharest summit then-President Vladimir Putin warned that Ukraine's alleged "fragility" would lead it to disintegrate if it joined NATO,
implying that Russia would use the Crimean card to try and halt Ukraine's NATO membership.

Communists raise the spectre of separatism

Crimean KPU leader Leonid Grach has threatened to support the peninsula's secession from Ukraine if it joined NATO. This view was criticised by the
head of parliament's committee on European Integration and deputy leader of the Our Ukraine faction Borys Tarasiuk. Crimea's Communists, which are a
regional branch of the KPU, played a positive role in the 1990s in supporting Ukraine's territorial integrity and adopting the 1998 pro-autonomy constitution.

The Simferopol city council voted on July 24 to declare itself a 'territory free from NATO'. The vote was supported by the 'For Yanukovych' faction and
national Bolshevik-oriented Natalia Vitrenko bloc. The Party of Regions has to tread carefully in playing with Ukraine's territorial integrity for it
would lose votes in eastern Ukraine if it began to play, like the KPU and Vitrenko bloc, with separatism.

Russian Communist leader Gennadiy Zyuganov arrived in the Crimea during the Ossetian crisis to hold negotiations with Crimean Communists on a "joint
anti-NATO struggle." Mr. Zyuganov said the Saakashvili regime is undertaking "state terrorism" with the support of the US and NATO. Mr. Zyuganov
supported the independence of South Ossetia and Abkhazia, as well as long-standing support for Sevastopol's transfer to Russia.

Sevastopol and the Black Sea Fleet

Black Sea Fleet vessels were involved in naval action in the Georgian crisis, including landing troops in Georgian territory outside the
separatist enclaves in Poti where they sank Georgian naval vessels.

President George Bush said that, "We're concerned about reports that Russian forces have entered and taken positions in the port city of Poti, that
Russian armoured vehicles are blocking access to that port, and that Russia is blowing up Georgian vessels." Black Sea Fleet personnel have illegally taken part in anti-NATO and anti-American rallies in the Crimea.

Two years ago these violent rallies forced the cancellation of annual US-Ukrainian military exercises which was humiliating for Ukraine and damaged its chances of entering NATO. US-Ukraine military exercises held under In the Spirit of Partnership for Peace and NATO Partnership for Peace (PfP) exercises had been held annually since the mid 1990s.

Ukraine was the first CIS country to join NATO's newly launched PfP in January 1994. Without doubt it is Georgia and Ukraine's long-standing support for NATO membership that has most infuriated Russia. Following their democratic revolutions, both countries speedily entered NATO's Intensified Dialogue in Membership Issues and sought to enter Membership Action Plans (MAP) first at the 2006 Riga summit and, failing that, at this year's Bucharest NATO summit.

NATO doubters may find their hand forced

Bitterly divided in Bucharest, NATO opted to compromise by not extending invitations while stating, "NATO Allies welcomed Ukraine's and Georgia's
Euro-Atlantic aspirations for membership and agreed that these countries will become members of NATO."

NATO's unwillingness to offer Georgia and Ukraine MAPs may have sent the wrong signal to Moscow that the organisation was divided over extending its
security umbrella into what Berlin and Paris still seem to recognise as Russia's sphere of influence.

Russia's provocation of Georgia into a conflict through its illegally armed South Ossetian proxies, coupled with Moscow's blatant disregard for Georgian
sovereignty, has probably swung the balance in favour of those NATO members who support extending MAPs to Georgia and Ukraine.

Russia's refusal to withdraw completely to pre-conflict lines, its demands for a security zone inside Georgia proper while permitting ethnic cleansing
and war crimes by Ossetian paramilitaries has turned many Russophile and fence sitting NATO members towards the pro-NATO membership camp.

Kremlin in danger of over-extending its reach

In other words, the Putin Doctrine, like its Brezhnev predecessor, may have over-extended itself. Russia's brazen imperialism in Georgia may have
changed the minds of enough NATO fence sitters in support of the US and the eastern Europeans who support NATO membership for Georgia and Ukraine.

British Conservative Party and opposition leader David Cameron, who is riding high in the polls and set to head Britain's next government, wrote in
The Daily Telegraph, "we should accelerate the path to NATO membership for countries like Georgia, and other democracies like Ukraine, if that is what
they wish.

The lack of clarity about Georgia's prospects of joining NATO contributed to the present crisis. It encouraged Russia to believe it could intimidate and
bully because the West was divided and uncertain."

Ukraine's elites also have to adjust to the reality of the Putin Doctrine. While Mr. Yushchenko's actions in the crisis have proven to be patriotic and
statesmanlike, his secretariat have continued to act in a manner inconsistent with Ukraine's national interests.

The secretariat accused Prime Minister Tymoshenko of treason for allegedly negotiating secretly with Russia, a ridiculous and unsubstantiated charge
reminiscent of the worst of Soviet propaganda. Ukraine has no right to demand that NATO support MAP's for itself and Georgia in December if the
presidential secretariat, at the same time, continues to fan the flames of political instability.

Will the West opt for a bold response?

In four months NATO has the opportunity to rectify its mistake in Bucharest by supporting two young democracies and inviting Georgia and Ukraine into
MAPs. By inviting Georgia and Ukraine into NATO the organisation accomplishes two important steps.

It would ensure that their democracies can continue to flourish in a secure environment. It would also avert a more serious threat to international order and European security if the Putin Doctrine were applied to Ukraine.

In December, in addition to the NATO meeting, the 1997 Russian-Ukrainian treaty comes up for renewal and many Russian leaders are arguing against
renewing it. Russia's failure to renew the treaty would constitute a re-opening of its territorial claims against Ukraine. This would be a serious violation of Russia's signature to the 1994 agreement providing security assurances to Ukraine in exchange for its nuclear disarmament.

NOTE: Taras Kuzio is editor of Ukraine Analyst and adjunct professor in the Institute of European, Russian and Eurasian Studies, Carleton University,
Ottawa, where he teaches on Post-Communist Transitions and Democratic Revolution

LINK: http://www.businessukraine.com.ua/the-putin-doctrine
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19. UKRAINE FEARS BEING NEXT ON RUSSIA'S HIT LIST

By Askold Krushelnycky, Sebastopol, Ukraine
The Sunday Times, London, UK, Sunday, August 24, 2008

Rival groups of Russian and Ukrainian demonstrators hurled insults at each other to a background of cannon fire as the Russian navy's Mirage sailed
into Sebastopol on Ukraine's Crimean peninsula last week.

The celebratory gunfire could become all too real if fears are realised that Russia may repeat its incursion into Georgia and turn Ukraine into the next
Caucasian flashpoint.

Crimea has a Russian majority population and, because of its strategic importance, Moscow deeply resented its loss at the time of the break-up of the Soviet Union.

Mirage, a guided missile corvette, returned on Friday morning to the home port of the Russian Black Sea fleet after seeing action against Georgia's port of Poti, where it shelled Georgian defences and landed troops who occupied the city.

Enemies suffer as Russia trumpets victory

Many of the Russians waiting to greet Mirage belonged to a political party called the Russian Bloc, whose leader in Crimea, Vladimir Tyunin, said: "We
say categorically that Crimea should and certainly will become part of Russia."

He claimed that the Ukrainian government was trying to force native Russian-speakers to speak Ukrainian, showing only films and television programmes dubbed in Ukrainian and forcing Russians to assimilate their culture.

While Tyunin maintained that Russian annexation of Crimea would be peaceful, some of his supporters were more outspoken. One young woman said: This is Russia. We want nothing to do with Ukraine. The Ukrainians oppress our people. They are totalitarians and fascists who take orders from America."

Her remarks were greeted with approval by others, who aired a ferocious litany of charges and threats against Ukraine. With a million Russians in Crimea, outnumbering native Ukrainians and Crimean Tatars, local loyalties are often to Moscow rather than Kiev and the presence of the base serves only to reinforce the Russian claim.

Many "Crimean flags", that differ only slightly from the Russian one, fly on the streets, not only in Sebastopol but also in most other Crimean towns. Taking part in a rival pro-Ukrainian demonstration, opposing the return of the Mirage, was Oleh Fomushkin, a former colonel in the Soviet army and now a community activist.

"Moscow and its intelligence services have been active here for 17 years while the Ukrainian authorities slept or were too timid to act," he said. "They've demonstrated their aggression in Georgia and they won't hesitate to use violence to get hold of Crimea."

Tension in Crimea has risen because of the public support for Georgia of Viktor Yushchenko, the Ukrainian president. Russia accused Ukraine of supplying weapons to Georgia and Yushchenko enraged the Kremlin by ordering restrictions on the future movements of the Russian fleet in Ukrainian waters.

The Black Sea fleet facilities are leased from Ukraine until 2017 but Ukraine, which wants to join Nato and the European Union, says it will not renew the lease. Moscow has made clear it is determined to stay.

Reports that thousands of Russian passports have already been distributed on the peninsula have sparked fears that a takeover may be in the offing. Moscow issued passports in South Ossetia to foster its breakaway from Georgia.

A western military source advised caution, saying Crimea was effectively already occupied by Russia.

Mykola Vladzimirsky, a Ukrainian journalist, said Tatars, who were deported by Stalin in 1944 but have slowly returned, might take up arms. "If they
carried out an attack against ethnic Russians, Moscow would have its excuse to annex Crimea by contending that Ukraine is unable to defend Russian citizens," he said.

ANALYSIS & COMMENTARY: By James SHERR

Head of the Russia & Eurasia Programme of the Royal Institute of International Affairs

Zerkalo Nedeli (Mirror-Weekly, Kyiv, Ukraine, # 28 (707) 2 - 8 August 2008

Since the collapse of the USSR and the Orange Revolution, Ukraine has passed through three defining moments of statehood. The most significant of these moments was, of course, the establishment of Ukraine as an independent state in 1991.

Yet the defining question of those initial years was whether Ukraine actually would be able to preserve its independence, not to say the integrity of its borders which, despite the 1994 Tripartite Agreement between the United States, Ukraine and Russia, Ukraine's elder brother never quite managed to regard as settled.

The second but least memorable of these defining moments occurred during the spring and summer of 1997. Three closely connected events, the conclusion of the NATO-Ukraine Distinctive Partnership, the conclusion of the Russia-Ukraine State Treaty and the signing of the three intergovernmental Agreements on the Black Sea Fleet, resolved the uncertainties of the post-independence period and established Ukraine as a recognised, independent actor in Europe.

But it opened up a new question: what type of actor would Ukraine be? As President Kuchma stated in May 1998:

[T]he fact that Ukraine does exist and that it will remain a sovereign and independent state is not subject to any debate. The question is to what extent it will be a democratic, socially-oriented and law-governed state and to what extent the integrity of the fundamental constitutional formula will be ensured.
The third and most dramatic of these moments, the Orange Revolution, appeared to answer that question.

During the winter of 2004-5, Ukraine experienced a rite of passage [perelomniy moment] from virtual democracy to immature democracy. The immaturity was discernable within weeks and, by the time of the Orange coalition’s first collapse in September 2005, visibly destructive. Yet there was no talk of a reversal of Ukraine’s democratic course then, and there isn’t now.

Nevertheless, Ukraine has arrived at its fourth defining moment. What defines it is paralysis. The narrowest, but all too vital, questions are when Ukraine will overcome its political paralysis and what damage will be inflicted by then: to its economy, to its reforms and to its international relationships.

The more ominous question is whether paralysis will become as endemic to Ukraine as it was to Poland during the time of the Liberum Veto or to France during the final decade of the Third Republic.

The yet more ominous question, as these parallels suggest, is whether Ukraine will lose its ability to comprehend and influence the regional and global factors that act upon it—or, more brutally put, remain a subject, rather than just an object in international relations.

These questions arise for internal reasons, and they will not be answered successfully without internal changes. Are such changes possible?

the mutation of Ukraine's governing establishment

Both the Orange Revolution and the events leading up to it testified to a gap between the mores and priorities of an increasingly civic society and those of the country's governing elite. Today, we find that this gap has not diminished but in some respects widened. Potentially, this divide can prove to be as beneficial now as it was in 2004. Yet it also underscores the tenacity of the problems that Ukraine inherited and still contends with.

At one level, the Orange Revolution had an astonishingly small impact on the composition and conduct of Ukraine’s governing establishment.

The author’s warning in June 2005 that ‘personal agendas and power struggles seem…to be taking precedence over compelling and urgent national interests’—warnings echoed in a pellucid article by Volodymyr Horbulin and Oleksandr Litvinenko (who speak of the establishment’s ‘artificially created world’, the culture of ‘impunity’, and behaviour ‘outside any moral or ethical rules’[1])—painfully hark back to the circumstances I described in 1998: the dominance of ‘subjective’ private agendas over public responsibilities, the incoherence of the legal order, the incompetence of state institutions… and, in both the private and public spheres, a lack of accountability and transparency….Old power networks have been better at turning change to their advantage than those who demanded change in the first place.

The current authorities are not only trapped by these realities, they are also a part of them—and, like their predecessors, beneficiaries.

But at another level, there have been changes, and whilst some have been for the better, some have not. During the Kuchma administration’s most innovative period, many of its exemplars had a weak national tradition, but a strong, albeit sovietised, state tradition. They understood organisation, administration, professionalism and the centrality of institutions.

None of this was not enough to arrest the supremacy of ‘understandings’ over rules or the ever more insinuating encroachment and authority of money. But there was a system of power. It preserved coherence and, at best, an effective, if undemocratic mode of reform. At worst, and by the end, it proved inconsistent with reform as well as democracy, and it passed into history.

In contrast, the Orange ideologists, particularly those of the presidential wing, have a strong national tradition, and most of them are convinced democrats. But they lack a state tradition and the managerial and professional instincts that accompany it.

Their understanding of government is personalised rather than institutionalised, their inner circles of decision-making are inbred, and their public and personal interests intertwined rather than demarcated. As they have lost their capacity to influence events, their preoccupations have become more ingrown and self-serving.

In response to pressure and failure, their response has not been to improve policy and its implementation, but to make deals—or, block those who are too difficult to deal with, even when the blockage incapacitates government itself. This is not so much a system of power as a way of maintaining it. But it is not a way of achieving anything. To the contrary, it ensures that nothing of importance can be achieved. The UEFA fiasco symbolises this weakness and irresponsibility and parades both across Europe.

Moreover, two undoubted benefits, political democracy and economic growth, have combined with an unquestioned evil, the corruptibility of the law, to produce yet another mixed blessing: the emancipation of money from its remaining Soviet and post-Soviet constraints.

Money has brought an influx of new people into the establishment (and most visibly into BYuT): some of them better than the old, some of them worse, some with the aim of protecting their wealth from political power, some with the aim of converting it into power.

This dubious social ‘advance’ prompts three questions with international as well as internal ramifications.

[1] First, how will the vaunted ‘parliamentary republic’ be able to accomplish anything of national importance so long as the Rada’s ultima ratio is to be the most powerful krysha in the country? Despite ‘free and fair’ elections, dare Ukraine entertain such a momentous constitutional change before the law has force and the force of the law extends to parliament?

[2] Second, when will Ukrainian business acquire a national ideology like their Russian counterparts? The difference between Ukraine and Russia in this respect is far less a difference between degrees of state control than degrees of national consciousness and pride. The author of Russia’s most successful and transparent privatisation, Anatoliy Chubays, is also the author of the phrase ‘liberal empire’.

Russia today is endowed with big businessmen and small entrepreneurs who believe that, when making money for themselves, they are also enhancing the influence of Russia. Yet until recently, many of Ukraine’s largest businesses also made money in ways that enhanced the influence of Russia. When will Ukraine have its Chubays—not in the service of ‘liberal empire’, but securing Ukraine’s place in Europe?

[3] Third, how will these new economic and sociological factors interact with another, which we identified as long ago as 2002: whilst ‘the growth of civic instincts is sharpening the divide between state and society, it is also creating points of friction within the state and hence, a dynamic of evolution inside it’?

Instead of creating a craving for a Putin-style vertical, chaos [bardak] at the top has stimulated individual, corporate and institutional creativity and self-reliance in the country. Those who are venal, incompetent and dysfunctional remain as they were. But many of the institutions that once mimicked Euro-Atlantic standards are now adopting them and, despite anxiety and disruption, continue down a reformist path.

In other words, a counter-elite is being formed: educated, well-rounded, imbued with a sense of responsibility and with their eyes fixed on the future. But when will this ‘dynamic of evolution’ become visible to those in Europe who today see only bardak?

Will evolution be enough to bring this counter-elite to power, or will Ukraine require another Hobbesian moment of the kind it experienced in 2004? Will such a moment arrive before the adverse combination of internal and international factors does irreparable harm to the country?

the international factor

By now, the harm should be obvious. NATO’s Bucharest Summit commitment that Ukraine and Georgia ‘will become members of NATO’ was expected to enhance the confidence of Ukraine and Georgia, diminish pressure on NATO, reign in the ambitions as well as the apprehensions of Russia and establish a measured and consensual approach to the next stage of enlargement. So far, the effects are proving to be almost diametrically opposite.

It is easy to blame the Russian factor for this, particularly for those in Ukraine who deflect responsibility from everything they do or fail to do. But that instinct is as misconceived as it is self-serving. True, Russia’s ominous statements and behaviour after Bucharest have made some NATO Allies even more apprehensive about defying it.

But they have made other Allies doubly apprehensive about the risks of giving in to it. True, ‘how will further enlargement affect NATO’s relations with Russia?’ is a vital question.

But the more vital question. is how enlargement—or its curtailment—will affect NATO’s entire scheme of interests in Central and Eastern Europe, the Black Sea Region and places further afield. The majority of Allies know that this is the key question.

But then comes another key question: who can take Ukraine seriously?

Those inside NATO who are best qualified to answer the question can only answer it indirectly. They can point out that, despite cynicism, opportunism and irresponsibility at the top, defence and security sector reform has hardly been damaged at all or, at least, far less than might have been feared. They can point out that, despite the ‘mess’, Ukraine continues to ‘punch above its weight’ in NATO-led security operations.

They can also point out that ‘Ukraine is not Russia’: that whilst Russia’s new diarchy is an embodiment of rationality and order compared to Ukraine’s, Russia is also a cauldron of problems, gathering steam below the surface; whereas beneath the blighted [pogibshiy] domain of Ukraine’s high politics, positive changes are taking root in the country. Yet as the blight [golovnya] is prolonged, our ability to make these arguments with credibility and conviction diminishes.

And because we are honest with our decision makers we are obliged to tell them that the blight might continue beyond the next presidential election unless there is a constitutional settlement that has legitimacy in the eyes of the country. For an Alliance founded not only on shared interests and common values, but collective capacity, these are not good answers. Even in the UK, only a minority of experts are hopeful that ‘Ukraine will become a member of NATO’.

The rest are apprehensive or oppose membership: the minority because of Russia, the majority because of Ukraine. This is not a good picture for Ukraine.
The failure of Ukraine’s leadership to change this picture is not the problem. The problem is that they are not thinking about it. Yet who will think in their place?

If MAP is offered neither in December 2008 or April 2009, then the lure of neutrality will become ever more seductive. Yet who has given thought to what neutrality will mean? It will not mean non-alignment [neprisoedineniye]. Non-alignment is a political status: the status that Ukraine has maintained de jure from 1991 until the present moment.

Neutrality is a legal status and, in the conception of Russia (whose perceptions will surely count), a status defined between the neutral state and its 'guarantors'. What will neutrality mean to them? Anybody can see that it means no membership of NATO.

But what about the in-depth and highly institutionalised degree of integration that exists between Ukraine and NATO today? What about participation in NATO led exercises, deployments and peace-keeping, as most non-members (including Russia) do now?

What about intelligence cooperation and participation in NATO led programmes of security sector reform? Representatives at NATO HQ? Students at the NATO Defence College? Seminars and roundtables in the Verkhovna Rada and the National Defence Academy? How much sovereignty will Ukraine be able to exercise over these decisions be once ‘neutrality’ is established?

Will Ukraine’s neutrality be consistent with its eventual membership of the European Union? For the overwhelming majority of the country, the natural answer is ‘yes’.

But do they understand that the old, simplistic notion, ‘NATO does security, the EU does economics’, no longer corresponds to reality: a reality that includes EU peace-keeping forces, EU-NATO cooperation in the Balkans and, through the European Security and Defence Policy, a web of connections to NATO’s assets [infrastruktura], institutions and system of guarantees?

For this reason (and quite a few others), the Russian Federation has altered its hitherto benign assessment of the EU, yet who in Ukraine has drawn conclusions? During the past month, those in a position to know in Pridnestrovie told the author in astonishingly open terms that in their conception of neutrality—and in Russia’s—Moldova’s future membership of the EU is flatly excluded. Are there not some important conclusions to draw?

[4] Finally, who will defend Ukraine in a region and world where security threats are growing rather than diminishing and becoming ever more complex?

Despite its lbs34 ($68) bn defence budget and $2.8 trillion GDP, the United Kingdom has concluded that without collective defence, there is none. Was President Kuchma correct when he said that ‘Ukraine is not Switzerland’, or does Ukraine now have reason to come to a different conclusion?

This fourth defining moment of Ukraine’s statehood is a time to restate fundamental questions.

Will Ukraine be (in the words of the British government 13 years ago) a ‘pivot’ in the security architecture of Europe or (in the author’s words 12 years ago), ‘like nineteenth century Turkey…a fault line in the international system and a guarantor of great power mischief, intrigue and discord’?

It is a measure of the seriousness of this moment that these questions are once again pertinent.

[1] Note: this is my translation from their article, which I read in Russian: ‘[zhivet v] iskusstvenno sozdannom mire’, ‘beznakazannost’’, ‘[deiystvovat’] vne liubiykh moralniykh ili eticheskikh pravil’.

LINK: http://www.mw.ua/1000/1550/63671/

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21. RUSSIA FACES WESTERN PRESSURE OVER GEORGIA
Senior British official flies to Ukraine to build a coalition

By Jon Boyle, Reuters, Moscow, Russia, Tuesday, August 26, 2008

MOSCOW - Russia will face increased Western pressure on Wednesday when a senior British official flies to Ukraine to build a coalition to counter Russia's conflict with ex-Soviet Georgia.

The United States, NATO and European powers condemned as unacceptable Russia's recognition on Tuesday of two breakaway Georgian regions as independent states, and demanded Moscow recognize Georgia's territorial integrity.

U.S. President George W. Bush condemned Moscow's decision to recognize Abkhazia and South Ossetia, saying they must remain part of Georgia.
"Russia's action only exacerbates tensions and complicates diplomatic negotiations," Bush said in a statement from his Texas ranch.

Russian President Dmitry Medvedev said Tbilisi's desire to seize back Abkhazia and South Ossetia by force had killed all hopes for their peaceful co-existence in one state with Georgia.

Russian tanks and troops continue to occupy parts of Georgia after crushing Tbilisi's bid to retake South Ossetia -- the first time Moscow has sent troops into another country since the end of the Soviet Union in 1991.

EU president France earlier this month brokered a ceasefire in the conflict and German Chancellor Angela Merkel said she would talk to Russia's leadership before Monday's emergency EU summit on the crisis to get the bloc's viewpoint across.

"I think each and every member state is very clear ... that it is of the utmost importance to find a common position, and I am going to do whatever I can so that we succeed," she said.

Georgian President Mikheil Saakashvili, whose attempt this month to retake South Ossetia sparked the war with Russia, said the fate of the free world was being played out in his country.

"The Russian Federation's actions are an attempt to militarily annex a sovereign nation -- the nation of Georgia," he said in a statement. "This a challenge to the entire world. Not just Georgia."

In an interview later with Reuters, he said: "The point here is the Russians are bluffing and they're overplaying their hand." But he added that Europe was in "mortal danger" from its reliance on Russian energy and Georgia could further develop its role as a transit state to help reduce that dependence.

BRITISH FOREIGN SECRETARY DUE IN KIEV

British Foreign Secretary David Miliband was due in Kiev to meet the leadership of Ukraine, home to a large Russian-speaking population and a major Russian naval base.

"I am holding talks today with international partners and will be visiting Ukraine ... to ensure the widest possible coalition against Russian aggression in Georgia," Miliband said on Tuesday.

Ukraine, like Georgia, has angered Moscow by actively seeking membership of NATO. But divisions within the pro-Western camp there may complicate Miliband's mission.

President Viktor Yushchenko believes Ukraine should enter NATO and the European Union but Prime Minister Yulia Tymoshenko has grown cool towards NATO membership, which is unpopular with voters.

The West could exclude Russia from some top world bodies but its ability to punish Moscow is limited given Russia's veto in the U.N. Security Council. The West also needs Moscow's support over Iran's nuclear program and supply routes for NATO forces in Afghanistan.

The United States appeared to pull back from the prospect of an immediate confrontation with Russia, cancelling the delivery of relief supplies by U.S. warships to Poti, a busy Georgia cargo port still patrolled by Russian forces.

Kremlin chief Medvedev said he did not want a new Cold War with the West but was not scared of one. And he told Europe, a major consumer of Russian oil and gas, that it had to decide what sort of ties it wanted with Moscow.

"The ball is in the Europeans' court. If they want a worsening in relations, they will get it of course," he told France's LCI television. "If they want to maintain strategic relations, which is in my opinion totally in the interests of Russia and Europe, everything will go well."

Europe and Russia are major trading partners and the conflict has rattled financial markets as well as raising concerns over the stability of a key oil and gas transit route from the Caspian Sea. (Editing by Richard Balmforth)

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22. PARTY OF REGIONS LEADER YANUKOVYCH CALLS ON UKRAINE TO

RECOGNIZE SOUTH OSSETIA'S & ABKHAZIA'S INDEPENDENCE FROM GEORGIA

Ukrainian News -on-line, Kyiv, Ukraine, Tuesday, August 26, 2008

KYIV - Ukraine's Party of Regions leader Viktor Yanukovych supports the idea of Ukraine's recognition of South Ossetia's and Abkhazia's independence from Georgia, the party's press release informs. "I think that Ukraine should accept the will of South Ossetian and Abkhazian people, and recognize their independence," Yanukovych said.

He considers Russia's recognition of independence of South Ossetia and Abkhazia to be logical, taking into account the recognition of Kosovo. "Russia's recognition of independence of South Ossetia and Abkhazia is a logical continuation of the process triggered by the Western states that recognized the independence of Kosovo," the party leader noted.

He considers proclamation of Kosovo's independence without Serbia's consent to have actually demolished the order of borders' inviolability set after the Second World War.

As Ukrainian News reported, Ukraine's Ministry of Foreign Affairs called on Russia to refuse from recognizing independence of breakaway South Ossetia and Abkhazia (Georgia).

The Council of Federation and the State Duma of the Federal Assembly of Russia approved August 25 the appeal to Russian President Dmitry Medvedev for recognizing independence of breakaway South Ossetia and Abkhazia. Kosovo proclaimed its independence on February 17. Serbian government made the decision to deny legitimacy of Kosovo's independence. Forty-six of 192 UN states recognized Kosovo as an independent state.

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23. GEORGIAN ASSOCIATION IN THE UNITED STATES SENDS

LETTER TO U.S. PRESIDENT GEORGE BUSH

August 21, 2008

President George Walker Bush
The White House
1600 Pennsylvania Avenue NW
Washington, DC 20500

Dear Mr. President:

We are contacting you on behalf of thousands of Georgian-Americans and friends of Georgia, members of the Georgian Association in the United States of America. The Georgian Association is the oldest Georgian organization in the United States established in 1932 by Georgian patriots who emigrated to this country while escaping a previous Russian military invasion and annexation of Georgia in 1921. A second wave of emigrants fled following the brutal crushing of a Georgian national revolt against the Communist regime in Georgia in 1924.

The Association greatly appreciates and commends your government’s strong statements supporting Georgia’s national sovereignty and territorial integrity during this crisis. We understand that it was not easy to predict the scale of the military attack on Georgia, and to elaborate an immediate response to such an aggression. We think the time has come for serious action.

Our community has a clear message: the target of Russian aggression is not only Georgian democracy and statehood, but the US and Western interests in this strategically important area of the world as well. If Russia gets away with these actions in Georgia, it will reestablish its long-term presence in Central Eurasia, thus threatening to end the functioning of the alternative strategic transportation corridor in South Caucasus.

We call on your government to ensure a US strategic presence in the region and to guarantee stability through the following foreign policy initiatives:

1) Continue and strengthen support of the territorial integrity of Georgia;

2) Accelerate NATO MAP procedures for Georgia and Ukraine, and if this becomes impossible due to resistance within the organization, initiate a

bilateral military treaty with Georgia; Georgia will welcome US military base on its soil;

3) Increase military assistance to Georgia to develop defense capabilities that would help the Georgian army defend the country from uninvited aggressors.

4) Provide strong economic, humanitarian, and democracy support to the Georgian state to restore the damaged infrastructure and confidence of investors.

5) Support the Congressional initiative to revoke the 2014 Olympic games in Russia;

6) Take the diplomatic steps towards limiting the private travel of Russian citizens closely associated with the Russian government to the US;

7) Consider freezing the bank accounts of Russian individuals and businesses associated with the Russian government;

8) Increase funding for the dissemination of objective information in Russia about developments in the world. Reopen the Russian services of Voice of

America, and strengthen other services, including the Georgian service. The people of Ukraine, Georgia, Russia and others need a voice from

Washington.

Unless the world, and Russia itself sees that the US is acting decisively, there will always be a grave threat of a similar repeat brutal attack on Georgia, and on other independent states in the Russian neighborhood.

On behalf of the Board of the Georgian Association,

Mamuka Tsereteli, President

Stephen Jones, Secretary

LINK: Georgian Association, http://www.georgianassociation.org/
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