BUSINESS & INVESTOR COMMUNITY CONCERNED ABOUT
THE IMPACT ON UKRAINE OF CONFLICT IN GEORGIA

USUBC BUSINESS JOURNAL #7
News Articles & Commentaries
U.S.-Ukraine Business Council (USUBC)
Washington, D.C., Friday, August 15, 2008

1.  SOUTH OSSETIA CONFLICT HOLDS LESSONS FOR KYIV
COMMENTARY & ANALYSIS: By Steven Pier
Visiting Fellow, Brookings Institution, Washington, D.C.
U.S. Ambassador to Ukraine from 1998-2000
Senior Advisor, U.S.-Ukraine Business Council (USUBC)
Radio Free Europe/Radio Liberty (RFL/RL)
Washington, D.C., Friday, August 15, 2008

2.  POSSIBLE IMPACT OF THE RUSSIA-GEORGIA CONFLICT
ON UKRAINE AND OTHER CIS COUNTRIES
SigmaBleyzer, The Bleyzer Foundation
Kyiv, Ukraine, Tuesday, August 12, 2008

3. FOREIGN DIRECT INVESTMENT (FDI) RISKS BECOMING
A CASUALTY OF WAR
“We think that Ukraine may be the next investment casualty..."
By Rachel Morajee in London, Financial Times
London, UK, Friday, August 15 2008

4.  UKRAINE CREDIT DEFAULT SWAPS (CDS) WIDENS ON
WORSENING RUSSIA RELATIONS 
Peter Apps, Reuters, London, UK, Thu Aug 14, 2008

5.  FITCH SEES WORSE THREATS TO UKRAINE THAN RUSSIA
ROW, SERIES OF STRESSES IN UKRAINIAN ECONOMY
By Peter Apps, Reuters, London, UK, Friday August 15 2008

6.  COULD UKRAINE BECOMES RUSSIA'S NEXT TARGET?
By Peter Fedynsky, Moscow, VOA Correspondent
Voice of America (VOA), Washington, D.C., Friday, August 15, 2008

7. RUSSIA'S OMINOUS NEW DOCTRINE?
OP-ED: By Strobe Talbott
President, Brookings Institution, Washington
Deputy Secretary of State, Clinton Administration
The Washington Post, Washington, D.C.
Friday, August 15, 2008; Page A21

8. RUSSIA'S WAR IS THE WEST'S CHALLENGE
OP-ED: By Mikheil Saakashvili
President of Georgia
The Washington Post, Washington, D.C.
Thursday, August 14, 2008; Page A17

9. UKRAINIAN ENVOY SAYS GEORGIA A 'LESSON FOR UKRAINE'
Interview with Ukrainian Deputy Prime Minister Hryhoriy Nemyria
By Maryana Drach, Kyiv, Ukraine
Radio Free Europe/Radio Liberty (RFE/RL)
Washington, D.C., Friday, August 15, 2008
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1. SOUTH OSSETIA CONFLICT HOLDS LESSONS FOR KYIV

COMMENTARY & ANALYSIS: By Steven Pier
Visiting Fellow, Brookings Institution, Washington, D.C.
U.S. Ambassador to Ukraine from 1998-2000.
Senior Advisor, U.S.-Ukraine Business Council (USUBC)
Radio Free Europe/Radio Liberty (RFL-RL)
Washington, D.C., Friday, August 15, 2008

Analysts have begun to weigh the significance of the Russian-Georgian conflict for Russia's other neighbors and for Western relations with those countries. What lessons should Ukraine draw?

The speed of the launch of Russian military operations makes clear that Moscow was ready to act and only sought a pretext; the Georgians, unfortunately, provided one. Russian forces quickly broadened the conflict beyond South Ossetia, launching air strikes throughout Georgia, deploying into Abkhazia, and occupying parts of Georgia outside of South Ossetia and Abkhazia.

The scale of the Russian attack suggests Moscow was motivated by more than just the situation in South Ossetia. Tbilisi's independent foreign-policy course, particularly its desire to join NATO and the European Union, angers Moscow, which seeks a zone of influence in the former Soviet space.

The Kremlin also intended its actions to send a message to other neighboring states, including Ukraine, and to the West. As Ukrainians think through what this means for their foreign-policy course, there are a number of considerations.

The Russians seek to draw a line between Europe and the former Soviet space. Moscow wants Ukraine and Georgia on the eastern side of that line, and wants neither NATO nor the European Union to cross it. While the Kremlin focuses its objections now on NATO enlargement, Ukrainians should assume that, if prospects develop for Ukraine's entry into the European Union, Russia will object vociferously to that as well.

Moscow's increasingly assertive policy poses challenges for Kyiv and the West. NATO and the European Union must consider carefully their strategies of engaging states to their east. Some will argue that, given Russian opposition, NATO should back away from Membership Action Plans (MAPs) for Ukraine or Georgia.

That would be a mistake. It would encourage Moscow to believe that its pressure tactics -- which have included threatening Ukraine with nuclear weapons and questioning the country's territorial integrity and, in Georgia's case, worse -- have succeeded. A Russia that sees success in such tactics will not be an easy country with which to deal.

Moscow would like to limit Ukrainian sovereignty and independence, to isolate it from European and Euro-Atlantic institutions. Most Ukrainians who favor joining NATO and the European Union do so because they want their country to be a "full member" of Europe. This is not anti-Russian. The Kremlin, however, applies an outdated zero-sum logic by which Ukraine's drawing closer to Europe somehow damages Russian interests.

Dealing with this is a challenge for Ukrainian foreign policy. Whatever decision Ukraine ultimately makes on joining NATO and the European Union is a decision for Ukrainians. Regardless of their specific preferences regarding relations with NATO or the European Union, all Ukrainian political forces presumably want to protect the sovereignty of Ukrainian decision-making.

Faced with the likelihood of continuing Russian pressure against Ukraine's pro-European course, what should Kyiv do?

[1] First and foremost, it is not the time for a divided government. President Viktor Yushchenko and Prime Minister Yulia Tymoshenko must end their infighting and together pursue a coherent policy. The government should also talk to the Party of Regions. Leaders of that party may one day be back in power. They should share the government's interest in protecting Ukraine's right to set its own foreign-policy course.

[2] Second, the government needs to make a real education effort on NATO and the advantages and disadvantages of membership for Ukraine. Based on an understanding of what NATO is today -- a very different organization from it was during the Cold War -- and what it can offer Ukraine, the Ukrainian people can decide what is in their country's interest.

If Ukrainians continue to oppose membership, the leadership should draw the appropriate conclusion. NATO will not take in a country if the population disagrees. If, on the other hand, better understanding leads to growing public support for NATO, that will strengthen the government's hand.

[3] Third, the government should reduce vulnerabilities to Russian pressure. This means paying energy debts on time, so that Moscow has no pretext for reducing the flow of gas. It means energy conservation and developing domestic gas and oil resources in order to enhance Ukraine's energy security. And it means managing the gas-transit system in an open and transparent manner.

A Ukraine that strengthens its own energy-security situation and serves as a reliable and transparent transporter of energy to Europe will reduce its exposure to Russian energy pressures and can become an indispensable part of Europe's energy future.

[4] Fourth, Russia has exploited the breakaway regions of South Ossetia and Abkhazia to destabilize Georgia. While the Georgian and Ukrainian situations are different, the Ukrainian government should keep a close watch to make sure Russia does not use the language or ethnic issues to create pressure points, especially in Crimea. One potential pressure point is the Black Sea Fleet.

Ukraine has the right, as a sovereign country, to insist on the fleet's departure when the current basing agreement lapses in 2017 and to address with Moscow the activities of warships operating from Ukrainian ports. But perhaps now may not be the time to try to accelerate negotiations on the fleet's departure. Ukraine can be pro-European and still try to maintain good relations with Russia.

Russia is playing a serious game with regard to the former Soviet space. Kyiv needs to respond with equal seriousness. A serious Ukrainian response -- a coherent government, growing public support for a pro-European course, and addressing vulnerabilities in the Ukraine-Russia relationship -- will strengthen Ukraine's ability to withstand Russian pressure. It likewise will have a positive effect on how the West and Euro-Atlantic institutions view Ukraine and its pro-European course.
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Steven Pifer, who served as U.S. ambassador to Ukraine from 1998 to 2000, is a visiting fellow at the Brookings Institution. Pifer also serves as a Senior Advisor to the U.S.-Ukraine Business Council (USUBC). The views expressed in this commentary are the author's own and do not necessarily reflect those of RFE/RL or USUBC.  
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2.  POSSIBLE IMPACT OF THE RUSSIA-GEORGIA CONFLICT
ON UKRAINE AND OTHER CIS COUNTRIES

SigmaBleyzer, The Bleyzer Foundation
Kyiv, Ukraine, Tuesday, August 12, 2008

The current military confrontation between Georgia and Russia is the result of a prolonged dispute between these two countries over the future of South Ossetia and Abkhazia. Georgia’s desire to join NATO, against Russia’s wishes, also played a role. 

Many observers also believe that Russia’s strong use of power against Georgia can be seen as an attempt to intimidate other countries – particularly Ukraine, which declared its desire to join NATO and seek EU integration, and Moldova with its ongoing conflict in Transnistria (Pridnestrovie).

Although it is very unlikely that the “Georgian scenario” can play out in Ukraine, the situation may become more critical closer to 2017, when the lease agreement for Russia’s fleet in Crimea terminates.  Many political forces in Ukraine believe that this agreement should not be renewed, a position that would antagonize Russia.

CIS countries have achieved mixed performance in terms of building modern democratic institutions. Aside from the Baltic States, Ukraine and Georgia are the only two countries in the region considered to be fairly free and democratic states by most international observers. Almost twenty years after the break-up of the Soviet Union, less than one fifth of the 290 million people living in the FSU enjoy healthy democracies. 

Since Ukraine is a rapidly developing new democracy surrounded by several non-democratic countries, including Russia, some Western countries may decide to support the provision of additional safeguards for Ukraine. This might include both fast-track negotiations for NATO membership and a clearer prospect for EU membership.

However, other European countries with a higher dependency on Russian energy resources may be more concerned with ensuring their own energy supply and may not want to initiate any action that could annoy Russia.

A Brief Summary of the Georgian Economy

Over the last five years, annual GDP growth in Georgia has been around 10% yoy, with an impressive 12% yoy growth in 2007. This growth was mostly driven by net inflows of foreign direct investments (FDI), which can be attributed to the unprecedented improvement in the business environment. Indeed, net FDI grew from 8% of GDP in 2003 to 15% of GDP in 2007.

In the World Bank’s Ease of Doing Business Ranking for 2008, Georgia is placed in 18th position worldwide (compared to 106th for Russia). Furthermore, Georgia was listed among the top 10 reformers since it managed to improve investor protection and visibly reduced the cost of starting a business. Still, GDP per capita, which stood at $2,300 in 2007, is three times lower than in Kazakhstan, four times lower than in Russia and 25% lower than in Ukraine.

Georgia runs a huge deficit in its international trade in goods, which surged from around 15% of GDP in 2003 to nearly 30% of GDP in 2007. Exports represent only 20% of GDP.  Nevertheless, net FDI inflows financed 77% of the $2 billion current account gap in 2007. With large capital inflows, the foreign exchange reserves of the central bank doubled to $1.6 billion in 2007.

Georgia’s trade diversification by commodity is typical for a transition economy with limited deposits of energy resources. In particular, beverages (wines and bottled water), metal ores and transportation equipment are staple export commodities, while petroleum products, cereals, machinery and manufacturing goods are the main types of imported goods.

The geographical orientation of Georgia’s foreign trade is towards the CIS economies (which account for 37% of Georgia’s international trade). The EU accounts for 25% of Georgia’s trade, while the US represents 13%. 

Within the CIS countries, Azerbaijan (which supplies petroleum products to Georgia) and Armenia remain the main CIS markets for Georgian goods, accounting for one fifth of all exports. Georgia ships only 4.3% of its exports to Russia (compared to 24% in 2001), as Russia’s embargo on imports of Georgian goods virtually closed access to the Russian market. 

The recent military developments in Georgia may have significant effects on the quality of the investment environment in Georgia, which, taking into account the country’s dependence on FDI, may result in a material slowdown of the economy and a collapse of its currency.

Impact of Georgia’s Conflict on the Economy of Ukraine and Kazakhstan

The economic impact of the Russian-Georgian conflict on Ukraine and Kazakhstan is likely to be minimal as the economic links between these countries are quite modest.  International trade and capital transactions with Georgia constitute very small shares of the total transactions for these two countries.

Ukraine’s merchandise exports to Georgia represent only 1% of Ukraine’s total exports.  About 50% of these exports are in iron and steel, food products, and machinery and equipment.  Ukraine’s imports from Georgia are also negligible (0.2% of imports) and are mainly in wines and alcoholic beverages.  Trade in services is also small, at less that 1% of total Ukrainian trade.  Flows of capital, including FDI, are also less than 1% of the total flows of Ukraine.

Kazakhstan is in a similar situation, with the share of Kazakhstan’s international trade with Georgia at about 0.1% of Kazakhstan’s total trade figures.

Reaction of Ukraine’s top officials

On August 12th, President Yuschenko (accompanied by the Presidents of Poland and Lithuania) flew to Georgia with the intention of assisting in the peace talks. His visit to Georgia appears to be a diplomatic necessity to show support for a friendly nation rather than a way to facilitate an effective solution of this crisis. Other top Ukrainian officials have shown no (or rather weak) reaction to the conflict.

The absence of a comment or response from the Ukrainian Prime Minister may be explained by the fact that according to the Constitution of Ukraine, the President is responsible for shaping the foreign policy of the country.

So far, the Head of the Parliament has made some trivial comments on the superiority of a diplomatic resolution to this crisis. Moreover, taken into account that leading political groups in Ukraine have opposing views on the foreign policy of Ukraine (the main opposition is pro-Russian, while the President wishes to see Ukraine joining NATO and the EU) it would be rather difficult for the country to declare a clear position on the Russian-Georgian conflict.
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3.  FOREIGN DIRECT INVESTMENT (FDI) RISKS BECOMING A CASUALTY OF WAR
“We think that Ukraine may be the next investment casualty..."

By Rachel Morajee in London, Financial Times
London, UK, Friday, August 15 2008

Within hours of the ceasefire in Georgia, Heidelberg Cement reopened its cement factories near Tblisi. The German company’s three cement plants supply about 60 per cent of the country’s market and are one of Georgia’s biggest foreign investments.

They have flourished thanks to a construction boom in Georgia and neighbouring Azerbaijan and could be set to cash in on reconstruction. Brigitte Fickel, a spokeswoman for Heidelberg Cement, said a plant warehouse was damaged during Russian air raids but production had not been affected.

Damage to Georgia’s civilian and business infrastructure has been minimal, but the brief conflict may have done serious harm to the outlook for future foreign investment not just here but in other former Soviet states that clash with Moscow.

“Georgia’s economic growth will be much reduced and foreign investment that has been so important to Georgia’s fundamentals could be revised,” says Olivier Descamps, a managing director at the European Bank for Reconstruction and Development. “We cannot say Georgia’s economy has been physically damaged. But there is the matter of risk and the impairment of confidence.”

Ratings agencies Fitch and Standard & Poor’s both downgraded Georgia after fighting broke out and warned that the end of combat operations would not shield the country from the longer-term economic impact.

FDI flows are crucial to financing Georgia’s current account deficit and have been a key driver of growth.

Foreign investment stood at 19.8 per cent of GDP in 2007 compared with 13.9 per cent in 2006, according to the Tbilisi government. Georgia attracted more than $2bn (Euro1.3bn, lbs1.06bn) in FDI last year mainly in banking, real estate, mining and agriculture.

The conflict will have a macroeconomic impact in the short to medium term but analysts say there is unlikely to be a clear-cut resolution to the conflict between Georgia and Russia and political uncertainty could cloud investment prospects.

While established projects will not be affected by the conflict, new investors are likely to shy away from Georgia and other countries such as Ukraine, which are seen as standing in Russia’s line of fire.

“We think that Ukraine may be the next investment casualty because it was asked in a veiled fashion if it wants to join Nato and Russia’s actions hark back to the cold war and the desire to retain spheres of influence on its borders,” said Elizabeth Stephens, head of credit and political risk analysis at Jardine Lloyd Thompson.

In Ukraine, FDI has also been a significant part of growth. Net FDI stood at 7 per cent of GDP in 2007 up from 5.2 per cent in 2006, according to the Kiev government.

The Baltic states have tighter trade links with Russia and export large amounts of food as well as being a corridor for Russian exports to western Europe, so are likely to be less affected by the conflict in Georgia, analysts say.

Estonian exports to Russia doubled between 2005 and 2007 and as the share of exports flowing east rose from 6.5 per cent to 8.9 per cent over the period.
“I don’t think there will be a knock-on effect to the Baltic states. They have had tense relations with Russia for some time but that is unlikely to weigh heavily on investors decisions,” said Edward Parker at Fitch Ratings.
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LINK: http://www.ft.com/cms/s/0/d2ede9ba-6ae7-11dd-b613-0000779fd18c.html
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4.  UKRAINE CREDIT DEFAULT SWAPS (CDS) WIDENS ON WORSENING RUSSIA RELATIONS 

Peter Apps, Reuters, London, UK, Thu Aug 14, 2008

LONDON - The cost of insuring Ukrainian government debt in the credit default swaps market sharply increased on Thursday, with investors increasingly worried about worsening relations with Russia.

Ukrainian credit default swaps widened roughly 20 basis points to 437 on Thursday, compared to 401 last Friday.

Investors are concerned both over ongoing domestic political worries and worsening relations with Russia over its conflict with Georgia.

"It's a perfect storm for Ukraine at the moment," said Commerzbank debt strategist Luis Costa. "The government has made it clear that it is on a collision course with Russia and there are other issues as well."
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LINK: http://www.reuters.com:80/article/europeCrisis/idUSLE249774
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5.  FITCH SEES WORSE THREATS TO UKRAINE THAN RUSSIA
ROW, SERIES OF STRESSES IN UKRAINIAN ECONOMY

By Peter Apps, Reuters, London, UK, Friday August 15 2008

LONDON - Credit ratings agency Fitch does not yet see rising tension with Russia as a major threat to Ukraine's creditworthiness, it said on Friday, but remains concerned about a series of stresses in the Ukrainian economy.

The aftermath of conflict between Georgia and Russia has seen a deepening row between Ukraine and its larger neighbour over the use of a Ukrainian port by Russia's Black Sea Fleet, prompting investors to price its debt as riskier.

"It's not one of our key worries for the rating at this stage," Fitch director of emerging Europe sovereigns Andrew Colquhoun. "We are more worried about the current account deficit, rising external debt levels and inflation."

He said that a small clash in the Black Sea that went no further might not have too great an impact on Ukraine's current BB- rating with stable outlook.
"But if you had escalation or even if a small clash simply prompted capital flight then that would have a negative effect. Conflict would certainly be negative but that is not something we see as very likely at this stage."

Ukraine's hvrynia currency has been appreciating this year, but any sudden shift in sentiment that prompted currency weakening would threaten both inflation as well as the banking sector, with a lot of domestic private sector debt in dollars and therefore hard to repay in the event of a major currency move, he said.

He also warned Ukraine must do more to tackle inflation. "If inflation stays at these levels in quite high double figures then that would add to risks to the macroeconomy and possibly prompt negative ratings action," Colquhoun said.

He said Fitch was also looking to the results of negotiations with Russian state gas giant Gazprom over the price of gas supplies to Ukraine, a process that may be impacted by worsening relations with Moscow. Ukraine currently receives cheap gas from its neighbour, but supplies were briefly cut off in early 2006 in another row.

"Negotiations with Gazprom have always been politicised," he said. "But if the price of gas to Ukraine did suddenly increased to the same price for European gas exports (from Russia) the economy would struggle to cope."
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LINK: http://www.guardian.co.uk:80/business/feedarticle/7727441
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6. COULD UKRAINE BECOMES RUSSIA'S NEXT TARGET?

By Peter Fedynsky, Moscow, VOA Correspondent
Voice of America (VOA), Washington, D.C., Friday, August 15, 2008

The former Soviet republics of Georgia and Ukraine are allies engaged in similar attempts to establish democratic rule, to join NATO and realign themselves with the West, much to the displeasure of Russia.

During the conflict in Georgia, Ukrainian President Viktor Yushchenko prohibited ships from the Russian Black Sea Fleet that are engaged off the
Georgian coast from returning to port on Ukraine's Crimean peninsula without Kyiv's official permission. VOA correspondent Peter Fedynsky examines how the Kremlin may react to Ukraine's pro-Georgian and pro-Western position.

Ukraine's current President, Viktor Yushchenko flew to Tbilisi to join his Georgian friend and fellow head of state, Mikheil Saakashvili, in the school's re-dedication ceremony.  Both men rode to power following mass pro-democracy protests that came to be known as colored revolutions. Georgia's was the Rose Revolution and Ukraine's was the Orange. Accordingly, the Hrushevsky School was painted orange.

Moscow has not disguised its displeasure with the colored revolutions and refuses to deal with Mr. Saakashvili. On Tuesday, President Yushchenko again
flew to Tbilisi, accompanied this time by the presidents of Poland, Latvia, Lithuania and Estonia.

Mr. Yushchenko says the task of the presidential mission is to show that Georgia is not alone, that in this age the power of reason should not be replaced by the iron fist.

The Ukrainian leader says the five presidents came to Georgia to prohibit the of killing people and the execution of the country.

Ukrainian military analyst Oleksiy Melnyk, of the Razumkov Center think tank in Kyiv, told VOA the Polish, Ukrainian and Baltic leaders do not
necessarily agree with all of the actions undertaken in the conflict by Georgian leadership, but notes they risked their own physical security to send a signal to Moscow.

Melnyk says Moscow should see the presidential show of solidarity in Tbilisi as a serious signal that Russian foreign policy of establishing control over
former Soviet republics and its neighborhood achieves a totally opposite effect. The analyst says Russia is surrounding itself with nations that are, at a minimum, not friendly and perhaps even hostile toward Moscow.

Oleksiy Melnyk says Russian military actions in Georgia could lead the majority of Ukrainians who now oppose to their country's NATO membership to
reassess their opinions about the respective security threats posed by the Western alliance and Russia.

The chairman of the European Integration Forum in Tbilisi, Soso Tsiskarishvili, agrees with Melnyk's assessment, but notes Ukraine is better prepared to meets NATO's democratic standards for membership than Georgia.

Tsiskarishvili says Ukraine's two recent parliamentary elections and Georgia's presidential and parliamentary contests differ from one another like heaven and earth in terms of democratic and transparent procedures.

But Russian military analyst Pavel Felgenhauer cautions that Ukraine could be Russia's next target as part of what he says is a grand Kremlin plan for the partial restoration of Russian greatness.

"Russia right now wants at least half of Ukraine to be annexed," said Felgenhauer. "Vladimir Putin talked about that rather openly at the NATO summit in Bucharest, Romania in April. Ukraine will disintegrate into two halves, and we want the eastern half, including of course, first and foremost, Crimea."

Felgenhauer says Ukraine's overwhelming vote for independence in 1991, which included a majority of Crimeans, means nothing to Kremlin rulers, who the analyst says do not respect the will of even their own people.

Nonetheless, the analyst says Russia is tied down in Georgia and will not make any immediate military moves against Ukraine. He notes, however, that
Russia's Black Sea Fleet, which leases naval facilities in Sevastopol in Crimea, will likely steam back to port in defiance of a Ukrainian presidential order that it must first ask for Ukrainian permission.

"If Russia openly challenges Ukrainian sovereignty, I think that Ukraine will then turn to the West and say, 'you know guys, they're challenging our
sovereignty with their fleet.' And this will happen without any kind of use of arms, or anything made in anger. Ukraine right now, apparently wants to
make the threat to its sovereignty obvious to outside powers," said Felgenhauer.

Felgenhauer says Moscow's vision of the world is that of Prime Minister Vladimir Putin; one in which Russia and Washington share spheres of influence. The analyst notes that Russia withdrew its bases from Cuba and Vietnam, expecting the United States to stay away from what Moscow thought was to be its sphere of influence. He says Moscow felt betrayed when Washington began supporting colored revolutions among Russia's neighbors.

But Soso Tsiskarishvili points to this week's visit to Tbilisi by presidents of five countries that border Russia as a sign that they do not trust the
Kremlin.
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LINK: http://www.voanews.com:80/english/2008-08-15-voa19.cfm
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7. RUSSIA'S OMINOUS NEW DOCTRINE?

OP-ED: By Strobe Talbott
President, Brookings Institution, Washington
Deputy Secretary of State, Clinton Administration
The Washington Post, Washington, D.C.
Friday, August 15, 2008; Page A21
 
Russia has been justifying its rampage through Georgia as a "peacekeeping" operation to end the Tbilisi government's "genocide" and "ethnic cleansing" of South Ossetia. That terminology deliberately echoes U.S. and NATO language during their 1999 bombing campaign against Serbia, which resulted in the independence of Kosovo.
 
Essentially, it's payback time for a grievance that Russia has borne against the West for nine years. The Russians are relying on the conceit that Georgian President Mikheil Saakashvili is today's equivalent of Slobodan Milosevic, and that the South Ossetians are (or were until their rescue by the latter-day Red Army last week) being victimized by Tbilisi the way the Kosovar Albanians suffered under Belgrade.

This analogy turns reality, and history, upside down. Only after exhausting every attempt at diplomacy did NATO go to war over Kosovo. It did so because the formerly "autonomous" province of Serbia was under the heel of Belgrade and the Milosevic regime was running amok there, killing ethnic Albanians and throwing them out of their homes. By contrast, South Ossetia -- even though it is on Georgian territory -- has long been a Russian protectorate, beyond the reach of Saakashvili's government.
 
An accurate comparison between the Balkan disasters of the 1990s and the one now playing out in the Caucasus underscores what is most ominous about current Russian policy. Seventeen years ago, the Soviet Union came apart at the seams more or less peacefully. That was overwhelmingly because Boris Yeltsin insisted on converting the old inter-republic boundaries into new international ones.
 
In doing so, he kept in check the forces of revanchism among communists and nationalists in the Russian parliament (which went by the appropriately atavistic name "the Supreme Soviet").

Meanwhile, Yugoslavia collapsed into bloody chaos because its leaders engaged in an ethnically and religiously based land-grab. Milosevic, as the best-armed of the lot, tried to carve a "Greater Serbia" out of the flanks of Bosnia and Croatia.
 
If Yeltsin had gone that route, seeking to create a Greater Russia that incorporated Belarus and the parts of Ukraine, northern Kazakhstan and the Baltic states populated by Russian speakers, there could have been conflict across 11 time zones with tens of thousands of nuclear weapons in the mix.

A question that looms large in the wake of the past week is whether Russian policy has changed with regard to the permanence of borders. That seemed to be what Russian Foreign Minister Sergei Lavrov was hinting yesterday when he said, "You can forget about any discussion of Georgia's territorial integrity." He ridiculed "the logic of forcing South Ossetia and Abkhazia to return to being part of the Georgian state."

Lavrov is a careful and experienced diplomat, not given to shooting off his mouth. That makes his comments all the more unsettling. If he has given the world a glimpse of the Russian endgame, it's dangerous in its own right and in the precedent it would set. South Ossetia and Abkhazia might be set up as supposedly independent countries ("just like Kosovo," the Russians would say) -- but would in fact be satrapies of Russia.
 
While Russia might see that outcome as proof of its comeback as a major power, the Balkanization of the Caucasus may not end there: Chechnya is just one of several regions on Russian territory that are seething with resentment against the Kremlin and that might hanker after a version of independence far less to Moscow's liking than what may be contemplated for Abkhazia and South Ossetia.

Among Secretary of State Condoleezza Rice's important tasks in the days ahead is to get clarity on whether a Lavrov doctrine has replaced the Yeltsin one of 16 years ago. If so, big trouble looms -- including for Russia. Moscow's action and rhetoric of the past week have highlighted yet another, potentially more consequential respect in which this episode could bode ill for all concerned.
 
For the Bush administration -- and those of Bill Clinton and George H.W. Bush as well -- the fundamental premise of American policy has been that Russia has put its Soviet past behind it and is committed, eventually, to integrating itself into Europe and the political, economic and ideological (as opposed to the geographical) "West."

Prominent Russians have said as much. In one of my first meetings with Vladimir Putin, before he became president, he spoke of his country's zapadnichestvo, its Western vocation. Yet it now appears that beyond the undisguised animosity that Putin bears toward Saakashvili, he and his government regard Georgia's pro-Western bent and its aspiration to join two Western institutions, NATO and the European Union, as, literally, a casus belli.
 
If that is the case, the next U.S. administration -- the fourth to deal with post-Soviet Russia -- will have to reexamine the underlying basis for the whole idea of partnership with that country and its continuing integration into a rule-based international community.
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LINK: http://www.washingtonpost.com/wp-dyn/content/article/2008/08/14/AR2008081403124.html
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8.  RUSSIA'S WAR IS THE WEST'S CHALLENGE

OP-ED: By Mikheil Saakashvili
President of Georgia
The Washington Post, Washington, D.C.
Thursday, August 14, 2008; Page A17

TBILISI, Georgia -- Russia's invasion of Georgia strikes at the heart of Western values and our 21st-century system of security. If the international community allows Russia to crush our democratic, independent state, it will be giving carte blanche to authoritarian governments everywhere. Russia intends to destroy not just a country but an idea.

For too long, we all underestimated the ruthlessness of the regime in Moscow. Yesterday brought further evidence of its duplicity: Within 24 hours of Russia agreeing to a cease-fire, its forces were rampaging through Gori; blocking the port of Poti; sinking Georgian vessels; and -- worst of all -- brutally purging Georgian villages in South Ossetia, raping women and executing men.

The Russian leadership cannot be trusted -- and this hard reality should guide the West's response. Only Western peacekeepers can end the war.

Russia also seeks to destroy our economy and is bombing factories, ports and other vital sites. Accordingly, we need to establish a modern version of the Berlin Airlift; the United Nations, the United States, Canada and others are moving in this direction, for which we are deeply grateful.

As we consider what to do next, understanding Russia's goals is critical. Moscow aims to satisfy its imperialist ambitions; to erase one of the few democratic, law-governed states in its vicinity; and, above all, to demolish the post-Cold War system of international relations in Europe. Russia is showing that it can do as it pleases.

The historical parallels are stark: Russia's war on Georgia echoes events in Finland in 1939, Hungary in 1956 and Czechoslovakia in 1968. Perhaps this is why so many Eastern European countries, which suffered under Soviet occupation, have voiced their support for us.

Russia's authoritarian leaders see us as a threat because Georgia is a free country whose people have elected to integrate into the Euro-Atlantic community. This offends Russia's rulers. They do not want their nation or even its borders contaminated by democratic ideas.

Since our democratic government came to power after the 2003 Rose Revolution, Russia has used economic embargoes and closed borders to isolate us and has illegally deported thousands of Georgians in Russia. It has tried to destabilize us politically with the help of criminal oligarchs. It has tried to freeze us into submission by blowing up vital gas pipelines in midwinter.

When all that failed to shake the Georgian people's resolve, Russia invaded.

Last week, Russia, using its separatist proxies, attacked several peaceful, Georgian-controlled villages in South Ossetia, killing innocent civilians and damaging infrastructure.

On Aug. 6, just hours after a senior Georgian official traveled to South Ossetia to attempt negotiations, a massive assault was launched on Georgian settlements. Even as we came under attack, I declared a unilateral cease-fire in hopes of avoiding escalation and announced our willingness to talk to the separatists in any format.

But the separatists and their Russian masters were deaf to our calls for peace. Our government then learned that columns of Russian tanks and troops had crossed Georgia's sovereign borders. The thousands of troops, tanks and artillery amassed on our border are evidence of how long Russia had been planning this aggression.

Our government had no choice but to protect our country from invasion, secure our citizens and stop the bloodshed. For years, Georgia has been proposing 21st-century, European solutions for South Ossetia, including full autonomy guaranteed by the international community. Russia has responded with crude, 19th-century methods.

It is true that Russian power could overwhelm our small country -- though even we did not anticipate the ferocity and scale of Moscow's response. But we had to at least try to protect our people from the invading forces. Any democratic country would have done the same.

But facing this brutal invading army, whose violence was ripping Georgia apart, our government decided to withdraw from South Ossetia, declare a cease-fire and seek negotiations. Yet Moscow ignored our appeal for peace.

Our repeated attempts to contact senior Russian leaders were rebuffed. Russia's foreign ministry even denied receiving our notice of cease-fire hours after it was officially -- and very publicly -- delivered. This was just one of many cynical ploys to deceive the world and justify further attacks.

This war threatens not only Georgia but security and liberty around the world. If the international community fails to take a resolute stand, it will have sounded the death knell for the spread of freedom and democracy everywhere.

Georgia's only fault in this crisis is its wish to be an independent, free and democratic country. What would Western nations do if they were punished for the same aspiration?

I have staked my country's fate on the West's rhetoric about democracy and liberty. As Georgians come under attack, we must ask: If the West is not with us, who is it with? If the line is not drawn now, when will it be drawn? We cannot allow Georgia to become the first victim of a new world order as imagined by Moscow.
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9. UKRAINIAN ENVOY SAYS GEORGIA A 'LESSON FOR UKRAINE'
Interview with Ukrainian Deputy Prime Minister Hryhoriy Nemyria

By Maryana Drach, Kyiv, Ukraine
Radio Free Europe/Radio Liberty (RFE/RL)
Washington, D.C., Friday, August 15, 2008

A Ukrainian government official has called on the European Union to help Kyiv avoid a "security vacuum" like the one that led to the current conflict between Russia and Georgia.

"For a very long time, it's been clear that there was a security vacuum in the South Caucasus," Deputy Prime Minister Hryhoriy Nemyria said in an interview with RFE/RL's Ukraine Service. "It's a lesson for Ukraine. Ukraine is the largest post-Soviet country after Russia, and one that shares a long border with the European Union. It can't be left in a similar vacuum."

Nemyria was speaking in Kyiv following three days in Tbilisi meeting with Georgian officials and coordinating humanitarian aid shipments to the country.

Ukraine, a recent ally of Georgia since both countries' "colored revolutions" brought pro-democratic leaders to office, has been staunch in its support of Tbilisi since the start of Georgia's armed conflict with Russia over the breakaway republic of South Ossetia.

Ukrainian President Viktor Yushchenko joined a delegation of five Eastern European leaders who traveled to the Georgia in a show of solidarity with Georgian leader Mikheil Saakashvili, and Ukraine has warned that Russia would face restrictions on if its Black Sea Fleet, which is based in the Ukrainian port city of Sevastopol, was used in any aggressive actions against Georgia.

The posture has angered Russia, which often seems to regard both Ukraine and Georgia as wayward neighbors that should be brought back into Moscow's orbit. Kyiv and Tbilisi have actively sought membership in the NATO military alliance, an aim that infuriates the Kremlin and is believed to have played a significant role in Russia's military advance on Georgia.

Nemyria acknowledged the possibility that Russia might next turn its focus to Ukraine. "I think old habits die hard," he said of Russia. "What we can see in this overreaction is that there is a risk [for Ukraine]. And of course, Ukraine has a frozen conflict on its own border" -- a reference to Moldova's breakaway region of Transdniester, which like South Ossetia and a third separatist region, Abkhazia, enjoys Moscow's strong support.

"We want to avoid a security vacuum that will be prone to a defrosting of such a frozen conflict," he said. "European leaders must now realize that the South Ossetia conflict has opened such a vacuum throughout the entire area that Moscow sometimes calls its 'near abroad.' We welcome the EU's effort -- led by France, and supported by Germany and others -- to be more visible as an actor in the region."

Nemyria dismissed speculation that Prime Minister Yulia Tymoshenko -- who has been notably silent on the current Georgia-Russia conflict -- is hoping to secure Russia's support for a future presidential bid.

"The government of Ukraine adopted a clear position, the centerpiece of which was the recognition and support of the sovereignty and territorial integrity of Georgia," he said. "The president of Ukraine took the lead in voicing the official Ukrainian position, and we felt no need to repeat it. Those accusations against the prime minister are misplaced."
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