1994: THE YEAR IN REVIEW

Ukraine in 1994: a year of changes

For Ukraine, 1994 was a year of changes, as this vast, potentially rich and prosperous country of nearly 53 million located in the heart of Europe elected a new president, struggled to elect a new Parliament, and finally began to contend with its biggest dilemmas: a rusting nuclear arsenal, a stagnant economy, a restive autonomous republic in the south and an aggressive, imperialistic "big brother" to the north.

After waffling on such issues as the future of its nuclear weapons and a collapsing economy, Ukraine began making significant progress in these areas in 1994 after Leonid Kuchma assumed office as Ukraine's second president on July 10.

"The first government was more interested in politics than policy," says one Western analyst based in Kyyiv. Mr. Kravchuk talked about the challenge of constructing a state and reforming the economy, but did not quite understand that after three years of a decaying national economy, only market reforms and hope for a better life could guarantee Ukraine's independence.

To give credit where it is rightfully due, the government of Leonid Kravchuk put Ukraine on the map. Independent Ukraine was recognized by over 150 states, but members of the nuclear club worried what would happen if things got out of control in this, the third largest nuclear power in the world.

Pressure was put on Ukraine to give up its nuclear arsenal, but its Parliament would not accede to the Nuclear Non-Proliferation Treaty without security assurances, a sticking point under negotiation throughout 1994.

The year began with U.S. President Bill Clinton visiting Ukraine - for three hours - with a stopover at Boryspil Airport on January 12. It was to be an act of good will and, more importantly, a stimulus for Ukraine to give up its nuclear arsenal. President Kravchuk joined Presidents Clinton and Boris Yeltsin on January 14 in Moscow and signed an agreement committing Ukraine to eliminate its 176 intercontinental ballistic missiles and some 1,240 nuclear warheads targeted at the U.S. and transfer them to Russia in return for guarantees that included economic support and integration into a European security network.

"Should Ukraine's Parliament fully ratify START I and join the Nuclear Non-Proliferation Treaty, a multilateral agreement on security guarantees would be signed between the United States, Great Britain and Russia," said a Foreign Ministry spokesperson soon after the meeting of Presidents Kravchuk, Yeltsin and Clinton in Moscow.

The Ukrainian Parliament agreed to review the issue of START I, the Strategic Arms Reduction Treaty, which it had passed with 13 conditions in November 1993. Parliament lifted those conditions on February 3, approving a disarmament package that did not include accession to the NPT.

The legislative branch underscored that START approval was not to be considered an end in itself, but a process toward increasing Ukraine's security. The issue would come up again and again in Parliament during 1994. On November 16, the Ukrainian Parliament finally acceded to the NPT by a vote of 301-8, but sought more security guarantees from the nuclear club of nations.

The newly elected president of Ukraine played a weighty role in getting his nation's Supreme Council to ratify the long-stalled NPT on the eve of his visit to the United States. A former rocket scientist and director of the world's largest nuclear missile factory, Pivdenmash, Mr. Kuchma was persuasive in arguing that Ukraine should become a non-nuclear state.

"Ukraine has no choice today on whether it should be nuclear or non-nuclear. That choice has been made," he said, explaining that Ukraine had pledged disarmament and non-proliferation in 1990, when it proclaimed itself a non-nuclear state."Further delays in reaching a decision, in my opinion, would lead to a situation where the world community stops taking us seriously because we do not know how to keep and execute our obligations," he said.

The security issue was finally resolved late in the year when President Kuchma traveled to Budapest for a CSCE summit on December 5. "It's hard to overestimate the importance of the event that has just taken place," said President Kuchma in Budapest after signing the NPT and receiving security assurances from the United States, Russia and Great Britain. The French and Chinese governments gave Ukraine the same assurances: to respect the territorial integrity and independence of Ukraine, reaffirm their obligation to refrain from the use or threat of use of force against Ukraine, except in self-defense. The memorandum presented to President Kuchma also stated that the nuclear powers will refrain from economic coercion and, in the case of aggression toward Ukraine, the nuclear states will seek immediate action via the United Nations Security Council. They pledged also not to use nuclear weapons against any non-nuclear state party to the NPT treaty.

Throughout 1994, the West had courted Ukraine, promising economic aid if it gave up its nukes.

U.S. Defense Secretary William Perry visited Ukraine for the first time on March 23, promising $100 million for continued denuclearization, military conversion and housing for soldiers. During this historic visit to Ukraine, he viewed Pervomaiske, Ukraine's nuclear weapons site, where he was awed by about 100 missiles with almost 800 warheads targeted at the U.S. Mr. Perry also confirmed that Ukraine was indeed keeping its pledge to remove its warheads to Russia,.

Another offer made by the United States was a place for Ukraine in the newly created NATO security network, the Parternship for Peace.

Ukraine joined the PFP on February 8, in Brussels, becoming the first member of the Commonwealth of Independent States to do so; it was the sixth Eastern bloc state to join after Hungary, Poland, Lithuania, Estonia and Romania. Foreign Minister Anatoliy Zlenko signed the document formalizing membership, calling it a "reasonable and pragmatic alternative to partial and selective NATO enlargement."

"We strongly appreciate the open nature of the program and the absence of any intentions to draw new dividing lines in Europe," he said.

"By providing for specific and practical cooperation between NATO and Ukrainian forces, this partnership can foster an integration of a broader Europe and increase the security of all nations," said President Clinton when he proposed the program, adding that membership in this program is the first step for any country that aspires to full NATO membership.

But it wasn't only NATO that interested Ukraine, as Kyyiv set its sites on integration into the European Community and such organizations as the Council of Europe, the European Union, and sought a more formidable role in the Conference on Security and Cooperation in Europe and the United Nations. In the latter part of the year, as Ukraine began taking serious steps toward reform, it gained the attention of the International Monetary Fund and the World Bank, two institutions that will play a crucial role in Ukraine in 1995, if indeed reforms do take off.

The European Union expressed a desire for closer ties with Ukraine on February 7, as it aimed to finalize an agreement on partnership and cooperation with Ukraine. The accord was finally signed by President Kravchuk in Luxembourg on June 14. The aim of the document is to lay the groundwork for a widening free-trade zone in Europe, after an EU evaluation on the progress of reforms in 1998.

But, the EU's first real gesture of support came late in the year, on December 5 in Brussels, with a loan of $108 million to pave the way for an international rescue plan to help Ukraine with its balance of payments in the fourth quarter of 1994.

In keeping with the January Tripartite Agreement, the U.S. government attempted to spur economic recovery in Ukraine, presenting a program specifically geared to establishing an enterprise fund for Ukraine to stimulate U.S. business investment and aid privatization on May 5. Nicholas Burns of the U.S. National Security Council headed the delegation that included representatives from the Treasury Department, the Agency for International Development (USAID) and the Overseas Private Investment Corp. (OPIC).

Economic reform in Ukraine was stagnant during the first half of the year, and it did not seem there would be any change when President Kravchuk appointed Vitaliy Masol as prime minister. The Parliament approved the nomination on June 16, just 10 days before presidential elections.

Mr. Masol, 66, a former Communist, had held the position of prime minister prior to Ukraine's independence, but was ousted by student strikes and large-scale protests in October 1990.

Although many interpreted the Masol appointment as a way for Mr. Kravchuk to get Communist backing in the upcoming elections, few were fooled by his declaration: "In order to get the government moving, I believe he is the only real choice."

Parliamentary elections had been held a year earlier than originally scheduled, in the hope that a new legislature would speed up the pace of reform in Ukraine. Although the outgoing Parliament boasted quite a record of activities, passing 402 laws and 128 resolutions in three years, it failed to adopt seven successive economic reform packages presented by the governments of Prime Ministers Vitold Fokin and Kuchma in 1991-1993.

Many democrats had hoped that a new Parliament would be more pro-reform, but the partial Parliament convened on May 11 with 338 deputies seemed more polarized. A complicated election law as well as voter burn-out - some went to vote nine times - made it cumbersome to elect people's deputies.

The eastern regions elected a majority of Communists, Socialists and Agrarians, while the western lands put democrats from myriad parties into office. Although there were 15 parties represented in the parliamentary elections held in spring, many of the candidates ran as independents. Once elected, the deputies formed nine factions, including the Communist, Socialist, Agrarian, Yednist, Inter-Regional Bloc, Center, Reform, National Rukh and Statehood (Derzhavnist). The largest faction was the Communist bloc, followed by the Agrarians, thus the left continued to hold the most power in the new Parliament. Nonetheless, the irreversible political restructuring of Ukrainian society had begun.

It came as no surprise that Oleksander Moroz was elected Parliament chairman on May 18; the head of the Socialist Party won handily over Vasyl Durdynets, garnering 171 votes. (He needed 170 to win the position.) Left forces also captured key positions in the Parliament, chairing such influential committees as foreign relations (Communist Boris Oliynyk) and defense (Socialist Volodymyr Mukhin).

Once elected, Mr. Moroz vowed to began the process of conciliation. "The one word by which I explain my feelings is responsibility. I hope that we will be able to work to resolve the critical issues that have put this country in the dire situation it is in," he said. But, with Mr. Moroz at the helm, the leftist bloc in Parliament continued to postpone discussing issues to energize the economy.

The left wing managed to put a freeze on privatization before the Parliament adjourned for the summer holidays, and that moratorium was not lifted until early December. Privatization vouchers were delivered to Ukraine on December 2, and Ukraine's citizens will begin investing their privatization certificates in state enterprises in early 1995.

Democrats did have one significant victory on November 10, when the powerful Communist Party of Ukraine, registered as a new political organization in October, 1993, claimed that it was the successor of the CPU, the Communist Party of Ukraine which was banned during the coup of August 1991. The new CPU wanted to inherit the property and funds of the first CPU, but the democrats managed to ban the first CPU, putting the issue to rest once and for all. The victory did not come easily, as the issue was reviewed twice in Parliament with the democrats charging violations in voting procedures.

The election of Leonid Kuchma

Leonid Kuchma was elected Ukraine's second president on Sunday, July 10, beginning a new era - for better or worse - in Ukraine. It was a close race between Mr. Kravchuk and Mr. Kuchma, defined by a stark regional divide: the industrialized east pulled for closer ties with Russia, while the nationalistic west pushed for independent Ukraine's acceptance into the European community.

Democrats worried that Mr. Kuchma would seek closer ties to Russia. Although he said he wanted to build a strong, independent Ukraine, the more nationalistic population in the western and central regions of Ukraine feared that once an economic union was signed with Ukraine's northern neighbor, a political union, once again putting Ukraine under Moscow's watchful eye, could not be far behind.

"As president of Ukraine, I will always work in the interests of Ukraine as a whole, not in the interests of separate regions," said the president-elect, just one day after his victory.

"The first thing I want is national reconciliation. What has been done during this presidential marathon is a crime. To say there is confrontation between the west and east is a political game."

Mr. Kuchma began his presidency by showing that he was serious about economic reform. Just days after he assumed the country's top post, he met with Michel Camdessus, managing director of the International Monetary Fund, who hailed the election of Mr. Kuchma and said: "We now have a clear window of opportunity for action."

The IMF director said that during the next two months the fund would work with Ukrainian government officials to help them deal with such problems as the inflation rate, stabilization of the economy and liberalization of prices. In return for unifying the exchange rate, lifting export restrictions and raising energy prices, the IMF gave Ukraine a $365 million portion of a promised $730 million "systematic transformation facility" loan. Ukraine still is waiting for a "standby arrangement," which imposes stricter conditions but would give Ukraine another $1 billion in exchange for the full freeing of prices and a reduction of the budget deficit to 5 percent of the GDP or less. (Currently the deficit is about 20 percent.)

It was not only the IMF that wanted to help with economic reform, the G-7 (U.S., Great Britain, France, Germany, Italy, Canada and Japan) leaders meeting in Naples on July 8-10, offered Ukraine an aid package of $4.2 billion, including monies to shut down Chornobyl and provide the young country with the opportunity to qualify for large loans from the IMF and the World Bank. Promoted by President Clinton, the package awarded to Ukraine was conditioned on the implementation of comprehensive economic reforms.

By late October, President Kuchma had secured a $1.2 billion package in assistance from the G-7 countries during a special economic conference held in Winnipeg. Another $2.2 billion could be forthcoming in the new year, as the world's leading economic powers help move Ukraine from a centrally planned economy to a market-driven capitalist system.

Part of the success Mr. Kuchma has enjoyed in getting Western aid for the beleaguered Ukrainian economy was due to the fact that he is a stubborn and pragmatic leader who presented a program of radical reform to the Parliament - and had it approved.

He won the support of a number of Western leaders, among them U.S. Vice- President Al Gore, who arrived in Kyyiv on August 2, soon after Mr. Kuchma's election. Although his visit to Ukraine was only six hours long, it was enough time to reaffirm America's commitment to Ukraine and extend an invitation from President Clinton for Mr. Kuchma to visit Washington in late November.

"There is a new intensity being brought to the mutual effort to improve the bilateral relationship between the two countries. A strong and prosperous and independent Ukraine is a stabilizing force for peace in Central Europe and throughout the entire region," said Mr. Gore.

Vice- President Gore's visit to Ukraine was followed a week later by a high-level U.S. delegation. The group, headed by Assistant Secretary of State James Collins and Assistant Secretary of Defense Ashton Carter, spent two days, August 10-11, outlining concrete programs for security and economic cooperation between the countries.

In order to reaffirm America's commitment to Ukraine's independence, the American-Ukrainian Advisory Committee met in Kyyiv on September 24. The committee, which boasts such members as Zbigniew Brzezinski, Henry Kissinger and George Soros on the American side and Deputy Foreign Minster Boris Tarasiuk, Deputy Prime Minister Viktor Pynzenyk, Economics Minister Roman Shpek and economics adviser Volodymyr Lanovy on the Ukrainian team, issued a communiqué that praised President Kuchma's "courageous decision to take charge of economic policy."

A major step toward these long-delayed reforms came on October 19. After nearly nine hours of debate, a vote of 231-54 cleared the way for free market reforms previously blocked by Communist lawmakers, and allowed Ukraine to free prices, reduce state subsidies, overhaul the tax system and push ahead with privatization, including private land ownership.

"There is no going back to the Soviet Union," President Kuchma warned Parliament members. In an hour long speech, he told lawmakers that Ukraine "is on the verge of catastrophe," and there is no option other than his proposed program.

Marking his first 100 days in office, he said on October 31: "I will be uncompromising on two issues with the Parliament: I will not back down from the radical reform program and I will insist on strong executive powers."

Mr. Kuchma said that Ukraine would suffer through its last, most difficult testing period and then promised that it would emerge as a country "worthy of our labor-loving people, our grand past, our children and our grandchildren."

With inflation running over 70 percent in November, the karbovanets trading at 130,000 to the dollar (It should be noted that the official bank rate of exchange and the street market rate were merging as the year ended), unemployment up and industrial production down, the citizens of Ukraine wished that the testing period was nearing a close.

Currently, the average monthly wage is between $10 and $15; few people who work at state enterprises can afford to put meat, at $2.50 a kilo, on the dinner table.

In order to move forward with economic reform, President Kuchma has placed heavy emphasis on stronger executive powers, issuing a draft law on division of powers, delineating the responsibilities of the executive, legislative and judicial branches of government, as well as local government. In effect, he has drafted a Small Constitution for Ukraine.

Before it becomes legally binding, the document has to be approved by the Parliament. This will be a major issue in 1995, for it is unlikely the Parliament will allow the president to be so powerful that he rules essentially by decree.

Mr. Kuchma is determined, however, to have a new Constitution adopted, if not by the Parliament, then by referendum. A Constitutional Committee, with representatives from the Parliament and the president, was established on November 10 to move this process along.

In the realm of economic policy, Mr. Kuchma appointed Viktor Pynzenyk, who served as the deputy prime minister under Mr. Kuchma's prime ministership in 1992-1993, as first deputy prime minister in charge of economic reform.

Gennadiy Udovenko, who served as ambassador to the United Nations during the days of the Ukrainian SSR and as Ukraine's ambassador to Poland during the first years of Ukraine's independence, was named as Ukraine's foreign minister on August 25 and confirmed by the Parliament when it resumed its sessions on September 15. A senior statesman, he replaced Anatoliy Zlenko, who was transferred to New York, where he assumed the post of ambassador to the United Nations.

Dr. Yuriy Shcherbak was appointed ambassador to the United States on October 21, after serving two and a half years as Ukraine's ambassador to Israel. He left for Washington just weeks before President Kuchma's state visit to the White House.

President Kuchma also appointed Ukraine's first civilian to the post of defense minister. Valeriy Shmarov, who had served as Ukraine's deputy prime minister in charge of the military industrial complex and defense conversion, was approved by the Parliament in October.

Mr. Kuchma also decided to seriously tackle the problem of corruption on a large scale; he appointed Yevhen Marchuk, who had been the former minister of Ukraine's Security Service (the renamed KGB), as deputy prime minister in charge of fighting crime and corruption. Recognizing the escalating problem of corruption on high levels and the increasing crime rate, the Ukrainian Ministry of Internal Affairs addressed these issues, as well as drug trafficking, during a weeklong international conference in mid-August.

Among the first alleged criminals involved in government corruption is Mr. Kuchma's successor as prime minister in 1993, Yukhym Zviahilsky, who is accused of embezzling $25 million in state funds. Mr. Zviahilsky, currently in Israel for medical treatment, was stripped of his legal immunity by the Parliament on November 15. The Ukrainian government is beginning to crack down on other officials; an investigation of Oleksander Tkachenko, the deputy chairman of Parliament, is currently in progress.

Deputy Prime Minister Marchuk was busy also with the issue of the Crimea and the Black Sea Fleet in the second half of 1994. The trouble on Ukraine's restive peninsula began in January, when Yuriy Meshkov was elected president of the Crimea. He began his tenure by calling a referendum on the Crimea's independence during elections to the national Parliament on March 27. Although the Ukrainian government labeled the referendum unconstitutional and President Kravchuk issued a decree on March 15, Mr. Meshkov continued to take steps to get closer to Russia, including decreeing that the peninsula's clocks run on Moscow time.

Although Mr. Meshkov began what seemed to be a successful campaign for secession from Ukraine, he started losing ground as Russian senior officials refused to meet with him when he traveled to Moscow in February. And the world community was on the side of Ukraine, as at least eight countries sent messages of support to Ukraine, suggesting that the Crimean issue is an internal problem for Ukraine to resolve.

By late May, Mr. Meshkov and the Crimean Parliament were working to adopt a Constitution that the Crimea, an autonomous republic of Ukraine, had originally approved in May 1992, but which had been suspended by order of the Ukrainian parliament four months later. This charter would allow Crimea to form its own military forces, and to deal with Ukraine on the basis of treaties, as well as introduce Russian as the state language.

With this began a game of one-upmanship, as the Crimea passed its own laws and Kyyiv kept demanding that these laws comply with Ukrainian legislation.

Although the Ukrainian Parliament ordered the Crimean lawmakers to retract the new Constitution within a 10-day period, all they were able to get from the renegade peninsula's officials was a statement acknowledging that the republic is "a part of Ukraine," and that "sections of their Constitution do not correspond to Ukrainian law."

On June 30, the Crimean Parliament passed a resolution nullifying laws and resolutions passed by the Ukrainian Parliament; it demanded that the Ukrainian Ministry of Internal Affairs stop interfering in the business of the Crimea and threatened to hold a referendum to define the republic's status.

During national presidential elections, the voters of the peninsula came out to cast their ballots for Leonid Kuchma, who received 89.7 percent of the Crimean vote, primarily because they were convinced he would promote closer ties to Russia.

Talks continued between Crimean and Ukrainian deputies throughout the summer, but on August 30, a newspaper reported that President Meshkov planned to issue a decree suspending the Parliament, effective September 5. The decree was to bestow on President Meshkov all legislative and executive powers of the republic's government and be tested in a referendum.

However, by September 7, the Crimean Parliament resumed its session and by a wide majority passed a bill designed to curtail President Meshkov's powers; later, working from the Procurator General's office, the Parliament declared his decree unconstitutional.

By mid-September, the Parliament in the Crimea passed a law reorganizing the Crimean government. Crimean Deputy Prime Minister Yevgeniy Saburov resigned on September 16, and by the end of the month the Crimean Parliament voted to remove President Meshkov's powers as head of state.

Deputy Prime Minister Marchuk, as well as members of Ukraine's Parliament, spent a good deal of time in the Crimea in the fall, as they negotiated with authorities to bring Crimean legislation into line with Ukraine's and to mediate between the peninsula's two feuding powers, President Meshkov and the Crimean Parliament chaired by Sergei Tsekov.

President Kuchma refused to take sides in the political dispute and urged both branches to reach a "civilized solution." The issue seemed to simmer down when Anatoliy Franchuk, Mr. Kuchma's daughter's father-in- law was appointed prime minister of the Crimean republic on October 3. As The Economist wrote in November, "Nepotism-conscious Ukrainians assume this means the Crimean problem is as good as solved."

A cholera epidemic that had plagued the peninsula and some southern cities of Ukraine during the autumn months was curbed by November, but not before it claimed 20 lives and infected over 800 people. The Ukrainian government allocated over $650,000 to stop the spread of the epidemic. Government officials blamed it on contaminated drinking water and deteriorating water systems.

Deputies of the Sevastopil City Council voted on August 23 to give the city "Russian status," however, the Ukrainian Parliament on September 15 voted 303-5 to cancel the City Council's decision declaring Sevastopil Russian territory. The Sevastopil Council's claim was not supported by the Russian Parliament. This was not the first time the issue of Sevastopil had been raised since the disintegration of the Soviet Union. In December 1992, the Russian Parliament laid claims to the city, the home port of the Black Sea Fleet, however, since that time, the new Parliament in Russia has not touched the issue.

Negotiations between Russia and Ukraine on the division of the Black Sea Fleet have included this sensitive topic, with the Russian side claiming Sevastopil as the base of the Russian navy.

The Black Sea Fleet negotiating teams, headed by Deputy Prime Minister Marchuk on the Ukrainian side and Special Envoy Yuri Dubinin from Russia, continued round upon round of talks, usually talking in circles. Fleet talks were cut short on a number of occasions throughout the year, ending in stalemates. The latest round, held in mid-December in Kyyiv, also collapsed.

The Crimean Parliament voted unanimously on December 13 to appeal to the Russian and Ukrainian leaders to keep the Black Sea Fleet as a single entity, an operational unit to serve the interests of the Commonwealth of Independent States.

It now seems that the Black Sea Fleet negotiations will have to start all over again, and it is unlikely that Presidents Kuchma and Yeltsin will meet for a summit and sign a charter on Ukrainian-Russian relations until this issue is resolved.

Meetings between Messrs. Kuchma and Yeltsin have been delayed at least three times, with the latest scheduled for early 1995 in Kyyiv. Russia has continued to show its imperialistic fangs, as it has insisted on being mediator in the West's dealings with former Soviet states.

This was evident when Russia's Foreign Minister Andrei Kozyrev made a surprise appearance before world financial officials in Winnipeg in late October to press Russia's case for a role in Ukraine's economic reforms.

Again, at the CSCE meeting in Budapest, the Russian delegation demanded that Ukraine submit yet another qualifying diplomatic note on its non-nuclear status before agreeing to give Ukraine the security assurances it had been promised.

Although Ukraine has yet to enter any partnerships with Russia, it became an associate member of the CIS economic union on April 15, which gives it representation in all structures of the CIS Economic Union, but limits its role within the body to specific agreements. On October 21, the leaders of 12 former Soviet republics formed the Interstate Economic Committee, forging closer economic ties between the countries of the former Soviet Union.

"There are two paths we can follow," President Kuchma told reporters in Moscow in late October. "We can continue doing what we have done until now - that is nothing, or we can take the radical path. That's a long-term program, but I'm counting on the sound minds of all the countries of the CIS, in forming one economic space."

As the year drew to a close, the CIS summit scheduled for Alma-Ata had been postponed until February. And with war raging in Grozny, it was unlikely that CIS issues would be a priority in the near future.

Earlier this year, The Economist wrote that change is inevitable in Ukraine - but it might not be for the better. Indeed, President Kuchma has warned that things will get worse before they get better for Ukraine's citizens. But, as Ukraine did discover in 1994, the one thing more destabilizing than radical reform is too little reform.

"Ukraine could be the economic success story of 1995," says John Mroz, director of the Institute for East-West Studies in New York. Ukraine now has a leader committed to reforms, who has been able to woo the Western financial community and win pledges of assistance. If he can persuade the Ukrainian Parliament to see things his way and keep his northern neighbor Russia at an arm's length from Ukraine's domestic affairs, 1995 may just be the year of Ukraine.

Copyright © The Ukrainian Weekly, December 25, 1994, No. 52, Vol. LXII

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