U.S. aid to Ukraine is threatened by reports of rampant corruption (05/04/97)

U.S. aid to Ukraine is threatened by reports of rampant corruption

by Michael Sawkiw Jr.
Ukrainian National Information Service

WASHINGTON - Members of Congress and public witnesses were afforded the opportunity to testify on Thursday, April 24, before the Foreign Operations Subcommittee of the Committee on Appropriations of the House of Representatives. Sonny Callahan (R-Ala.), chairman of the subcommittee, allowed five minutes of testimony from each of the participants on the need for sustained or increased assistance to specific programs or areas of the world.

The witnesses on Ukrainian issues were: Eugene M. Iwanciw (Ukrainian National Association), Joseph Lemire (Gala Radio - Ukraine), Marta Fedoriw (Grand Hotel - Ukraine), Askold S. Lozynskyj (Ukrainian Congress Committee of America, Inc.) and David Sweere (Kyiv Atlantic - Ukraine).

Testimony centered on recent news reports about corruption in Ukraine and the low levels of foreign investment in that country. As the first witness to testify, Mr. Iwanciw highlighted the importance of maintaining foreign assistance to Ukraine as a strategic partner of the U.S. He mentioned the unbalanced nature of articles appearing in the major press which emphasize negative aspects of the business climate in Ukraine while totally disregarding advances in macro-economic stabilization.

In response to this testimony, Rep. Ron Packard (R-Calif.) spoke of the "grave concerns about any company that comes back to United States and complains about corruption." Rep. Packard mentioned how even one high- profile case of corruption in Ukraine will discourage other businesses from investing or expanding their current facilities.

In response to this Mr. Iwanciw argued that foreign assistance could act as a catalyst for improving foreign business investment by maintaining and implementing economic reforms in Ukraine. In remarks to Mr. Iwanciw, Rep. Packard seemed to indicate a change in his attitude towards Ukraine since a hearing held just a few weeks ago. He said that the subcommittee "will continue to be supportive (of Ukraine) ... We think good things are happening there."

Mr. Lemire, president of Gala Radio in Ukraine, briefly testified about problems his business has encountered, then proceeded to paint a negative scenario regarding the economic situation in Ukraine. He stated that Ukraine's GDP had decreased 10 percent in 1996, and asserted that, of the U.S. companies known to the American Chamber of Commerce in Kyiv, most are experiencing problems with corruption. Mr. Lemire contended that any foreign assistance to Ukraine should be conditional and that until the problem of corruption is completely eradicated, no assistance should be delivered to Ukraine.

Speaking on behalf of the American Chamber of Commerce, Mr. Lemire said that 24 of the 34 American companies conducting business in Ukraine had formally lodged complaints with the U.S. Embassy in Ukraine regarding unfair practices and restrictions placed on them by the Ukrainian government. Mr. Lemire asserted: "The Ukrainian government forces foreign companies to comply with burdensome - even ridiculous - laws, while it looks the other way and grants illegal privileges to companies that are closely tied to the government."

During questioning of the witness, Rep. Callahan pointed out the problems that have been reported in the major Western press and stated: "I don't know how to handle it" [the problem of corruption]. Rep. Callahan added that, because of these problems he would rescind any unexpended funds earmarked for Ukraine for FY 1997.

"Until Ukraine gets its act straight, Ukraine will receive zero money from my committee ... unless they make some serious, drastic changes," stated Rep. Callahan.

As the owner of Grand Hotel in Lviv, Ms. Fedoriw spoke of the "injustices" she had experienced with her Ukrainian partners. The falsification of documents, the ransacking of her office and the killing of the hotel's general manager were described in her testimony as examples of government corruption and crime.

"I am worn out financially ... I know the government officials in Ukraine are working together hand in hand with the crooks to defraud the American investor and then kick them out," stated Ms. Fedoriw.

Emphasizing the need for conditionality in foreign assistance to Ukraine, Ms. Fedoriw stated: "A part of U.S. assistance should be allocated to a mechanism which will address and resolve immediately the more than 20 American investor problems in Ukraine."

Subcommittee members asked Ms. Fedoriw whether she felt that her life was threatened while traveling in Ukraine and if the Ukrainian people recognize that corruption is a problem. Ms. Fedoriw responded in the affirmative to both questions and added that the judicial system in Ukraine is corrupt.

Rep. Nancy Pelosi (D-Calif.) clearly reiterated her commitment on assistance to Ukraine by stating: "As we send aid to democratic countries ... we should use those funds to show our intent in helping the people of Ukraine." In a similar vein, Rep. Nita Lowey (D-N.Y.) congratulated the people of Ukraine for their courage in undertaking reform efforts while aspiring to "see the problem [of corruption] solved through continued assistance."

Next to testify was the president of the Ukrainian Congress Committee of America Inc. (UCCA). Mr. Lozynskyj questioned the validity of the prior witnesses' testimonies as being predicated on innuendo rather then fact. Mr. Lozynskyj acknowledged the problem of corruption in Ukraine, but described it as "endemic to the former USSR ... a legacy of the past system."

Mr. Lozynskyj related the positive aspects of reforms in Ukraine, the privatization of nearly 50,000 enterprises in Ukraine; the dramatic drop in the inflation rate (from 10,000 percent in 1993 to a projected 25 percent in 1997); the introduction of a national currency that has been appreciating vis-à-vis the U.S. dollar; the ratification of a new Constitution; and the elimination of the third largest nuclear arsenal in the world. Mr. Lozynskyj pointed out that there are hundreds of companies conducting business in Ukraine - not 34.

He also pointed to actions taken by President Leonid Kuchma on April 10, instituting a nationwide program to combat crime in all government agencies.

Mr. Lozynskyj suggested that conditionality applied to Ukraine would be more detrimental than effective since "it is our function as Americans to show Ukraine how to deal with the problem [of corruption]." Instead, Mr. Lozynskyj recommended improving USAID's delivery of aid to Ukraine for legal restructuring and legal reform. To date, he said such aid has been abysmal, contributing to the environment of lawlessness.

Mr. Sweere, president of Kyiv Atlantic, an agricultural joint venture firm, testified that support for reforms in Ukraine will translate into economic growth for the country. "What is needed," Mr. Sweere stated, "is major tax, judicial and foreign investment reform." The businessman noted that the lack of appropriate laws in Ukraine allows officials to maintain control of state structures.

In a statement and question addressed to Mr. Lozynskyj, Rep. Knollenberg (R-Mich.) commented on the slow pace of judicial reform in Ukraine and the wide scope of corruption. When asked by Rep. Knollenberg how the U.S. can help level the playing field in terms of assistance in these areas, Mr. Lozynskyj stated that USAID has failed in this regard. "In a vacuum of rule of law, the government, state enterprises and organized crime exert extraordinary power in commercial activity ... We [the U.S.] have been more the problem than the solution. USAID in this regard has been a travesty. We must recognize Ukraine as a strategic ally on the precipice of the Russian ambit," he underlined.

Rep. Callahan responded that the subcommittee "appropriates based on perception and, Ukraine is not going to get a nickel if the perception of corruption is not resolved." Continuing on this theme, Rep. Callahan equated Ukraine with a "pillar of democracy" and strength in the former Soviet Union and said he hopes that Ukraine will champion the role of democracy within that region of the world.

Mr. Lozynskyj replied by pointing out what Ukraine has done to deserve U.S. support: disposed of the world's third largest strategic nuclear arsenal, unilaterally removed of tactical nuclear arms, became the first to join NATO's partnership for Peace (PfP), program participated in IFOR's Bosnia peace-keeping operations. Ukraine has been a paragon of democracy with several essentially fraud-free elections, Mr. Lozynskyj added. Economically, Ukraine has moved expeditiously given the Herculean task moving from a command to a market economy, something that Americans cannot fully appreciate.

Rep. Callahan again stressed that "until they [Ukraine] respond to the allegations against them by U.S. companies," Fiscal Year 1988 assistance to Ukraine will be in jeopardy.

Rep. Packard attempted to clarify Rep. Callahan's remarks as he noted: "We do not condemn Ukraine, though we want to condemn the corruption ... The last thing we want is lack of business investment in Ukraine."

Mr. Lozynskyj's answered those remarks by restating recommendations for aid programs mentioned in his testimony: programs to combat corruption, institute commercial law reform, and reform the energy and agricultural sectors.

In closing, Rep. Callahan reiterated that the perception within Congress is that corruption in Ukraine is tolerated by the Verkhovna Rada and government and that until this problem is resolved, Ukraine will not receive its fair share of intended U.S. financial assistance. Unless Ukraine makes "immediate and drastic changes," the chairman said he would include restrictive language in the Appropriations Bill to curtail U.S. assistance to Ukraine.

Rep. Callahan concluded by noting that the U.S. has "bent over backwards ... to help you (Ukraine) build a democracy," and that until the perception of corruption is gone, "Ukraine is not going to get a nickel."

Mr. Lozynskyj asked whether assistance to Russia would be similarly conditioned, to which Rep. Callahan answered, "Yes, but Russia has not received the amount of aid Ukraine has." Mr. Lozynskyj countered: "It has received at least 10 times as much assistance."

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