Albright clears the way for Ukraine to receive suspended U.S. aid funds (05/03/98)

Albright clears the way for Ukraine to receive suspended U.S. aid funds

PARSIPPANY, N.J. - Secretary of State Madeleine K. Albright on April 29 cleared the way for Ukraine to receive nearly $100 million in suspended U.S. economic aid, reported the Associated Press.

The move was based on a finding that Ukraine had made significant progress toward resolving disputes with American investors. A handful of cases remain unresolved, said James P. Rubin, the State Department spokesman. Consequently, about $10 million to $15 million in assistance will be held back.

Congress ordered the cutoff after American firms complained they were victims of corruption, bureaucratic red tape and other impediments to business. "We appreciate the efforts made by the government of Ukraine to help resolve these cases," Mr. Rubin said.

Ukraine ranks third in terms of U.S. aid allocated, but trails smaller neighboring countries in foreign investments. Ukraine has attracted $1.4 billion in direct foreign investment since it gained independence in 1991. Ukraine was to receive $225 million in U.S. assistance until Congress cut off further aid except for humanitarian help and nuclear disarmament pending settlement of a dozen cases of complaints by U.S. investors.

Reuters reported from Kyiv that Western entrepreneurs and diplomats in the Ukrainian capital said the U.S. decision to release all but a fraction of U.S. aid funds earmarked for Ukraine may be sending too weak a signal to the country to improve its business climate.

"The question is whether (withholding) the $20 million is an adequate signal to Ukrainian authorities that there is a problem, or whether it will be seen as the U.S. caving in," one Western diplomat said.

"It's just not enough," said one Western businessman, who asked not to be named, of the U.S. measures.

A Western diplomat who did not wish to be identified told Reuters that the United States was reluctant to be seen as abandoning Ukraine. The diplomat said Secretary Albright's failure to certify the funds would have ended all funding from international funding bodies, which have frequently expressed frustration with the slow pace of economic reform in Ukraine.

The International Monetary Fund last week said there would be no more talk of a $2.5 billion Extended Fund Facility credit until Ukraine met conditions to clean up its economic act. The World Bank also has withheld about $600 million.

"No one wants to be seen as pulling the plug on Ukraine, because no one knows what the consequences will be," Reuters quoted the diplomat as saying. "The moral responsibility would be pretty heavy if it turned into Lukashenko-land two," he said, referring to neighboring Belarus, which is ruled by President Alyaksandr Lukashenka, a hard-liner who favors a Soviet-style command economy.

Secretary Albright's decision on certification was announced on a flight to Beijing from Tokyo; she is on a one-week trip to Asia.

Statement on certification

Following is the text of the statement by Mr. Rubin of the U.S. Department of State on Secretary Albright's certification of significant progress on investment complaints in Ukraine.

Secretary Albright has decided to certify that the government of Ukraine has made significant progress toward resolving U.S. investor complaints. This decision fulfills a congressionally mandated requirement that would have cut off one-half of U.S. assistance to Ukraine unless such a certification was made.

We have worked very closely with the government of Ukraine over the past year to push for resolution of the 12 specific complaints covered by the legislation. The secretary's decision to certify recognizes that the government of Ukraine has made progress, although not all of the cases have been resolved. We appreciate the efforts made by the government of Ukraine to help resolve these cases.

We remain concerned, however, about U.S. investor problems that remain unresolved, and more generally about Ukraine's poor investment climate and slow pace of economic reform. In addition to resolving the investment disputes, we urge the government of Ukraine to take specific steps to improve its investment climate, including instituting more transparent procurement and licensing requirements, implementing regulatory reform, improving protection of shareholder rights, improving enforcement of judicial decisions and enforcing a strong code of ethics.

In light of our continuing concern about foreign investment and the slow pace of economic reform in Ukraine, the secretary has directed the withholding of certain assistance funds to the government of Ukraine in areas where reforms have stalled and such assistance cannot be used effectively. If there is not significant progress in the next few months, these funds would be redirected to other areas in the private and non-governmental sectors.

We will continue to monitor closely Ukraine's success in addressing the problems U.S. investors face in Ukraine and in pushing effective economic reform.