EDITORIAL: Rocky and difficult road ahead (05/17/98)

EDITORIAL

Rocky and difficult road ahead

The certification issued by Secretary Madeleine K. Albright last month is not the end, but the beginning of a long and difficult road ahead for U.S.-Ukrainian relations. The certification, to release about half the assistance allocated for Ukraine for fiscal year 1998, was a congressional requirement in reaction to difficulties faced by U.S. companies doing business in Ukraine. After years of frustration with the slow pace of economic reform and privatization, U.S. and other Western companies encountered additional problems in conducting business in Ukraine. They ranged from business disputes with the government to failure by the government to enforce decisions by the Ukrainian courts.

After effective lobbying by some companies, especially Gala Radio, the Congress made assistance dependent on resolution of these disputes. Of the 12 cases filed by April 1, 1997, less than half were resolved by mid-April 1998. In the interim, additional cases were filed.

The U.S. Department of State would rather not get involved in these disputes and to conduct U.S.-Ukrainian relations on the basis of U.S. geopolitical interests. But the State Department must contend with Congress, where foreign assistance is generally not a favorite topic. Giving assistance to a nation that is accused of not enforcing its laws and preventing U.S. companies from doing business within its borders is not something for which members of Congress wish to vote.

The situation is complicated by the fact that Ukraine has not had an effective public relations effort. The image of Ukraine in Washington is not a positive one. Many view Ukraine as a post-Communist nation that is holding on to its past. It is often depicted as the worst state to emerge out of the Soviet Union in terms of economic reform and the ability of Western companies to do business. U.S. criticisms about Ukraine's slow pace of reform are echoed by others, such as the World Bank and the International Monetary Fund (IMF), both of which have withheld loans and grants to Ukraine this year due to lack of reform.

Looking at the whole picture, there are merits to some of the Western complaints. True, Ukraine has not privatized or reformed nearly as quickly as most of its neighbors. Corruption and a difficult business environment are worse in Ukraine than most countries in the region. On the other hand, positive steps that Ukraine has taken in the political and economic arena often go unnoticed. Ukraine clearly has failed to implement a public relations/education program that will attract Western support and investment.

Recently, Ukraine bowed to U.S. pressure and agreed not to sell Russia turbines for use in the Iranian nuclear energy program. This decision results in the loss of both revenue and jobs in Ukraine. This was followed up by the signing of the agreement on the peaceful use of nuclear energy and nuclear non-proliferation. In both cases, the United States promised additional assistance: in the former case, aid to the Kharkiv region for retraining and new business development; in the later case, assistance in developing an alternative source of nuclear fuel. Both programs will be costly.

These come on the heels of international commitments to Ukraine regarding the closing of Chornobyl by the year 2000. For the past year, Minister of the Environment Yurii Kostenko's complaints that the G-7 has not met its commitments under the Memorandum of Understanding on the closing of Chornobyl have fallen on deaf ears. Last month, President Leonid Kuchma used the anniversary of the Chornobyl accident to state that Chornobyl will not be closed if these commitments are not kept.

The current situation is frustrating and fraught with danger for both sides. While the certification was issued, there are Members of Congress who still are displeased with Ukraine's handling of business disputes. They have threatened to prevent any future congressional earmarks for Ukraine or to tie any assistance to Ukraine's performance. This will prevent the currently planned assistance program from progressing and will halt any additional aid promised.

The West, and the United States in particular, are in the dangerous position of reneging on promises made. The European Bank for Reconstruction and Development (EBRD) refuses to lend money to Ukraine for the completion of nuclear reactors in Rivne and Khmelnytskyi. The Clinton administration has not yet identified where the money for the commitments associated with the recent agreements will come from. Failure to meet these commitments could push Ukraine politically eastward, right into the waiting arms of Moscow. Russia has already suggested that it is willing to fund completion of the two reactors.

All of this should put Ukraine in a strong position. Ukraine has kept its international commitments, while the United States and the G-7 have not. But the failure to resolve business disputes, implement economic reforms and promote itself in the West undercuts Ukraine's effectiveness in making this case. The result is Ukraine's continued frustration with the West which, in turn, runs the risk of causing internal political dangers.

This guest editorial was written by Eugene M. Iwanciw, former director of the Ukrainian National Association's Washington Office (which functioned in 1988-1995) and president of EMI Associates Ltd., a government relations firm based in Arlington, Va.