1998: THE YEAR IN REVIEW

Politics in Ukraine: the games continue

Elections to the Verkhovna Rada dominated the first half of the year in the arena of Ukrainian politics. Although the election season officially began a month before the March 29 vote and should have ended with the referendum, for all practical purposes it lasted until mid-July, because the newly elected national deputies in 19 attempts could not elect a chairman to lead the parliamentary body. (See related story, "A very long year of Rada elections.")

Elections aside, the political topics that dominated were much the same as those of the past two years, namely, stalled economic reform, corruption and abuse of power, controversies in Russia-Ukraine relations and friction in the Ukraine-U.S. strategic partnership. There were national celebrations and demonstrations, and an announcement that Ukraine's biggest single private benefactor, George Soros had given up on Ukraine and soon would cease operations in the country.

The year ended and began with the name of Pavlo Lazarenko in the headlines. On December 26, 1997, Procurator General Oleh Lytvak announced he had begun an investigation into the unlawful use and concealment of currency earnings associated with the personal and business dealings of the former prime minister.

Mr. Lytvak said the Procurator General's Office had obtained documents that Mr. Lazarenko owned Swiss bank accounts into which he had illegally transferred money from Ukraine.

Mr. Lazarenko rebutted the charges involved in the investigation in a sharply worded commentary in the newspaper Vseukrainskie Viedomosti and called the action by the public prosecutor a concerted attack against himself and the Hromada Party, which he heads, to discredit them before elections to the Verkhovna Rada.

"I want to make it clear that I do not have any kind of foreign currency accounts," said Mr. Lazarenko in the newspaper rebuttal.

Mr. Lazarenko, who had once been a close associate of President Leonid Kuchma, was dismissed from his post as the president's prime minister in the summer of 1997 for being soft on corruption and slow in moving on economic reforms. He and the president quickly became bitter political enemies.

In what appeared to be a protracted government action against Mr. Lazarenko and his followers - and which seemed to support the theory pushed by Mr. Lazarenko of a government conspiracy against him - two newspapers associated with Mr. Lazarenko were shut down by the government in the months prior to elections.

First came the January 8 printing ban on Pravda Ukrainy for allegedly being improperly registered with government authorities. Then, on March 20, a week before the parliamentary elections, Vseukrainskie Viedomosti was forced to close after it lost a $1.8 million suit filed against it for publishing a story in which it was stated that a Ukrainian soccer star was soon to leave the team Kyiv Dynamo and sign with an Italian soccer club.

The Kuchma-Lazarenko war continued on and off throughout the year, reaching varying decibels of shrillness until December 2, when Mr. Lazarenko was arrested at the French-Swiss border near the city of Basel while attempting to enter Switzerland on a Panamanian passport.

The Ukrainian national deputy was promptly transferred to Geneva, where he was initially detained and held in a prison cell while an investigative judge traveled to Kyiv to further investigate charges of money laundering.

Hromada Party supporters claimed the Ukrainian government had asked that Mr. Lazarenko be detained, while Ukraine's Foreign Affairs Ministry said the situation was complicated by the fact that Mr. Lazarenko had presented himself as a Panamanian citizen.

Ukraine did not request the extradition of Mr. Lazarenko, and the national deputy refused Ukrainian Embassy assistance.

The Swiss government remained close-mouthed about the case and would only say that money in Swiss bank accounts thought to be under the control of Mr. Lazarenko had been frozen after Swiss bank officials had launched an investigation into Mr. Lazarenko's finances, prompted by more than 20 requests from the Ukrainian government.

On December 14 the Geneva Judicial Chamber denied Mr. Lazarenko bail in the amount of $3.5 million, which he had requested, because the accused could not prove the money was not part of that held in the now-frozen Swiss bank accounts. It also extended his detention for a month as the government investigation continued. However, three days later Mr. Lazarenko was released on a bond of $3 million extended to him by an unnamed associate.

The Lazarenko-controlled newspapers were not the only ones to feel the weight of the government's ax in 1998. On June 14 the local Kyiv newspaper Kievskie Viedomosti was slapped with a hefty libel verdict. A Kyiv court ordered the newspaper to pay Ukraine's Internal Affairs Minister Yurii Kravchenko, a close political ally of President Kuchma, $2.5 million for accusing the minister of purchasing a $115,000 Mercedes Benz automobile with money stolen from a fund for the families of slain policemen.

Volodymyr Mostovii, editor of the newspaper Zerkalo Nedeli, said the action by the Kyiv district court was "a purely political action directed at closing the newspaper" by forcing it into "an unsustainable economic condition."

In 1997 Kievskie Viedomosti publisher Mykhailo Brodsky had become a vocal opponent of the policies of the Kuchma administration. Unable to pay, the newspaper shut down in November.

Mr. Brodsky had already faced prosecutorial ire earlier in 1998. He was arrested on March 10, a little more than two weeks before the Verkhovna Rada elections in which he was a candidate, and charged with receiving large sums of money in illegal trade activity. He was released from jail and the charges were suspended only after Mr. Brodsky won a seat in the Verkhovna Rada, which gave him immunity from criminal prosecution.

The strong-handed control of the Ukrainian press by the Kuchma administration was criticized by several Western media watchdog groups, including the European Institute for the Media and the New York-based Committee to Protect Journalists, which sent a letter of protest to President Kuchma in response to the closing of Pravda Ukrainy.

"CPJ condemns the shutdown and silencing of Pravda Ukrainy by the Ukrainian Ministry of Information as a violation of all international norms of free expression," said the organization's letter.

In what many purveyors of the Ukrainian political scene considered an attempt by the Lazarenko crowd to extract revenge for the government's actions against the former prime minister, the Hromada Party announced that its investigation into the lavish government-funded renovation of Ukraine's central concert hall, the Ukraina Palace of Culture, had turned up evidence of financial improprieties. The project was directed by current Prime Minister Valerii Pustovoitenko during his tenure as minister of the Cabinet of Ministers.

On January 16, the Verkhovna Rada passed a non-binding resolution recommending that the prime minister they had approved barely six months before be removed from office by the president for the theft of some $40 million from the Ukraina Palace project.

Mr. Pustovoitenko defended himself from the accusation at a press conference during which he said that the cost of the project was in fact $57 million, and not the $80 million cited by some members of the parliamentary faction Yednist, which is controlled by Mr. Lazarenko. Mr. Pustovoitenko also said he had forewarned contractors and subcontractors to detail all costs because he had foreseen that such charges could be made. President Kuchma decided to keep his prime minister, who by September had become the longest serving head of government of the four who have held the office during President Kuchma's tenure.

Mr. Pustovoitenko overcame a second attempt by the Verkhovna Rada to remove him later in the year, when he and his Cabinet of Ministers survived an attempt by leftist national deputies to bring down the government on October 13.

The Verkhovna Rada action was spurred by the Socialist, Communist and Hromada parties, who accused the government of failing to bring the country out of its economic malaise and past the financial crisis that had gripped the country in the fall.

Hetman assassinated

Another politician, respected and admired more than most in Ukraine, first failed to get re-elected to the Verkhovna Rada in March and then lost his life to an assassin's bullet on April 22. Vadym Hetman, the first chairman of the National Bank of Ukraine and the chairman of the Ukrainian Interbank Currency Exchange at the time of his death, who was considered a level-headed, elder statesmen of Ukrainian politics, was killed after he entered his apartment building.

The reason for his murder still has not been determined, nor have any arrests been made. Ukrainian investigators contend that the killing was due either to his work on Interbank Currency Exchange board or to his private business dealings.

The assassination of Mr. Hetman - not the first of its kind in Ukraine - along with an ongoing problem with corruption, promoted the depiction of Ukraine as the wild, wild east of the post-Soviet era. That image was further enhanced by a report by Transparency International, a non-governmental organization that fights corruption in the business sector, which ranked Ukraine as the 16th most corrupt country of the 85 countries it had studied.

Although the Ukrainian Legal Foundation, which released the report in Ukraine in October, said corruption in Ukraine was more related to the redistribution of wealth among the power elites, the fact remained that in 1998, with the economy going nowhere, the poor suffered most.

The ongoing economic crisis, which leaves the government unable to pay workers and pensioners nearly 2 billion hrv in back wages and pensions, brought striking government workers to the city's capital several times. Most active were the coal miners, who organized a 500-kilometer (310-mile) protest march from Pavlohrad, near Dnipropetrovsk, to Kyiv in late May and early June. In Kyiv some 1,000 coal miners said they would not leave the city until they had been paid the wages and pensions owed them, some of which hadn't been paid in more than six months.

After camping on the banks of the Dnipro River for several days, they dispersed when the government agreed to a deal in which some money was released to them.

The plight of the coal miners, whose working conditions have never been very good, has drastically worsened in the last years because money budgeted for coal mine safety and upkeep rarely reaches its destination.

Deaths, cave-ins and explosions have become a common occurrence Ukrainian coal mining, and this year was no exception. On April 7, 63 mine workers perished in Donetsk after an explosion caused by a build-up of gas collapsed a tunnel at the Skachinsky coal mine. Miners blamed the government for not ensuring safe working conditions.

Foreign policy also an area of controversy

Although Ukraine's foreign policy must be seen as an island of calm compared to the turbulence of its domestic politics, there, too, disagreements and political conflict were common.

Ukraine's northern neighbor, Russia, officially agreed on the executive level that Ukraine is an independent, sovereign state via the Ukraine-Russia Treaty on Friendship, Cooperation and Partnership signed in May 1997 by Presidents Kuchma and Boris Yeltsin. On the legislative level, however, there was no such agreement.

Russia's State Duma failed to ratify the treaty, which the Ukrainian Parliament approved on January 18, and its leadership called for Kyiv's reunion with Moscow several times.

On March 3, a State Duma legislative committee hearing on the treaty turned into a fiasco when individual members and observers began calling for a return of the Ukrainian port city of Sevastopol to Russia and the enforcement of Russian minority rights in Ukraine.

Bohdan Horyn, a Ukrainian national deputy who had been invited to attend the meeting as part of a Ukrainian parliamentary delegation, called it a provocation orchestrated by the chairman of the committee, Georgi Tikhonov, to embarrass the Ukrainian delegation. During the hearing Mr. Tikhonov presented the Ukrainian delegation a petition calling for the re-union of Ukraine and Belarus with Russia.

Several months later, on September 29, the chairman of the Russian State Duma, Gennadii Selezniov, took his turn to let Ukraine know just what he thought of sovereignty and independence for Russia's southern neighbor. Speaking at a general session of the Verkhovna Rada in Kyiv, to which he had been invited by Chairman Oleksander Tkachenko, Mr. Selezniov repeated the call for a Russia-Ukraine-Belarus union. The comments caused pandemonium on the floor of the Parliament. While democratic forces hooted and hollered in protest, Communists applauded and chanted "friendship." Mr. Selezniov's appearance was aborted.

Then, to show how little movement was taking place on ratification by the Russian State Duma of the "big treaty," Sergey Baburin, the assistant speaker of the Russian State Duma, came to Kyiv three months later to say: "I would not be ready even to say that this treaty is being prepared in the political kitchen. Rather it has been placed in the refrigerator." He also called for union among the three Eastern Slavic countries.

Relations between the leaders of the two countries were more cordial by most appearances than relations between legislators, although the matter of turbines for Iran and a failed rocket launch did cause some friction.

Presidents Kuchma and Yeltsin met outside Moscow at the Russian presidential dacha on September 18-19 to discuss the reasons for the drastic reduction in trade between the two countries that had begun in 1997, as well as the financial and monetary crisis the two countries were experiencing.

President Kuchma returned from Moscow heartened that President Yeltsin had agreed to allow Ukraine to pay in commodities the massive oil and gas debt the cash-strapped country owed Russia.

The two leaders, at the official level at least, did not discuss the sale of Ukrainian turbines for a nuclear reactor that Russia was building in the Iranian city of Bushehr, an issue that for all practical purposes was resolved when U.S. Secretary of State Madeleine K. Albright visited Kyiv on March 6.

Ukraine had come under increasing pressure from the United States to withhold the sale of a giant turbine built at the Kharkiv Turboatom factory or face denial of the second half of a U.S. foreign aid grant worth nearly $100 million.

At issue was the $800 million that the contract was worth to Russia, which it badly needed to bolster a quickly collapsing economy. Ukraine, with its complete dependence on Russian oil and gas, did not want to upset Moscow, but neither did it want to be denied U.S. foreign aid.

Ukraine's decision to halt the sale of the Kharkiv turbine to Russia was announced by Foreign Affairs Minister Hennadii Udovenko while the U.S. secretary of state was in Kyiv.

In return, Washington allowed Ukraine accession to the Missile Technology Control Regime treaty, which allows Ukraine to become a player in the satellite launch industry, and signed an agreement with Ukraine on the peaceful use of nuclear technologies, which Ukraine hopes will encourage U.S firms to bid on revamping Ukraine's nuclear power industry. Ms. Albright also promised that the U.S would support science and technology research in Ukraine, and coordinate U.S. investment for factories like Turboatom.

Less than two months later Secretary of State Albright cleared the way for Ukraine to receive the rest of the $225 million that had been earmarked in the 1998 U.S. foreign aid budget by telling the U.S. Congress that Ukraine had made "significant progress" in resolving disputes with U.S. investors.

Now with international standing to take part in satellite launches, Ukraine looked optimistically to the September 9 target date for the launch of its powerful Zenit rocket, which would boost into orbit 12 communication satellites owned by a U.S. consortium called Global Star in the first phase of a multi-million dollar project.

The attempt failed dramatically when a computer system malfunction in the fifth minute of launch ordered the Zenit rocket to self-destruct.

Russia and Ukraine immediately blamed each other for the failure. The Russian Space Agency stated that "the launch was considered Ukraine's responsibility," while the Ukrainian government television station blamed the Russian manufacturer of the second-stage booster rocket. Some in Ukraine even suggested that the explosion was a deliberate Russian action to derail Ukraine's international space launch program, which includes participation in the development of an ocean-based launch platform in the Atlantic Ocean called Sea Launch.

However, the conspiracy theories fell away at the beginning of November when Russia admitted that a Russian-produced computer control system defect had caused the explosion. On November 8 Ukraine's national security chief said the destruction of the Zenit rocket was not due to sabotage.

In another project involving Ukraine and Russia, 11 countries from the Black Sea basin and NATO, including the U.S., took part in joint peacekeeping exercises called Sea Breeze '98 near the cities of Odesa and Mariupol. This year, unlike 1997 when Moscow strenuously criticized the military exercises because the mock scenario seemed to be targeted at Russia, the source of criticism came from within the Verkhovna Rada. Leftist forces attempted to quash the exercises, which began on October 26, by introducing a resolution that called the exercises a military threat to Ukraine. But the measure was voted down by 31 votes after heated debate.

NATO, which funds the yearly Sea Breeze exercises under its Partnership for Peace program, continued to develop relations with Ukraine. On November 4 President Kuchma approved a specific plan of cooperation with NATO through the year 2000, which was developed by his National Security and Defense Council and presented to NATO officials in Brussels by the council's secretary, Volodymyr Horbulin.

Mr. Horbulin said after his return from Brussels that the intensification of NATO-Ukraine relations is a "momentous event" and reported that the program was "well received" by NATO ambassadors. He said there had been no talk whatsoever of Ukraine's possible membership in the defense alliance.

The U.S. also continued to develop its relations with Ukraine in 1998. Vice-President Al Gore traveled to Kyiv in July to review the state of the strategic partnership between the two countries and to attend the second plenary session of the Kuchma-Gore Commission, formed in 1996 to develop the partnership. On July 23, he became the highest ranking U.S. government official to ever visit Chornobyl.

New foreign policy chief takes charge

Borys Tarasyuk, a Ukrainian career diplomat with a pro-U.S. and a pro-NATO attitude, took over the reins of Ukraine's foreign policy in 1998, when he was appointed Minister of Foreign Affairs by President Kuchma on April 17. In his previous post as ambassador to Belgium and the head of the Ukrainian representation at NATO Headquarters in Brussels, Mr. Tarasyuk directed the development of Ukraine's relations with NATO.

He replaced Minister Udovenko, who announced his resignation on April 9, as required by law, to take a seat in the Ukrainian Parliament. Mr. Udovenko, a highly respected diplomat who had been elected president of the United Nations General Assembly in September 1997 continued in that position until the end of his one-year term.

Amid the rancor and turmoil of political life, Ukrainians, as always, took time to commemorate their holidays.

This year, in addition to celebrations of the seventh anniversary of Ukrainian independence, and the now routine demonstrations associated with the October Revolution commemorations, Ukraine remembered the Ukrainian National Republic and its sister Western Ukrainian National Republic 80 years after they were proclaimed, respectively, in January and November of 1918.

Ukraine also officially commemorated the 65th anniversary of the Great Famine of 1932-1933. On November 26 President Kuchma proclaimed the fourth Saturday of each November as National Day of Remembrance of Famine Victims. This year the Famine was commemorated on November 28 with a solemn requiem concert by Ukraine's National Symphony at the Kyiv Philharmonic Symphony Hall.

With all of its political and social divisions, the one event, albeit a tragic one, that absolutely brought this country of 50.9 million people together, and which had no political ramifications, was the disastrous flooding in the Zakarpattia region that took the lives of 16 individuals and left thousands either injured or homeless.

Huge amounts of aid from all the oblasts of Ukraine and international donations from nearly a dozen countries helped to clothe and feed the estimated 24,000 individuals whose homes were destroyed after some 20 dams broke and the rivers Tysa, Latorytsi and Borzhavy overflowed their banks due to torrential rains on November 4-5.

The towns of Mukachiv, Khust and Tiachiv, as well as 118 surrounding villages were nearly submerged by water. Power lines were downed, and highways and bridges were swept away, leaving the region nearly cut off from the outside world.

Ukrainian National Guardsmen and border guards, as well as aid from Hungary, which borders the region, were first to arrive. President Kuchma toured the area on November 7 and earmarked $10 million hrv from Ukraine's budget for emergency relief aid. A swell of material support followed from Ukraine and the world.

While charitable and non-governmental aid organizations continued to work and expand in Ukraine in 1998, at least one such organization decided that it was time to slowly ease out.

On November 11, billionaire philanthropist George Soros announced he was closing the International Renaissance Foundation in Kyiv. The Ukrainian branch of Mr. Soros's Open Society Institute will begin to reduce its activities in 1999 with a 50 percent cut in its budget of $10 million and is expected to be out of Ukraine by 2010. Mr. Soros, who admitted while in Kyiv to announce the cuts that they are in part due to the heavy financial losses he incurred as a result of the Asian and Russian financial crises, also said that he was disappointed in Ukraine's reform efforts.

"I have given up on Ukraine. Ukraine lacks political will and any kind of leadership," said Mr. Soros at a Kyiv seminar after his decision was announced.

While Mr. Soros was beginning drastic cutbacks, other organizations were moving forward. The Eurasia Foundation announced on November 18, a week after the Soros decision, that in celebration of its fifth anniversary in Ukraine it was beginning a new initiative aimed at supporting the development of small business in Ukraine's smaller towns and cities.

The Eurasia Foundation, which is a grant-making organization that has supported various projects in Ukraine ranging from business development and economic education to broadcast media and the rule of law, announced that it was investing an initial $1 million into the new initiative. The foundation has disbursed a total of $18 million in loans and grants in Ukraine since the Kyiv office opened in 1993.

Copyright © The Ukrainian Weekly, December 27, 1998, No. 52, Vol. LXVI

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