2005: THE YEAR IN REVIEW

Ukraine: big expectations tempered by reality

Ukrainians had high expectations of Viktor Yushchenko, sworn in as Ukraine's president on January 22 following the tumultuous Orange Revolution. Political experts predicted that the Yushchenko presidency could not realistically deliver on the campaign promises and idealistic rhetoric pronounced on the Independence Square stage.

And, while his popularity remained high in Western nations, Mr. Yushchenko's first year in office disappointed Ukrainians on many levels. The Ukrainian economy's Gross Domestic Product plunged in 2005, while many Ukrainians complained that inflation erased any real gains in government wage and pension increases.

Promises to bring to justice those who falsified the 2004 presidential elections went unfulfilled. Those who ordered journalist Heorhii Gongadze's murder were never charged. Numerous embarrassing scandals plagued the Cabinet of Ministers, led by former Prime Minister Yulia Tymoshenko. Mr. Yushchenko filled many posts with wealthy businessmen, some of whom were accused of abusing their government posts in order to pursue selfish business interests.

Then on September 9, Mr. Yushchenko stunned the world when he announced he was firing his Cabinet of Ministers, including his partner during the Orange Revolution, Ms. Tymoshenko. His decision caused a definitive split in the Orange Revolution forces, creating a new political enemy for himself in the Yulia Tymoshenko Bloc. As a result, Mr. Yushchenko's popularity plunged even further, with some late-year polls placing his political bloc in third place for the March 26, 2006, parliamentary elections.

Relations with the Russian Federation deteriorated, largely because of direct political provocations from President Vladimir Putin. Ukraine's year-end conflict with Russia over natural gas prices became an international crisis.

While relations with Russia were strained, Ukraine's standing with the European Union (EU) improved. After visiting Moscow immediately following his inauguration, Mr. Yushchenko's second foreign destination became the Parliamentary Assembly of the Council of Europe (PACE) in Strasbourg, France, on January 25, where he declared, "We, along with the people of Europe, belong to one civilization."

In December the European Union officially granted Ukraine market economy status. The European government also sided with Ukraine in the natural gas crisis, criticizing Mr. Putin for his role and citing his policies as the main cause.

The inauguration

The new year began with a change in government ushered in by the events of the Orange Revolution. On January 5, President Leonid Kuchma accepted the resignation of his prime minister, Viktor Yanukovych, and appointed Mykola Azarov as interim prime minister. On January 10, Ukraine's Central Election Commission (CEC) officially declared Viktor Yushchenko as Ukraine's third president. The final vote count was 52 percent for Mr. Yushchenko compared to 44 percent for his opponent, Mr. Yanukovych. Thirteen CEC members voted in favor of the ruling, while two abstained.

Mr. Yushchenko took the oath of office on January 23, in the Verkhovna Rada's session hall. He then rode to Independence Square, where he delivered his inauguration speech in which he sought to heal the rifts that had divided Ukrainians during the presidential election campaign.

"I vow that everyone will be able to teach their children in the language of their parents," Mr. Yushchenko said. "Everyone will be able to pray in their own house of worship. Everyone will be guaranteed the right to hold their own views. We will be able to listen to one another because we will have freedom of expression and an independent press."

The president immediately replaced the Presidential Administration created by former President Kuchma in 1996 with the Presidential Secretariat. He selected campaign chief Oleksander Zinchenko as the state secretary, or his chief of staff.

The Secretariat would focus on taking Ukraine's economy out of the shadows, fighting corruption and EU integration, Mr. Zinchenko said, estimating 500 employees as compared to 2,000 in the former presidential administration. "This is a colossal intellectual challenge to society," Mr. Zinchenko said. "The work of the Secretariat lies in the coordination of daily political work."

Also in late January, Mr. Yushchenko selected close friend and wealthy businessman Petro Poroshenko as National Security and Defense Council chief and tapped Oleksander Tretiakov, who served as treasurer of Mr. Yushchenko's election campaign, as his first aide.

The Cabinet of Ministers

On January 24 Mr. Yushchenko named Yulia Tymoshenko as acting prime minister (subject to the Verkhovna Rada's approval).

Ms. Tymoshenko immediately pledged to make European Union (EU) membership a priority, as well as to maintain stable relations with Russia. However, Russian officials throughout the year made apparent their distaste for her politics. On January 26, Russia's chief prosecutor Vladimir Ustinov said his office would continue to investigate allegations that Ms. Tymoshenko bribed Russian military officers to favor her business operations.

On February 4 the Verkhovna Rada approved Ms. Tymoshenko as Ukraine's prime minister by a 373-0 vote. The next day, Ms. Tymoshenko led a meeting of Ukraine's new Cabinet of Ministers, which consisted of 15 members of the Our Ukraine coalition, three members of the Socialist Party, one member of the Party of Industrialists and Entrepreneurs and one Yulia Tymoshenko Bloc member.

Mr. Yushchenko selected Anatolii Kinakh of the Party of Industrialists and Entrepreneurs as first vice prime minister, Mykola Tomenko of the Our Ukraine bloc as vice prime minister for humanitarian affairs, Roman Bezsmertnyi of Our Ukraine as vice prime minister for administrative and territorial reform and Oleh Rybachuk of Our Ukraine as vice prime minister for European integration.

Also selected were U.S.-born Roman Zvarych of Our Ukraine as minister of justice; Borys Tarasyuk, minister of foreign affairs; Serhii Teriokhin, minister of the economy; Viktor Pynzenyk, minister of finance; Ivan Plachkov, minister of fuel and energy, Anatolii Hrytsenko, minister of defense; and Oleksander Turchynov, chief of the Security Service of Ukraine (SBU).

The most surprising selection was Yurii Lutsenko of the Socialist Party as minister of internal affairs, the agency employing about half a million workers, many of which are Ukraine's policemen. Mr. Lutsenko had no experience in law enforcement and prior to his appointment, he mainly led anti-government street protests, beginning with the "Ukraine Without Kuchma" movement that started in 2000. During the Orange Revolution, he was referred to as the "field commander" for coordinating crowd movements.

Among Mr. Lutsenko's first decisions as minister was firing Lt. Gen. Serhii Popkov from his position as commander of Internal Affairs Ministry troops. According to Ukrainian and foreign media reports, Lt. Gen. Popkov was on the verge of bringing special-task police troops to Kyiv in late December 2004 to suppress the Orange Revolution. He denied the allegations, saying the troops were on battle alert but never left their deployment units.

The more controversial selections to the Cabinet involved Yevhen Chervonenko of the Our Ukraine bloc, who was selected as minister of transportation and communications. Mr. Chervonenko has ownership in Orlan, a business conglomerate that includes Ukraine's largest international trucking company. His appointment presented a potential conflict of interest between private business interests and government service. Another controversial appointment was David Zhvania as minister of emergency situations. The wealthy businessman owns control of the Brinkford Cons Ltd., a company that conducts business in energy, ship-building, insurance and finance. Businessman Volodymyr Shandra, who served as board chairman of the Slavuta Ruberoid factory, was named minister of industrial policy.

Less than three weeks after Mr. Yushchenko appointed his new Cabinet of Ministers, a scandal erupted surrounding Justice Minister Zvarych. It was the first in what eventually became myriad controversies plaguing numerous Cabinet ministers and top-ranking officials in Mr. Yushchenko's government who had direct conflicts of interest between their government posts and business affairs.

Following a February 16 decree by the Cabinet of Ministers to ban oil re-exportation, Mr. Zvarych threatened to resign his post. He was the lone minister to oppose the ban, which was sought because Ukraine faced a deficit of oil and petroleum materials for agricultural use. The decree stated the government needed to guarantee the stability of Ukraine's oil-producing industries so that they adequately supply agricultural enterprises during the spring farming season.

Soon afterwards it was revealed that Mr. Zvarych's wife, Svitlana, is an assistant manager of Oil Transit, an oil re-exporting firm that buys oil from Russia and resells it to other European nations. It then appeared Mr. Zvarych's threat was an attempt to pressure the Yushchenko government to drop the ban in order to defend his wife's ability to conduct business.

In their defense, Mrs. Zvarych claimed she had no choice but to sell oil to National Deputy Ihor Yeremieyev, a major shareholder in the Halychyna oil refinery whom she accused of being involved in corrupt tax schemes. Mr. Zvarych was going to resign in order to prevent the Yushchenko government from becoming linked with Mr. Yeremieyev's corrupt schemes, she said.

After Mr. Yushchenko announced that he wouldn't sign any ban on oil re-exportation, Mr. Zvarych withdrew his threat of resignation on February 21.

Just two months later, Mr. Zvarych became the center of scandal that proved far more embarrassing for himself and the Yushchenko administration. Ukrayinska Pravda's Washington correspondent Luba Shara broke the story on April 14 that Mr. Zvarych did not have a master's degree in philosophy from Columbia University as he had been claiming in his official biographies for eight years.

The Weekly confirmed that Mr. Zvarych did study at Columbia University between fall 1976 and spring 1978, but he never completed a master's degree.

Mr. Zvarych also had said he was an assistant professor at Columbia University between 1981 and 1983, a claim he made in his biographical submissions to Who's Who in Ukraine, an annual directory published by Kyiv Informatsia Servis. He also said he was a professor at New York University for seven years, between 1983 and 1991.

New York University spokesman Josh Taylor said Mr. Zvarych was a "part-time lecturer at NYU's School of Continuing and Professional Studies, teaching sections of a social science class."

In an exclusive interview with The Weekly on April 28, Mr. Zvarych acknowledged that he never earned a master's degree from Columbia University. Instead, he maintained that he had some kind of academic degree "equivalent to that of a master's," he said. He reasserted that claim at a May 10 press conference.

In the interview with The Weekly, Mr. Zvarych corrected his own claim that he was an assistant professor at Columbia University, which is a tenure-track position that requires completion of a doctorate.

"I didn't have a title," he said. "I was an assistant. I had the possibility for seven or eight years of delivering lectures. This wasn't paid work. This was simply scholarly satisfaction that I gained for the scholarly preparation at Columbia University for my goal, which was the doctorate." Mr. Zvarych also acknowledged he was a "lecturer" at New York University, not a professor. However, he stressed that all his students referred to him as a professor and that all his letters from the university were addressed to "Prof. Roman Zvarych."

In the Yushchenko government's biggest scandal, the firing of his Cabinet of Ministers on September 8, Mr. Zvarych's name surfaced yet again.

Ruslan Boichenko, a Justice Ministry official in the Kryvyi Rih oblast, accused Mr. Zvarych of calling him and demanding that he execute orders to install court-appointed managers who represented the Pryvat Group, according to Ivan Lozowy, a political expert based in Kyiv.

Mr. Zvarych was allegedly acting on behalf of Ms. Tymoshenko, accused by Mr. Yushchenko of trying to swing control of the Nikopol Ferroalloy Plant to the Pryvat Group, which is led by Dnipropetrovsk billionaire Ihor Kolomoyskyi. When he refused to carry out Mr. Zvarych's orders, Mr. Boichenko alleged that the Dnipropetrovsk Oblast Judicial Administration sent for him and forced him to sign a resignation letter.

Tymoshenko as prime minister

In commencing her leadership as Ukraine's prime minister, Ms. Tymoshenko outlined a five-year government program to combat corruption, separate business from government, raise living standards and lead Ukraine toward EU membership. Specific proposals included ensuring access to free medical care, protecting intellectual property rights, converting the military into a full contract service by 2010 and reforming Ukraine's judicial system.

On February 8 Ms. Tymoshenko began to reveal her bold ambitions for wide-scale re-privatization that Mr. Yushchenko would later blame for scaring off investors and prompting economic decline. She said the Procurator General's Office was examining all of Ukraine's past privatization deals.

Re-privatization became the first evidence of a rift between the policies of Mr. Yushchenko and Ms. Tymoshenko, who demonstrated a more radical streak. On February 15 President Yushchenko told a meeting of investors in Kyiv that his government would limit its review of the privatization of 30 to 40 enterprises. He said no mass re-privatization would take place in Ukraine, stressing that between 90 and 98 percent of businesses were privatized in accordance with the law.

The next day, Prime Minister Tymoshenko contradicted Mr. Yushchenko and made her now-infamous declaration that the Procurator General's Office would challenge in court the privatization of nearly 3,000 businesses.

Her statement sent shock waves not only throughout Ukraine's business community, but among entrepreneurs throughout the world who began doubting the stability of Ukraine's investment climate. Mr. Yushchenko repeatedly referred to this statement when explaining why Ukraine's GDP growth was so weak this year.

On March 10 Ms. Tymoshenko said the government was considering a proposal requiring owners of key "strategic" enterprises unjustly privatized without tenders to pay the state the balance between the real value and the prices they paid during re-privatization. A week later, Mr. Yushchenko told Kommersant-Daily that the government would offer to allow the current owners of unjustly privatized companies to pay an additional sum to the government to close the gap between purchase prices and "real market price." If the owners rejected this plan, the government would propose their companies for new tenders to find new buyers.

On May 18 Ms. Tymoshenko revealed her frustration with First Vice Prime Minister Kinakh after he accused her government of drawing up a "black list" of 29 Ukrainian companies targeted for re-privatization. She insisted that such a black list had never existed and was never approved by government officials, and the mere suggestion of such a list "reeked of corruption." By this time, Ms. Tymoshenko's antipathy toward Mr. Poroshenko had also had become apparent.

In August Forbes Magazine named Ms. Tymoshenko the third most powerful woman in the world, following U.S. Secretary of State Condoleezza Rice and Chinese Vice Premier of Health Wu Yi.

After the September 8 dismissal of the Tymoshenko Cabinet, newly appointed Presidential Secretariat Chair Rybachuk said on September 30 that Ms. Tymoshenko's style of management was a "one-woman show." "The meetings of the Cabinet last 12 to 14 hours," Mr. Rybachuk told the Kommersant newspaper. "But she was the only person to make decisions there, no matter who attended the meetings."

2005 budget passed

On March 25 the Verkhovna Rada approved Ukraine's budget without any opposition - among Ms. Tymoshenko's highlights during her brief tenure as prime minister.

The 2005 budget was widely characterized as the most socially oriented since Ukraine's independence, including higher allocations for pensions, government salaries and financial aid for new mothers. President Yushchenko signed it into law on March 30.

Not since Ukraine's independence had a budget been approved without opposition, garnering even the unanimous support of the Communist Party's national deputies who spent two sessions attacking the budget. It was the significant hikes in social spending that prompted politicians to avoid voting against it, political observers said.

More than 80 percent of the budget's expenditures were socially oriented (compared to 49 percent in the 2004 budget). Critics accused the Yushchenko administration of doling out money in order to gain popularity, particularly for the 2006 parliamentary elections.

Among the social improvements was a 17 percent increase in minimum monthly pensions to $63 a month and a 27 percent increase in the minimum monthly wage for government workers to $63 a month, said Finance Minister Pynzenyk. Middle-level salaries, such as those paid to teachers, doctors and scientists, improved by 57 percent. The budget also increased financial aid for childbirths by 12 times to $1,619 per child, aid for single mothers fourfold, aid to disabled children by 4.5 times and aid to orphans by 5.2 times to $89 per child each month, he said.

Spending to support the Ukrainian language increased by 50 percent, Mr. Pynzenyk said, while spending to support the Ukrainian diaspora increased by 11 times. Diaspora projects would include opening Ukrainian schools in the Transdniester region of Moldova, where more than 200,000 ethnic Ukrainians live, officials said.

In order to finance the $22 billion in expenditures, an 18.3 percent rise from the prior year budget, the Cabinet of Ministers targeted perks enjoyed by Ukraine's entrepreneurs and industrialists. Such perks included 11 free enterprise zones that had minimal results in stimulating investment and where businesses didn't pay taxes, Mr. Pynzenyk said. He also pointed to 15 technology parks that don't pay import duties, value-added taxes or taxes on profit.

Ms. Tymoshenko's opponents warned that the higher salaries and pensions would trigger inflation, a concern that proved legitimate during the remainder of the year. Ms. Tymoshenko had insisted inflation wouldn't exceed more than 9 percent.

Battling corruption

Meeting with representatives of several multinational companies in Davos, Switzerland, on January 30, Mr. Yushchenko discussed policies aimed at reducing corruption in Ukraine and separating business from politics. Businessmen entering the government would have to declare not only their own income and expenditures, but also that of their close relatives. They would also have to refrain from business activity during their government service, he said.

On February 4 Ms. Tymoshenko told the Verkhovna Rada her government was creating comprehensive and systematic measures to deal with corruption, which "has swept over all of Ukrainian society. But I think we will get rid of it very easily," she claimed. Her government would give top priority to "exterminating the vertical of corruption," in which money is collected by low-ranking officials and passed up to higher-ranking officials, she said.

On February 8 Mr. Yushchenko presented the newly appointed SBU Chief Turchynov, publicly instructing him to focus on fighting corruption and crime in the government, beginning with the Customs Service and police. "My goal is to have specific results by December," Mr. Yushchenko said. "Begin with three or four cases that are known to all the people. I'm sure that several successful investigations of public funds will help prevent thousands of wrongdoings."

Mr. Turchynov pledged that he would bring to "a logical end" all high-profile investigations that were either covered up or left unsolved. "There will be no cases that will be dropped or that will be impossible to investigate," he said.

On February 12 the Cabinet of Ministers decided to create a list of the prior Cabinet's resolutions that "illegally leased the best land resources in Crimea, around Kyiv and in all of Ukraine for 49 years to absolutely specific people from the former president's entourage," Ms. Tymoshenko said. She said two Cabinet resolutions had already been canceled on leasing 114 hectares of forest near Kyiv and 11 hectares of land near Sevastopol. "Both resolutions were adopted in favor of structures [controlled by former president Kuchma's] son-in-law, Viktor Pinchuk," she said.

The Cabinet also decided at the meeting to ratify the civil convention on the fight against corruption, which would start the practical work on rooting out corruption, Ms. Tymoshenko said.

On February 26 the Cabinet of Ministers voted to revoke Mr. Kuchma's extensive government benefits as a former president.

Hennadii Moskal, the deputy chief of Ukraine's Internal Affairs Ministry, announced that criminal charges were filed against 12 former deputy heads of oblast administrations and 58 heads of district administrations. All of the suspects were accused of bribe-taking and "exceeding their authority," Interfax reported on March 22.

Mr. Moskal said his office in March indicted Ihor Bakai, the head of Mr. Kuchma's property office, also known as the State Administration of Affairs, on seven criminal charges, including defrauding the state.

By the time the indictment came, Mr. Bakai had already fled to Russia. Among his egregious crimes, Mr. Bakai allegedly transferred ownership of a government-owned multi-million dollar dwelling used by Mr. Kuchma as his winter dacha to an offshore company after Mr. Yushchenko won election. In addition to doing Mr. Kuchma's bidding, Mr. Bakai allegedly attempted to steal plenty of property on behalf of Russian leaders.

Eventually, Mr. Putin granted Mr. Bakai Russian citizenship through a special decree for his contributions "on behalf of Russian culture and art."

On March 23 Deputy Procurator General Viktor Shokin claimed that his office would prosecute at least two members of the Central Election Commission (CEC) for their role in falsifying votes. He also raised the possibility that former CEC Chair Serhii Kivalov would be held responsible. As of March 9 there were 255 alleged cases of criminal acts committed in relation to the presidential elections, according to the Procurator General's office.

The Procurator General's Office detained its first high-profile suspect on April 6 when it summoned Donetsk Oblast Council Chair Borys Kolesnykov for questioning. Although the reason for the summons was his role in organizing separatist activity during the Orange Revolution, the office said it was holding him on criminal charges of extortion and racketeering. Mr. Kolesnykov allegedly was behind a series of violent threats against a Donetsk department store owner, including two bombings and a spray of machine gun fire, in order to force him to sell his shares at a discount. Mr. Kolesnykov is a business partner of billionaire Rynat Akhmetov and close political ally of Mr. Yanukovych, who immediately labeled the arrest as "politically motivated."

The Procurator General charged Mr. Kolesnykov with extortion accompanied by a threat of murder on April 11. Mr. Yushchenko vowed not to intervene in Mr. Kolesnykov's prosecution, and Ms. Tymoshenko declared that all those guilty of "robbing the country must be punished."

The Ministry of Internal Affairs opened a criminal case in late April against Volodymyr Scherban, the former head of the Sumy Oblast Administration, charging him with extortion. Mr. Scherban "forced the managers of a number of enterprises to conduct transactions involving state property," said Internal Affairs Ministry spokeswoman Inna Kysil. He demanded that controlling stakes in these businesses be sold to companies controlled by him, she said.

The Ministry of Internal Affairs next arrested former Zakarpattia Oblast Chair Ivan Rizak on May 13. A member of the Social Democratic Party - United (SDPU), he was charged with driving University of Uzhhorod Dean Volodymyr Slyvka to suicide in May 2004.

Authorities also accused Mr. Rizak of engaging in widespread corruption in the Zakarpattia Oblast, including extorting protection money from local business on behalf of SDPU. During the April 2004 mayoral elections in Mukachiv, Mr. Rizak ordered Internal Affairs Ministry special forces to assault Our Ukraine deputies and organize massive election fraud, Ukrainian authorities confirmed.

Late in the year, U.S. authorities arrested Mr. Scherban in Florida.

The Ministry of Internal Affairs summoned Mr. Yanukovych to appear on May 30 for questioning regarding alleged illegal government donations of about $950,000 for the overhaul of the Donetsk airport. Mr. Yanukovych didn't appear, claiming he didn't receive a proper subpoena.

Earlier in May, Ukrainian prosecutors questioned Mr. Yanukovych over the business dealings of Mr. Kolesnykov, an incident he described as "political persecution." He finally showed up for questioning on June 6.

In mid-May, prosecutors re-opened a criminal case against National Deputy Nestor Shufrych for buying votes to win a seat in the 2002 elections. A second case accused Mr. Shufrych of stealing $11.1 million in government funds for a gas-exploration project.

On July 26, the Procurator General's Office filed criminal charges against Dnipropetrovsk Oblast Chairman Mykola Shvets that included abusing enormous sums of government funds for personal gain during his tenure as oblast administration chair between 1999 and 2003. By the time the charges were filed, Mr. Shvets had left Ukraine.

Efforts to combat corruption came to a halt in August. The Kyiv Appellate Court released Donetsk Oblast Council Chair Kolesnykov on his own recognizance on August 2. Mr. Kolesnykov soon resumed his job as oblast council chair. Mr. Rizak, a former oblast chair, was released soon after Mr. Kolesnykov.

In late September, former SBU Chief Turchynov informed Radio Free Europe/Radio Liberty that President Yushchenko had ordered a halt to his agency's investigations into allegedly fraudulent practices in transporting Turkmen gas into Ukraine by two companies, EuralTransGas and RosUkrEnergo. Mr. Turchynov said that Mr. Yushchenko told him to stop "persecuting my men" and that the investigation of RosUkrEnergo was "creating a conflict with Russian President Putin."

In addition, former Naftohaz Chair Yurii Boiko was interrogated twice by the Security Service and about to be arrested when Mr. Yushchenko ordered him left alone, Mr. Turchynov said.

The first 100 days

In evaluating his first 100 days in office, Mr. Yushchenko said on April 26 that freedom of speech and independent media had begun to become a reality in Ukraine. He noted that 70 percent of the 2005 government budget was "consumed by the poorest part of the population." Mr. Yushchenko also pointed out that the first group of Ukrainian peacekeepers returned from Iraq in March and the remainder would leave by year's end. He noted that the term of military service was cut to 18 months in the naval forces and 12 months for infantry troops. He added that Ukraine has signed accords on $2.6 billion worth of investment credits, which was "more than during the past five years taken together."

"We haven't betrayed any of the maidan's slogans," Mr. Yushchenko said in assessing his first 100 days. "Today I can approach any member of society - the veteran, the child, anybody - and say that we worked for you."

Mr. Yushchenko has remained Ukraine's most popular politician with a 60 percent approval rating, according to a recent poll by the Democratic Initiatives Foundation. About 47 percent of Ukrainians believed the nation was headed in the right direction. Only 21 percent believed the country was not headed in the right direction, according to the poll.

Another poll found that 60 percent of respondents said the first 100 days of the Yushchenko presidency were "generally positive." According to the poll conducted by the Kyiv International Sociology Institute, 31 percent said their attitude toward Mr. Yushchenko was "partly positive and party negative," while 16 percent said they disapproved of his performance. More than 2,000 people in Ukraine were surveyed for the poll, which was taken after May 3, Mr. Yushchenko's 100th day in office.

Mr. Yushchenko's popularity had reached its peak around the time of his 100th day in office. Almost immediately, beginning with the Russian oil crisis in mid-May, Mr. Yushchenko's government began to stop functioning effectively as massive conflicts arose. A serious of scandals and conflicts, particularly with Ms. Tymoshenko, eventually led him to the decision to dismiss his government and advisors. These political failures, coupled with economic woes, caused his popularity to plummet by the year's end.

Economic decline

By mid-August, the International Monetary Fund confirmed what was widely suspected by Ukrainian observers: Ukraine's economy had plunged into decline during the Yushchenko administration. The most serious problem was inflation, which was eliminating any of the improvements in real government wages provided by the 2005 budget.

Inflation in June, for example, increased 14.4 percent from the same period in 2004, reported Sigma Bleyzer, a Kyiv investment bank.

During the first half of 2005, cumulative GDP rose 4 percent from the same period last year, compared with 12.7 percent growth in the corresponding prior year period.

The Ukrainian economy grew 2.8 percent in the first eight months of 2005 compared with 13.6 percent in the same period a year earlier, it was later noted by Prime Minister Yurii Yekhanurov, who became the new prime minister on September 22.

Yushchenko-Tymoshenko rift

The crisis involving Russian oil prices drove the first definite wedge between Mr. Yushchenko and Ms. Tymoshenko. The president criticized the way the prime minister dealt with the Russians and urged a more moderate approach in dealing with the higher prices, including establishing a "more clear position" on fuel price controls.

On May 18 Mr. Yushchenko issued a presidential order criticizing the way the Cabinet of Ministers, not Russian oil entrepreneurs, behaved during the crisis. "In May this year, a sharp deficit in high-octane grades of gasoline arose in the domestic market of fuel products," the order stated. "This crisis arose because the Cabinet of Ministers, in its price-setting, excessively regulated the gas and fuel market."

Regulating prices on the gasoline market doesn't conform to free-market principles, Mr. Yushchenko said in the order, forbidding similar tactics in the future.

At a May 19 meeting with the Russian oil executives, Mr. Yushchenko allegedly lost his temper with Ms. Tymoshenko, suggesting that she resign.

Dzerkalo Tyzhnia, Ukraine's weekly analytical newspaper, confirmed with four conference participants the conflict's details as revealed by a trusted confidant of Ms. Tymoshenko's.

When the meeting began, Ms. Tymoshenko immediately told those present that she disagreed with the first part of Mr. Yushchenko's order in which he said the government's response to the crisis was not market-oriented. He then apologized to the Russian oil executives that the Ukrainian government did not allow them to conduct business.

It was at this point that Mr. Yushchenko allegedly said, "Ukraine's government is the worst in Europe and he regrets selecting Ms. Tymoshenko to her position," according to the confidant. He then allegedly suggested that she join the Social Democratic Party - United and resign. (The SDPU is a clan party that serves the business interests of its members.)

An anonymous source in President Yushchenko's camp offered a different version. The Ukrainian president reportedly called upon the Russians to conduct themselves as business partners and to refrain from organizing a fuel crisis every time Ukraine's sowing season begins.

Afterwards, Ms. Tymoshenko said her relations with the president were warm and friendly and she was convinced that no one could ruin their relationship. "We are one team that came to power seriously and for a long time," she said. "We feel an immense responsibility before the people who brought us to power, who are hoping and counting on us. We will never betray their hopes."

DAI dissolved

In a July 18 meeting with top Ministry of Internal Affairs officials, Mr. Yushchenko announced he would sign a presidential order the next day dissolving Ukraine's notorious traffic police known as the State Traffic Inspection (known by its Ukrainian acronym as DAI). It remains inefficient and corrupt, he declared.

"I have warned the ministers three times - if DAI [officers] continue hiding in bushes [to ambush cars in speed traps], there will be no DAI in this country," he said. The president's decision stunned most Ukrainians, including Minister of Internal Affairs Lutsenko, who admitted he hadn't expected such radical steps.

The ministry announced it would split DAI's 23,000 officers into two divisions: the Traffic Security Service and the Patrol Service under its jurisdiction. The Traffic Security Service would be in charge of regulating traffic, dealing with traffic jams, registering cars, issuing license plates, administering driving tests and providing escort services to Ukraine's president, prime minister and Verkhovna Rada chairman, said Hennadii Hrebniov, the chair of the Office of Preventive Work in the State Traffic Inspection. The Patrol Service would focus on monitoring civil order on roads and sidewalks, patrolling designated territories and preventing criminal activity.

Soon after the DAI's elimination, government statistics confirmed that traffic accidents rose sharply as Ukrainian drivers took more risks on the road and became more reckless.

Andrii Yushchenko scandal

Perhaps the last thing President Yushchenko needed was a scandal that involved his family. Yet, in July, the reports of his son Andrii's alleged luxurious lifestyle involved expensive cars and restaurants dominated Ukrainian society.

Most Westerners didn't see the big deal in the president's 19-year-old son living it up in Ukraine's capital. However, in light of President Yushchenko's oft-repeated vows that "these hands never stole anything," Ukrainians were wondering how his son could afford a $160,000 BMW M6 and a Vertu cell phone that costs at least $5,800 if the president's salary is a mere $56,160 annually, as reported by the Ukrayinska Pravda website.

The news company also revealed that Andrii Yushchenko was living in a 200-square-meter apartment, enormous by Kyiv standards and incredibly expensive.

In his defense, presidential spokeswoman Iryna Heraschenko said Andrii was renting the car with money earned from a job at a consulting firm. But without a college degree and only part-time employment (Andrii is a student at Shevchenko State University in Kyiv), the president's son could not possibly earn more than $600 a month, an extreme salary in and of itself, Ukrayinska Pravda reported.

The probes into his son's lifestyle caused President Yushchenko to lose his temper with reporters at a July 25 press conference that took place on a particularly hot, humid day after he had just spent a grueling eight-hour session with the Cabinet of Ministers. The incident shocked reporters and average Ukrainians alike, revealing a side to Mr. Yushchenko that most Ukrainians weren't privy to.

When Ukrayinska Pravda reporter Serhii Leschenko asked the president whether it was ethical for his son to be living such a lifestyle, Mr. Yushchenko responded, "Conduct yourself as a polite journalist, not like a hired killer."

When describing how he advised his son to deal with journalists who were probing his spending habits at restaurants, President Yushchenko said he told him: "Pay the check in front of the journalist's 'morda' (mug) and then to court."

Ultimately, media analysts said the incident was a positive sign of Ukraine's flourishing democracy under President Yushchenko. During the Kuchma era, most reporters would have avoided posing such questions to the president out of fear of reprisals. And though the statements from the president's press office didn't adequately explain how Andrii Yushchenko could afford his luxuries, at least they provided a response without an attempt at denial or without entirely concealing the affair. Eventually, President Yushchenko called Mr. Leschenko, apologized and offered a verbal handshake over the phone.

Independence Day

Ukraine's government is finally guided by social justice in its socioeconomic policies, Mr. Yushchenko told 10,000 gathered on Independence Square on August 24. "For the first time, pensioners have received a minimum pension that is equal to subsistence minimum," he said on the 14th anniversary of Ukrainian independence. "For the first time, mothers with newborn babies have received a worthy assistance from the state." Under his presidency, Mr. Yushchenko said, businessmen have for the first time showed a willingness to leave the shadow economy and pay taxes. Media freedom has become a reality in Ukraine, he added.

The Gongadze case

Suppressed throughout Mr. Kuchma's presidency, the investigation of the Gongadze murder was picked up under the Yushchenko administration. The enterprising journalist who had written articles exposing Ukrainian government corruption for the Ukrayinska Pravda website had been found murdered in November 2000.

In addressing the Parliamentary Assembly of the Council of Europe on January 25, President Yushchenko thanked its delegates for drawing attention and alarm to the Gongadze murder, vowing to provide "maximum assistance" to its investigation.

The Procurator General's Office led by Sviatoslav Piskun announced on February 16 that forensic experts from the Ministry of Health would re-examine Gongadze's body using DNA analysis, along with forensic experts from Munich, Germany. Experts from Zurich, Switzerland, conducted a separate, parallel examination.

On March 1 Mr. Yushchenko announced a breakthrough in the Gongadze case, confirming that Ukrainian police officers murdered him and that Mr. Kuchma intentionally suppressed evidence in the investigation. "The former government not only lacked the political will to solve the case," Mr. Yushchenko said. "There wasn't merely a deficit of desire. The government gave cover to the murderers. The goal was to never solve the case."

Procurator General Piskun the next day announced the arrest of two police colonels, later revealed as Valerii Kostenko and Mykola Protasov. Another suspect, Gen. Oleksii Pukach, had fled to Israel in late 2003 and was under an international search warrant. He was the former head of the external supervision department of Ukraine's Ministry of Internal Affairs. A witness, Yurii Nestorov, remained under house arrest and was wounded in late February when someone reportedly threw a grenade at him and his guard.

At a March 2 press conference, Mr. Piskun offered the first official details of what was a vicious murder. On the night of September 16, 2000, Gongadze left the home of Ukrayinska Pravda editor Olena Prytula. He approached a parked car strategically placed by the murderers who had been stalking him. Thinking it was a taxi cab, Gongadze sat in the passenger seat. The driver then told him the seat was broken and he should sit in the back seat. Once Mr. Gongadze switched seats, three police officers jumped in the back. The assailants drove beyond Kyiv, in the direction of Bila Tserkva.

"On the road, they beat him," Mr. Piskun said. "Then they brought him to their place, tied his hands, killed him, poured gasoline on his body and set it on fire." Mr. Piskun later added that Gongadze's murderers had choked him to death.

Two months after the biopsy, Mr. Gongadze's headless body was found in the Tarascha forest outside the city. Investigators still were unable to locate Gongadze's head. They believe he was shot in the head and then decapitated so the bullet could not be traced.

With the arrests, Mr. Yushchenko accomplished in one month what Mr. Kuchma had neglected to do in four and a half years. However, Mr. Yushchenko said the investigation wasn't finished. "My top goal is to get to the main point: who organized and ordered the murder?" Mr. Yushchenko said on March 1.

Mr. Piskun declined to comment on the murderers' motives and whether they were acting on a political order. When asked whether it was known who gave the policemen their orders, Mr. Piskun eerily replied, "There is such an individual."

Just two days later, former Ministry of Internal Affairs Minister Yurii Kravchenko, among the key suspects in organizing the Gongadze murder, was found dead in his suburban Kyiv home with two bullet wounds to his head.

He was scheduled to testify that very day at the Procurator General's Office. Police concluded that Mr. Kravchenko died of suicide, even releasing excerpts of a note in which he denied any involvement in the Gongadze murder and described himself as "a victim of the political intrigues of Kuchma and his entourage."

Most political experts and Ukrainian citizens doubted the official version that it was suicide. If it was, then Mr. Kravchenko failed in his first attempt in which a bullet entered his chin, said Petro Koliada, the vice minister of internal affairs. After that shot, Mr. Kravchenko had to have lifted his firearm and fired the lethal second bullet through his own temple.

National Deputy Hryhorii Omelchenko, chair of the Verkhovna Rada commission investigating the Gongadze murder, told the media on March 3 that Mr. Kravchenko was under extreme pressure and might take his own life. Mr. Omelchenko also accused Mr. Yushchenko of having made a deal with Mr. Kuchma prior to the election by allegedly granting him immunity from prosecution, a charge Mr. Yushchenko had vehemently and repeatedly denied. Mr. Kuchma said he didn't need immunity because he had done nothing wrong.

Mykola Melnychenko, Mr. Kuchma's former security officer who made more than 700 hours of alleged secret recordings of conversations between the former president and his aides, has long maintained that the order to murder Gongadze came from Messrs. Kuchma, Kravchenko, Lytvyn and Leonid Derkach, the former head of the Security Service of Ukraine.

The former president has maintained that the recordings are doctored. "Before God, before the people, I have a clear conscience," Mr. Kuchma told reporters on March 4, referring to the allegations linking him and Mr. Kravchenko to Gongadze's murder. On March 10 the former president arrived at the Procurator General's Office and gave his official testimony in the Gongadze case.

The slain journalist's mother, Lesia Gongadze, announced by March that she was suing the Procurator General's Office for failing to act in July 2000, when Mr. Gongadze wrote a letter indicating that he was being stalked and needed protection.

Mr. Piskun invited Mr. Melnychenko to come to Ukraine to testify in the Gongadze case and turn over the original recordings and devices to representatives of the SBU, the Procurator General's Office and the special parliamentary commission for examination by phonoscopic experts.

Mr. Piskun said he'd admit the recordings as evidence if an international commission established their authenticity. He said he closed a criminal case against Mr. Melnychenko for illegal eavesdropping. Even before Mr. Piskun's offer, Mr. Melnychenko made clear he didn't trust the procurator general and preferred to deal with SBU Chief Turchynov. He also requested security assurance should he return to Ukraine.

Following the arrests, progress in the Gongadze case suddenly began to stall. On March 30 Socialist Party Chair Oleksander Moroz complained Ukraine was not advancing toward democracy. "The assassination of Gongadze and the protest actions linked to it four years ago have led to the Orange Revolution," Mr. Moroz said. "Today, after the victory of the revolution, its sources have been forgotten ... There is procrastination in [the investigation of] the Gongadze case in Ukraine, and PACE should monitor the case until it is passed to court."

On August 1, the Procurator General's Office announced it divided the Gongadze investigation in two phases and that it had solved the first phase by identifying Gongadze's killers.

The second phase would seek to identify those who organized and ordered the murder, Mr. Piskun said, but critics such as Myroslava Gongadze, the journalist's widow, and National Deputy Omelchenko immediately suspected that the case was being divided in order to prosecute the killers without bringing the masterminds to justice.

After a five-year exile, Mykola Melnychenko returned to Ukraine on December 1, where he was greeted by a hoard of reporters. He provided secret testimony to the Procurator General's Office, but didn't bring any additional documents for the Gongadze investigation and made no revealing statements, other than his belief that Mr. Lytvyn was involved in the Gongadze murder because of personal reasons related to a woman.

Yushchenko meets with businessmen

More than a month after firing his Cabinet of Ministers on September 9, Mr. Yushchenko invited 30 of Ukraine's most powerful businessmen to the Presidential Secretariat on October 14 for an unprecedented four-hour meeting. It was at this meeting that he declared the now-famous words, "The Orange Revolution is over."

"I give you a guarantee that I will do everything to convince you that relations with you will change radically during the next 12 months," Mr. Yushchenko said. "Nobody will prosecute you or tire you out with inspections." He assured those he once labeled criminals during the Orange Revolution that his government will cooperate with them and protect their property rights.

"Government is supposed to, first of all, correctly relate to business, respect ownership and learn to defend this ownership," Mr. Yushchenko told the businessmen, once referred to as oligarchs because they obtained and built their enterprises largely through government connections.

Mr. Yushchenko asked the businessmen to support Ukraine's attempt to integrate with the European Union and urged them to engage in charity to address social problems, build medical institutions and restore cultural and historic monuments.

Kryvorizhstal sale

During his presidential campaign, Mr. Yushchenko vowed to nullify the privatization of Kryvorizhstal, one of Ukraine's largest industrial assets, which employs about 52,000 workers in Kryvyi Rih and produces between 20 and 30 percent of Ukraine's steel.

In June 2004 the Ukrainian government had staged a rigged auction and sold the enterprise to a business consortium involving Interpipe, a corporation owned by former President Kuchma's son-in-law Viktor Pinchuk, and System Capital Management, a company controlled by Rynat Akhmetov, the Donetsk businessman with close ties to Mr. Yanukovych.

Despite bids from foreign firms as high as $1.2 billion, the well-connected businessmen paid a bargain price of $804 million - a price Mr. Yushchenko and his allies insisted was illegal, estimating the factory's value between $4 and $5 billion.

In early February a Kyiv district court blocked the Kryvorizhstal sale by freezing its shares. During the first Cabinet of Ministers meeting on February 5, Prime Minister Tymoshenko ordered the new government to begin the process of returning Ukraine's largest steel mill to state control in order for re-privatization to begin. On February 8 Ms. Tymoshenko announced the procurator general had appealed to the Supreme Court to overturn an October 2004 decision of the High Economic Court that declared the Kryvorizhstal privatization legal.

Kyiv's Economic Court of Appeals on June 2 rejected an appeal from lawyers representing Messrs. Pinchuk and Akhmetov and endorsed the Economic Court's prior ruling that the privatization of Kryvorizhstal was illegal. The court also froze the factory's shares and banned the two businessmen's consortium, Investment-Metallurgical Union, from all dealings involving Kryvorizhstal property.

Afterwards, Mr. Pinchuk said a compromise on Kryvorizhstal from the Ukrainian government would improve Ukraine's investment climate and reassure foreign investors. He pledged that he was ready to "sacrifice something, lose something."

Ms. Tymoshenko announced on June 8 that the Ukrainian government had taken full control of Kryvorizhstal. Then, on June 18, the Cabinet of Ministers voted to hold a tender for the re-privatization of the steel mill, of which 93.07 percent of the shares would be resold.

The Investment Metallurgical Union filed a lawsuit with the European Court for Human Rights on June 21, accusing the Ukrainian government of violating the union's rights in its re-privatization bid.

Finally, on October 24, the Ukrainian government sold Kryvorizhstal for $4.8 billion to Mittal Steel Co., the world's largest steel company based in Rotterdam, Holland. The sum was five times more than what Mr. Pinchuk and Mr. Akhmetov had paid more than a year earlier.

"The transparent auction would not have been possible without the 2004 revolution," Mr. Yushchenko said in a statement released by his press office. "It demonstrated that our policy, supported on the maidan, was irreversible. Due to your steadfastness, the mill was legally returned to the state."

The $4.8 billion equaled about 6 percent of Ukraine's GDP, analysts said. It compared with $1.5 billion in foreign investment to Ukraine in all of 2004. More than $800 million earned from the sale will compensate Mr. Akhmetov and Mr. Pinchuk, said Viktor Pynzenyk, Ukraine's Finance Minister.

About $1.4 billion will enter directly into the national budget, Mr. Yekhanurov estimated. Revenues from the sale will go toward capital improvements projects for metro systems and airports, as well as increasing capitalization of government banks, Mr. Pynzenyk said.

Turmoil in Procurator General's Office

On October 14 Mr. Yushchenko fired Procurator General Sviatoslav Piskun. While offering no reasons, Presidential Secretariat Chair Rybachuk said at an October 12 news briefing that Mr. Piskun was dismissed because he stalled investigations of high-priority crimes and launched criminal cases that had obvious political implications, including a criminal case opened against close Yushchenko associate Mr. Poroshenko. He also accused Mr. Piskun of repeatedly divulging investigation secrets, allowing criminals to flee arrest.

Yulia Tymoshenko Bloc members rallied behind Mr. Piskun, accusing Mr. Yushchenko of firing Mr. Piskun because four days earlier he had charged Mr. Poroshenko of bribing businessmen in order to gain control of a luxury high-rise apartment complex in Kyiv.

A few weeks later, the Procurator General's Office was thrown into disarray when a Kyiv court ruled on November 18 that Mr. Piskun was once again illegally fired from his post. As a result, the Ukrainian government had to deal with two acting procurators general because Mr. Yushchenko had already named Oleksander Medvedko as Mr. Piskun's replacement.

Just three days after the court decision, Mr. Piskun arrived at the Procurator General's Office to take his seat behind his old desk, but security guards prevented him from entering the building.

In response to the chaotic situation, Justice Minister Serhii Holovatyi called a November 25 press conference announcing that his ministry had appealed the ruling re-appointing Mr. Piskun.

Orange forces divided

Following the September 9 dismissal of the Cabinet of Ministers, National Rukh of Ukraine leader Borys Tarasyuk and Ukrainian People's Party leader Yurii Kostenko signed a statement calling on "all patriotic, democratic forces and all Ukrainian citizens to unite around the program of President Viktor Yushchenko." While Rukh did join the Our Ukraine political bloc, Mr. Kostenko's party decided to go into the March parliamentary elections as its own bloc and faced little chances of obtaining the 3 percent vote necessary to have a presence in the next parliamentary session.

As a result of the division between the Orange political forces, polls began revealing that the Party of Regions has the most support in the Ukrainian electorate and could win the most votes in the March 26 parliamentary elections.

Of 2,400 Ukrainians surveyed in late October, 20.7 percent would vote for the Party of the Regions and 17.7 percent of Ukrainian voters would select the Tymoshenko Bloc.

Mr. Yushchenko's Our Ukraine bloc placed third with 17.2 percent, according to the poll conducted by Kyiv's Socio-Vymir Center for Sociological and Political Research.

Then, on December 10, Vitalii Klitschko announced he was joining the Reforms and Order-Pora bloc to run for office. His celebrity status boosted the profile of the third significant political bloc to emerge from the split of the Orange forces, and gave Reforms and Order-Pora a legitimate chance to make the 3 percent vote barrier necessary for a bloc to enter the Verkhovna Rada.

Recognition of the UPA

By mid-February, Mr. Yushchenko was already taking the initiative to encourage reconciliation between veterans of the Soviet Red Army and the Ukrainian Insurgent Army (UPA), with the hope that the two sides would reconcile by May 9, Victory Day, which marks the Soviet defeat of Nazi Germany. Mr. Yushchenko insisted the question of historic reconciliation was necessary for contemporary Ukraine, adding that "I will do anything possible so that this national dialogue will take place."

On May 10 Mr. Yushchenko instructed Ms. Tymoshenko to lead an inquiry into the Ukrainian Insurgent Army by a relevant government commission. Its task was to reach legally and historically substantiated conclusions and create an official government position.

The issue of UPA recognition reached a boiling point on October 15 when 80 UPA veterans and about 1,000 of their supporters marched down Khreshchatyk in an attempt to reach Independence Square to commemorate the 63rd anniversary of their army's founding.

Standing in their way were more than 3,000 well-organized Communists and Progressive Socialists led by Natalia Vitrenko, who succeeded in blocking their ceremony. They clashed with the UPA veterans and their supporters, hurling eggs and engaging them in fist fights.

Yekhanurov's prime ministership

Prime Minister Yurii Yekhanurov, who took office on September 22, said the first priority of his Cabinet of Ministers was to reverse the rapid slowdown of economic growth.

In his first foreign visit Mr. Yekhanurov traveled to Moscow on September 30, assuring his counterpart, Mikhail Fradkov, that Russian business interests in Ukraine would be preserved and no privatization deals would be reversed. He addressed Russia's request to triple the price of natural gas, which he preferred to occur on a gradual basis.

He also said authorities would punish State Property Fund officials instead of businessmen in dealing with improper past privatizations. The interests of current owners in cases of flawed state sales will be taken into account during proceedings to address past injustices, Mr. Yekhanurov said, although he suggested "possible additional payments" may also be sought.

In a December 12 interview published in the Monday issue of Ekonomicheskiye Investia, Mr. Yekhanurov said it would be impossible to carry out radical reform in the near future. "I have studied the Constitution closely and have realized that no reform can be achieved in the near future," he said. "Implementation would be impossible."

The time to have implemented reform was in the spring following the Orange Revolution, he said, when authorities enjoyed "a colossal amount of confidence," Mr. Yekhanurov said. The window of opportunity had been missed.

Freedom Day celebrations

More than 100,000 Ukrainians gathered on Independence Square on November 22 to celebrate the first anniversary of the Orange Revolution Mr. Yushchenko had signed a presidential order declaring the anniversary Freedom Day.

While last year's participants united themselves under the anthem, "Together We Are Many," this year's crowd left the maidan divided between those supporting Mr. Yushchenko and others supporting Ms. Tymoshenko.

Ms. Tymoshenko herself acknowledged that those who stood on the maidan a year ago were now hiding their orange clothing or not wearing it.

Both leaders told the crowd that they would do everything possible to unite their political forces for the March 26 parliamentary elections, with Ms. Tymoshenko even guaranteeing unity. But then they attacked each other indirectly in what became political stump speeches for the two rivals.

Without mentioning her by name, Mr. Yushchenko repeated his accusation that Ms. Tymoshenko had pursued selfish ambition over the common good and political unity. The former prime minister repeated the accusation that some in Mr. Yushchenko's government weren't interested in cleaning up corruption.

The Ukrainian economy

Among Ms. Tymoshenko's bolder and most notable successes was the Stop Contraband! program introduced early in her term that sought to reduce duties on imports low enough so that businessmen would no longer bribe customs officials to avoid them. The program also tightened customs inspections and brought Ukraine's Customs Code into WTO compliance. At an April 27 Cabinet of Ministers meeting, Ms. Tymoshenko said about $257 million was added to the government budget during the first quarter of the year as a result of Stop Contraband!

On June 16, the day before the World Economic Forum drew international businessmen and investors to Kyiv, Mr. Yushchenko, Ms. Tymoshenko and Verkhovna Rada Chairman Volodymyr Lytvyn signed a memorandum guaranteeing property rights in Ukraine. It was the first in what eventually became a presidential policy of calming investors' fears over the wide-scale re-privatization that had been proposed by Ms. Tymoshenko.

"The memorandum signed right now means that Ukraine is putting a full stop in the discussion of privatization processes that has been pursued for several months," Mr. Yushchenko said.

At the forum, Mr. Yushchenko told more than 250 investors and economic leaders about the 10 steps Ukraine will take for rapid economic progress. They included enacting all legal changes needed for WTO entry before Parliament's summer break, creating a unit of specialists to support foreign investors, implementing a one-stop procedure for starting a new business, eliminating excessive regulation, repealing the Economic Code and enacting Commercial Law reform, enacting the Financial Securities Law that is essential for shareholder protection, implementing international accounting standards, passing tax reforms to increase Ukraine's competitiveness and generating higher tax revenue, improving management and business skills, and encouraging the transfer of knowledge and technologies from abroad and fighting corruption.

After being appointed Ukraine's new minister of the economy, 31-year-old Arsenii Yatseniuk said on September 28 that his main goal was to stabilize the Ukrainian economy and prevent its further decline.

"The situation is deplorable, and you may take any data from the State Statistics Committee," Mr. Yatseniuk told the Kommersant-Ukrayina newspaper.

By a single vote, the Verkhovna Rada on December 20 passed Ukraine's 2006 budget, strengthened by a 67 percent increase in government revenue from the prior year, according to Finance Minister Pynzenyk.

The jump in tax income revealed the progress made by the Ukrainian government to collect taxes and import duties from businesses, experts said. It also revealed that businesses have slowly started to reveal more of their profit.

Domestic politics

Following several foreign visits, Mr. Yushchenko visited Donetsk on February 10 in order to present newly appointed Donetsk Oblast Chairman Vadym Chuprun. When approaching the regional administration building, local Yanukovych supporters pelted him with snowballs.

In his speech to regional administration staff, the president warned leaders against taking part in corruption and pledged to try and bring two-thirds of the Donetsk economy from under the table. He also said he would punish those political leaders who threatened federalism or separatism. "There will be no further talk of separatism or federalism," Reuters quoted him as saying.

The People's Agrarian Party led by Volodymyr Lytvyn voted on February 11 to rename itself the People's Party of Ukraine.

In early March Zhovta (Yellow) Pora announced its intention of becoming a political party. The decision created a permanent rift with Chorna (Black) Pora, which decided to remain as a grassroots civic campaign.

In mid-March an Odesa regional court ruled it would review the city's controversial mayoral elections of 2002 that involved voting fraud and resulted in the victory of Ruslan Bodelan of the Party of the Regions.

The complaint was filed by his challenger, Eduard Hurvits, who was supported by hundreds of protesters who showed up at a regional courthouse wearing orange clothes and waving yellow Pora flags. Mr. Bodelan's supporters responded with outrage and about 500 people showed up at the courthouse the morning of March 16, where they clashed with police.

On April 4 an Odesa court overturned the 2002 mayoral elections and named Our Ukraine candidate Mr. Hurvits as the rightful mayor. On June 13, an Odesa district court issued a warrant for the arrest of Mr. Bodelan, who had already fled to Russia.

In the weeks after the Orange Revolution, thousands of citizen and student activists throughout Ukraine continued to protest, hold hunger strikes and demand that corrupt government and university officials resign their posts, particularly those who violated election laws and persecuted Yushchenko supporters.

Students of the Khmelnytskyi National University of Cherkasy staged a seven-day hunger strike protesting against their rector, Anatolii Kuzmynskyi, whom they said pressured and bribed them to vote for Mr. Yanukovych. He eventually resigned.

Hundreds of activists in Dnipropetrovsk and Khmelnytskyi managed to force their oblast chairmen to resign when Mr. Yushchenko failed to remove them from office. In the case of Dnipropetrovsk oblast chair Serhii Kasianov, it was Mr. Yushchenko himself who had appointed him to the position, drawing outrage from many.

The Our Ukraine People's Union (OUPU) was the most popular political party by mid-June, enjoying the support of about 30 percent of the electorate, said Yurii Yakymenko, director of political-legal programs at the Razumkov Center for Economic and Political Research. On June 14 Ms. Tymoshenko said her Batkivshchyna (Fatherland) Party would enter into an electoral bloc with the OUPU. "I personally, as well as my political party, will support the president for the duration of our political life, in tough times and in moments of triumph," she said.

Dioxin poisoning

When speaking to reporters on January 24, Mr. Yushchenko confirmed the conclusion made by Austrian doctors and the British magazine Nature that someone had poisoned him with a dioxin-based substance. He also displayed his doctor's certificate which read, "This disease is not infectious. President Yushchenko is able to fulfill his duties under appropriate medical observation."

On February 9 Procurator General Piskun confirmed that Mr. Yushchenko was likely poisoned some time around September 5, the date on which he dined with Security Service of Ukraine officials. "There is no doubt that this was a planned act, in which several people from the government were probably involved," Mr. Piskun said.

On February 16 Russian political technologist Gleb Pavlovsky issued an official denial that he was the mastermind behind Mr. Yuschenko's poisoning. Months earlier, the investigative news program "Zakryta Zona" broadcast a secret recording involving an alleged Russian Security Service agent who learned from his Kyiv informant that Mr. Pavlovsky is "the author of the idea and its organizer." The dialogue was recorded by the Security Service of Ukraine (SBU) in one of Mr. Yanukovych's election headquarters. It also implicated Eduard Prutnik, Mr. Yanukovych's close political advisor, and former deputy prime minister Andrii Kluyev, who led Mr. Yanukovych's dirty shadow campaign.

During his February 15-16 visit to Lviv, Mr. Yushchenko said the SBU knew of the dioxin's origins and how it arrived to Ukraine from Russia. SBU Chair Turchynov said in the February 19 edition of Dzerkalo Tyzhnia that his agency was investigating Volodymyr Satsiuk, the first deputy head of the SBU, for his role in Mr. Yushchenko's poisoning, among other crimes. It was during a dinner at Mr. Satsiuk's summer home that Mr. Yushchenko was believed to have been poisoned.

On June 7 Mr. Piskun charged Mr. Satsiuk "with committing a serious crime" and placed him on a wanted list because his whereabouts weren't known. Days later, the office said it was charging Mr. Satsiuk with abuse of office and forgery and issued a search warrant for him.

On September 15 Mr. Turchynov, now the former chief of the SBU, acknowledged that Mr. Yushchenko's poisoning had yet to be officially verified by authorities, thereby delaying the criminal investigation. An exam that includeed blood, skin and tissue tests was still needed and must be performed by Ukrainian experts, he said. Mr. Yushchenko had agreed to the tests, Mr. Turchynov said.

Relations with the Russian Federation

In a highly symbolic move aimed at stabilizing and improving relations with Russia, one of Mr. Yushchenko's first acts as president was a one-day working visit to Moscow. During his January 24 visit, he met with Russian Federation President Vladimir Putin, Foreign Minister Sergei Lavrov, Russian Ambassador to Ukraine Viktor Chernomyrdin and Gazprom director Aleksei Miller, among other high-ranking officials.

Mr. Yushchenko announced two new policy directives after his meetings: Ukraine would welcome the Single Economic Space as long as it would respect Ukraine's economic interests and cooperate with the European Union (EU). He also announced Ukraine's intention of reversing the direction of the Odesa-Brody oil pipeline if agreements were reached with Kazakhstan and Azerbaijan. Therefore, Ukraine would transport oil from Odesa and Brody and on to Europe, instead of the current situation in which Russian oil was transported from Brody to Odesa's oil terminal and then to Black Sea tankers.

He also met with Russian Orthodox Patriarch Aleksei II to assure him of his unbiased policy toward all religious confessions in Ukraine.

Russian Foreign Minister Lavrov visited Kyiv on February 21, calling for Ukraine to follow-up on the 2003 accord signed by former President Kuchma declaring Ukraine's intention of joining the Single Economic Space (SES). Mr. Yushchenko reportedly told Mr. Lavrov that Russia is Ukraine's "eternal strategic partner," but added, "It is important that relations with the East don't block our path to Europe."

On March 20 President Putin visited Kyiv for the first time since the Orange Revolution. It marked the start of an unprecedented relationship in which the Yushchenko administration made clear it would determine Ukraine's foreign policy independent of Russian interests.

"In effect, Ukraine under Viktor Yushchenko is demanding that Russia treat it as a 'far abroad' state, like Poland, rather than a not-foreign 'near abroad' state, such as Belarus," Dr. Taras Kuzio wrote in a Eurasia Daily Monitor article published in The Weekly on May 1.

Mr. Putin sought to clarify Ukraine's participation in the Single Economic Space while border disputes were a top concern for Mr. Yushchenko. They were able to see eye-to-eye on the issue of transporting natural gas and expanding the customer base in Western Europe.

That morning, Mr. Putin told European leaders in Paris that Russia would be respectful of the new political landscape. "We will do all that we can to support the Ukrainian leadership and use all our influence to avert any political crisis in the nation," Mr. Putin said, words that proved hollow by the year's end.

Among the tangible results of two hours of discussion was the creation of a Putin-Yushchenko Committee consisting of subcommittees on defense, industry, foreign policy, economics and humanitarian affairs. The two presidents also announced a goal of creating a Russia-Ukraine gas-transit consortium that would include Germany, and possibly France and Italy further down the road. Germany is Russia's priority, Mr. Putin said, because it is the largest consumer of Russian gas and obtains its primary supplies through Ukraine's gas transit system.

"For us, it's important that it works and functions," Mr. Putin said. "We must be sure that the transport of Russian gas to our Western partners in Europe will work like clockwork." The two leaders reached the understanding that the gas-transit system will remain in Ukraine's ownership, Mr. Yushchenko said.

During their discussions, Mr. Yushchenko proposed to make 2005 the year that Russia and Ukraine definitively delineate their borders, particularly those of the Azov Sea and the Kerch Strait. Russia's lack of urgency in delineating borders with Ukraine was ever apparent in Mr. Putin's emphasis on creating the SES, which includes Belarus and Kazakhstan.

More than a month later, Ms. Tymoshenko caused an international scandal by abruptly canceling a scheduled trip to Moscow a day after Russia's top prosecutor said criminal charges were still pending against her.

Russian Procurator General Vladimir Ustinov said on April 12 that Ms. Tymoshenko could visit the Russian Federation without fearing arrest because of immunity provided by state leaders, but that she remained "on the wanted list."

The remark angered Ms. Tymoshenko, who immediately stated her official reason for canceling the trip as needing to prepare for Ukraine's spring field work. Days later, however, she revealed her indignation with Mr. Ustinov in an April 15 interview with the British Broadcasting Corp. (BBC). "I want to believe the statement is just the stupidity of one bureaucrat and that is not the national politics of Russia," Ms. Tymoshenko said. "If that is the case, then that bureaucrat must correct his stupidity."

She also used the cancellation as an opportunity to demand new relations between Russian and Ukrainian government authorities, criticizing Russian leaders for their attitude toward their counterparts to the west. "I know the Russian political elite has gotten used to Ukraine suffering from an inferiority complex, but I want this to disappear from our relationship," she said.

Any resulting tensions were quickly eased when Defense Minister Hrytsenko and former National Security and Defense Council Secretary Poroshenko agreed to visit Moscow in her stead. Their purpose was to persuade Russian leaders that Ukraine's Euro-Atlantic integration does not threaten relations.

However just a few days earlier, Mr. Yushchenko had stressed that after having "achieved real sovereignty and freedom [only] a few months ago," Ukraine should not devalue its sovereignty by integrating into the SES.

First Vice Prime Minister Kinakh said on May 23 that Ukraine will certainly take part in the SES with Russia, Belarus and Kazakhstan. "This is a unique opportunity for creating favorable conditions for trade cooperation, creating new jobs and increasing revenue for the budget," he said.

Confusion over the Yushchenko government policy on the SES re-emerged when Economy Minister Teriokhin said on August 19 that Ukraine would switch from multilateral to bilateral relations with Russia and would likely withdraw from the SES. Three days later, Mr. Yushchenko told journalists the opposite: that Ukraine will join the SES.

Relations with the European Union

Although former President Kuchma had spoken of European Union membership as far back as 1998, few leaders in Europe took him seriously. Mr. Yushchenko's presidency marked a revolution in how European leaders viewed Ukraine.

The European Parliament immediately voiced its support for Ukraine and the Yushchenko administration on January 13 when it voted 467 to 19 to give Ukraine "a clear European perspective, possibly leading to EU membership." It issued an appeal to the European Commission and EU Council to review the EU-Ukraine Action Plan, which didn't provide for Ukraine's future membership. The vote reflected "the great sympathy among the populations and governments of democratic countries towards the Orange Revolution," said Minister of Foreign Affairs Tarasyuk.

Demonstrating the high priority he had set for Ukraine-EU relations, Mr. Yushchenko made Strasbourg, France, the second foreign policy visit of his presidency. In his January 25 address to the Parliamentary Assembly of the Council of Europe (PACE), Mr. Yushchenko declared that the realization of Ukraine's foreign policy strategy is EU membership. Domestic reforms to assist integration will become a real, not declarative reality, Mr. Yushchenko said, alluding to his predecessor's lack of substantive action toward EU membership.

At the World Economic Forum in Davos, Switzerland, on January 28, Mr. Yushchenko announced Mr. Rybachuk as Ukraine's vice prime minister for European integration, a newly created position.

On January 31 EU foreign ministers adopted an upgraded EU-Ukraine Action Plan, offering Ukraine closer cooperation on trade, immigration and security. Under the plan, the EU also offered to support Ukraine's effort to join the World Trade Organization (WTO) and ease its ability to obtain loans from the European Investment Bank. However, the upgraded plan still made no mention of Ukraine's prospects for EU membership.

Foreign Affairs Minister Tarasyuk declared on February 1 that Ukraine's foreign policy will now be "consistent and predictable" and move away from the previous policy of "sending contradictory messages depending which country [former President Kuchma] was visiting."

At a February 15 meeting of investors in Kyiv, Mr. Yushchenko declared that Ukraine wants to begin talks on EU membership immediately after its fulfillment of the upgraded three-year EU-Ukraine action plan. He also set as a goal attainment of free market economy status from the EU by the year's end.

Less than one week later, the EU and Ukraine signed a joint three-year Action Plan laying the groundwork for political and economic reform. At the February 21 signing ceremony, Council of the European Union President Jean Asselborn said the EU is committed to supporting the "ambitious program of political and economic reforms" launched by the Yushchenko administration. He said the EU offers support to Ukraine in the context of the European Neighborhood Policy, not from a membership perspective.

Nations such as France and Germany remained cold to the prospect of Ukraine's EU membership for fear of upsetting relations with Russia. French President Jacques Chirac left the Ukraine-NATO Commission talks early, perceived by many as an affront to Ukraine. France, a non-military member of NATO, was always lukewarm toward EU enlargement in general, while Great Britain has been more enthusiastic, wrote Dr. Taras Kuzio in the Eurasia Daily Monitor published in The Weekly on March 6. London remained apathetic toward Ukraine, but its position is likely to gradually become more positive, particularly with U.S. prodding, he added.

Addressing the European Parliament in Strasbourg, France, on February 23, Mr. Yushchenko reaffirmed EU membership as Ukraine's foreign policy goal. Once Ukraine implements the three-year Action Plan, a new reinforced accord in the form of a European associate membership must be signed, Mr. Yushchenko said.

To encourage travel to Ukraine, particularly during the Eurovision 2005 Song Contest, Mr. Yushchenko dropped visa requirements for all European Union citizens between May 1 and September 1.

When newly installed Prime Minister Yekhanurov visited Brussels on October 6, European Commission President Jose Manuel Barroso advised him to execute the political and economic reforms needed for EU membership.

"The future of Ukraine is in Europe," Mr. Barroso said. "The best way to achieve it is not to discuss all the time European Union membership but to achieve concrete, pragmatic results."

In a major step toward Ukraine's accession to the European Union, EU leaders announced on December 1 that Ukraine had finally earned market economy status. At a Kyiv press conference, EU leaders cited significant progress in implementing the EU-Ukraine Action Plan signed on February 21. Ukraine had executed five of its six obligations, Mr. Yushchenko said.

Ukraine and NATO

North American Treaty Organization (NATO) Secretary General Jaap de Hoop Scheffer extended congratulations on January 20 to Mr. Yushchenko on his victory, expressing certainty that relations between the military alliance and Ukraine would gain further momentum.

"Please be assured that NATO stands ready to support your government's efforts to implement the ambitious common goals and principles that underpin our deepening relationship," Mr. Scheffer said in his message.

Just a little more than a month later, Mr. Yushchenko took part in a NATO Summit in Brussels where he declared his government's sincere intention of wanting to integrate Ukraine into NATO. Although former President Kuchma had announced in 2002 that Ukraine was setting its sights on NATO membership, few officials took his statement seriously.

During the summit on February 22, Mr. Yushchenko engaged in his first meeting with U.S. President George W. Bush, who asked that Europe welcome Ukraine into the Euro-Atlantic family. "The meeting with President Yushchenko was, I thought, historic," said Mr. Bush, urging the Ukrainian leader to press forward in helping Ukraine adopt the institutions of a democratic state. Ukraine needs to take additional steps before it could join NATO, Mr. Bush said, "but we want to help them achieve that work."

Mr. Scheffer said the alliance had an "open door policy" on entry for democracies that meet membership criteria, though he offered no particular date or timetable for Ukraine's entry.

NATO announced a Partnership for Peace Trust Fund meant to help Ukraine destroy stockpiles of surplus munitions, small arms and light weapons, as well as rocket-propelled anti-aircraft missiles. The fund was a response to a Ukrainian request for assistance in eliminating 133,000 tons of munitions and 1.5 million small arms and light weapons, many of which are stored in the open. The four-phase project will span 12 years and cost about $27 million in donor contributions.

Mr. Yushchenko was the only non-NATO president to meet with alliance leaders during the summit. At a session of the Ukraine-NATO Commission, Mr. Yushchenko said the main task of his new government was to bring the nation's political, socioeconomic and defense systems to Euro-Atlantic standards. Ukraine's NATO policy isn't directed against any other country, particularly Russia, Mr. Yushchenko said.

Representing the views of a large segment, if not a majority, of Ukrainian society, Mr. Yanukovych said February 24 that the question of whether Ukraine should join NATO must be decided in a nationwide referendum.

Meanwhile, Mr. Yushchenko issued a decree in mid-April reintroducing the declarations in Ukraine's military doctrine about the need to prepare for full-fledged membership in NATO and the EU. The declarations had been removed from the military doctrine by Mr. Kuchma in July 2004.

Foreign Affairs Minister Tarasyuk said on April 21 that Kyiv could complete the necessary military and political reforms for joining NATO within the next three years. Mr. Scheffer voiced support for Kyiv's NATO membership goal but declined to offer a timetable.

"Ukraine has clearly indicated that it wants to go along the long and winding road to membership," Mr. Scheffer said. "Given the fact that there has been a peaceful revolution, the membership standards can be much more easily fulfilled by the Yushchenko government than by the Kuchma government."

Other foreign relations

In an early March meeting with Polish Prime Minister Marek Belka, Prime Minister Tymoshenko secured a pact creating a committee on economic cooperation consisting of Polish authorities and Ukrainian Cabinet Ministers. Mr. Belka said he was ready to form a joint committee in order to begin work on extending the Odesa-Brody pipeline to the cities of Plotsk and Gdansk in Poland.

On March 8 President Yushchenko was given the rare opportunity to address the German Bundestag. He also witnessed the signing of a significant pact between Naftohaz Ukrayiny and Deutsche Bank, which extended Ukraine a $2.4 billion line of credit enabling Ukraine's energy giant to bring its gas division up to European standards. Building on Ms. Tymoshenko's accomplishments with the Poles, the Deutsche Bank pact also included funds to help extend the Odesa-Brody pipeline to Plotsk.

Mr. Yushchenko announced in the Bundestag that Europeans would be able to enter Ukraine without a visa by the end of March. In return, he asked German politicians to ease visa restrictions for Ukrainian youths, students, journalists, artists and businessmen eager to interact with Germans. The timing of his request, however, was a bit awkward as German Foreign Minister Joschka Fischer was in the midst of a scandal in which he was accused of relaxing the nation's visa regime between 1999 and 2001, allowing excessive numbers of illegal immigrants, some of them criminals and prostitutes, to enter Germany from Ukraine.

Mr. Yushchenko met with his Polish counterpart, Aleksander Kwasniewski, as well as with Prime Minister Belka and Sejm Speaker Wlodzimierz Cimoszewicz in Warsaw on April 11.

They discussed progress in implementing the Polish-Ukrainian Odesa-Brody-Plock pipeline project, integration of the Polish-Ukrainian power grid and cooperation in Polish natural gas storage in Ukraine. President Kwasniewski confirmed to President Yushchenko that Warsaw supports Kyiv's NATO and EU aspirations.

President Yushchenko improved relations with Poland further when he joined President Kwasniewski on June 24 in unveiling two memorials at Lychakiv Cemetery in Lviv honoring Polish and Ukrainian soldiers who fought each other in the first world war.

Both leaders declared the June 24 ceremony a historic moment for Polish-Ukrainian reconciliation. More than 3,000 Poles crossed the border to witness the unveiling of the renovated Orliata (Eaglets) Memorial, which consists of a cemetery for 2,500 fallen Polish soldiers. The day's events focused on honoring Polish soldiers and appeasing Polish historical concerns as Mr. Yushchenko wanted to demonstrate Ukraine is a progressive society able to integrate into a European Union that has largely set aside rivalries.

Copyright © The Ukrainian Weekly, January 15, 2006, No. 3, Vol. LXXIV

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