Hungary, Latvia, Ukraine Stifled by IMF Conditions, Study Says

By Sandrine Rastello

Sept. 11 (Bloomberg) — Hungary, Latvia and Ukraine’s financial aid from the International Monetary Fund bore conditions that may have further hurt their economies, according to a study by the Center for Economic and Policy Research.

The programs the Washington-based lender negotiated with governments in exchange for standby credit arrangements included measures ranging from fiscal tightening to restrictive monetary policies, making a recovery more difficult, the study said.

“They don’t have as many conditions as they used to have 10 years ago, but the conditions they are using are still often harmful,” said Mark Weisbrot, co-director at the Washington- based center, said in an interview yesterday.

The amount the IMF agreed to lend to the three countries last year accounts for about half the standby loan arrangements the IMF had committed as of the end of July, according to IMF figures.

“In all of these countries, it would appear that there were more sensible responses to the crisis that would have reduced the loss of employment and output, cuts in social services, and political instability that have resulted from the downturn,” the study said.

The nonprofit center, which gets about 80 percent of its funding from foundations, lists Nobel laureates Robert Solow and Joseph Stiglitz among the members of its advisory board.

from www.bloomberg.com

‘The Problems Began After the Orange Revolution’

AP

Ukrainian President Viktor Yushchenko.

Ukrainian President Viktor Yushchenko, 55, speaks with SPIEGEL about the escalating conflict with Moscow, power struggles with Prime Minister Yulia Tymoshenko and who is responsible for the poison attack against him.

SPIEGEL: Mr. President, the worst tensions in Europe today exist between the two great countries in the east. Why are relations between Moscow and Kiev so strained?

Viktor Yushchenko: There are two reasons for this: First, a great empire crumbled with the collapse of the Soviet Union. Many Russian politicians have a hard time getting used to that fact that there are new, independent states, with their own view of the past and their own future. And, second, there are problems that we have inherited, such as the Russian Black Sea fleet. Our constitution prohibits foreign military bases on our territory. And from the Soviet days as well stems our dependence as consumers and our role as a transit country for Russian gas, with all the familiar ensuing conflicts.

SPIEGEL: Russia has recently recalled its ambassador from Ukraine, but not yet sent a new one. Russian President Dmitry Medvedev wrote a letter to you in which he indicated that the next ambassador will not be sent until you are no longer the head of state — a virtually unprecedented event.

Yushchenko: Yes, and these inappropriate interventions in our domestic affairs concern not only us, but also all of Europe. The Russians are a great people — we respect them and strive to have good relations with them. But how can these relations improve if our sovereignty is continually called into question? The Russian president’s letter was not directed solely at me — I’m afraid this is something that people in Europe still haven’t understood at all.

SPIEGEL: The Russians are obviously focusing on you as an individual. Medvedev accuses you of adopting an “anti-Russian” course, and 47 percent of his fellow countrymen see Ukraine as an “unfriendly state.” They also allege that Ukrainian soldiers and nationalist troops fought last year on the Georgian side in the war against Russia. Is this true?

Yushchenko: No, it’s a big lie. I’m prepared to support any international investigation. Similar lies were also spread during the gas dispute at the beginning of the year to swing public opinion in Europe against us.

SPIEGEL: But you actually did support your friend, Georgian President Mikhail Saakashvili, during the war — also by sending weapons.

Yushchenko: Even before my term as president, there were large deliveries of weapons to Georgia. Our military and technical cooperation remains within the framework of international law. As for the Russian-Georgian war, we supported Georgia because anything else would have been out of the question for us. This has nothing to do with Georgia per se. It concerns fundamental principles such as territorial integrity. This is surely a question for all of us in Europe: Is it or is it not acceptable to violate the international security architecture? It is sad to see how little the democracies of Europe stand up for their own basic values.

SPIEGEL: Medvedev also accuses you of suppressing the Russian language — with a Russian minority of 8 million and even more Russian-speaking Ukrainians.

Yushchenko: We have a language problem, but this concerns the Ukrainian language. When you speak with our citizens, two-thirds of them will respond in Russian. More than half of our education budget goes toward school instruction in Russian.

SPIEGEL: Then why don’t you make Russian the second official language?

Yushchenko: As the guarantor of the constitution, I must maintain Ukrainian as the official state language. We preserve our culture thanks to our mother tongue. This significantly contributes to maintaining our independence. If a nation loses its language, it loses its memory, its history, and its identity.

SPIEGEL: The inhabitants of the Crimean Peninsula speak almost exclusively Russian. There have even been clashes there recently between Ukrainian police and military personnel of the Russian Black Sea fleet because you have had lighthouses dismantled and missile transports halted. Why all these provocations when the lease agreement expires in 2017 anyway?

Yushchenko: There is a basic agreement and four amendments on the provisional stationing of this fleet with us. However a large part of this agreement is not being respected. For instance, many of the areas utilized by the military are being improperly used — to build private villas. This all has to do with lawlessness and sloppiness. Or take the problem with the 134 lighthouses, intended for navigational purposes, which stand on our territory: Russia has simply taken control of these facilities. If they are truly all used for the fleet, then an agreement must be made with us concerning them. And we must also have the right to monitor the crew sizes and the number of ships, so that they cannot both simply be increased. No country with foreign military bases on its territory can forgo doing this in the interest of its own security.

SPIEGEL: Could the same thing happen in the Crimea that occurred in the breakaway Georgian provinces of Abkhazia and South Ossetia — a secession encouraged by Moscow?

Yushchenko: There are no domestic reasons for this. The problem only arises when someone somehow plays the Crimea card. That is where a serious potential threat can arise. As president, I am doing everything I can to prevent this.

SPIEGEL: There are already calls from Russians on the Crimean Peninsula for Moscow to support a secession — if necessary with a war against the “stupid people” currently in power in Kiev.

Yushchenko: The situation’s future development essentially depends on Russia. Back in 1993 the Russian parliament declared the port city of Sevastopol a Russian city. That was an official decision, which is still in effect. This resolution shows that there are powers that are out to destabilize the Crimea.

SPIEGEL: The pressure exerted by Moscow also has another motivation. Russia apparently wants to prevent Ukraine at all costs from being accepted into NATO.

Yushchenko: You have to realize why Russia is so jealously observing the development of a young democracy on its border. In 1654, Ukraine lost its sovereignty and became a border province in the Russian Empire. During the 20^thcentury, Ukraine declared its independence six times and lost it again five times. For us the loss of our sovereignty is no theoretical threat, but rather the real life experience of many generations. We have always lost our sovereignty for one single reason: because we were the victims of power games. This explains why we are now seeking our security in NATO, an alliance of democracies that already includes Poland, the Czech Republic, Lithuania, Latvia and Estonia.

SPIEGEL: Now the West has become more reticent — not out of consideration for Russia, but rather due to disappointment that the victors of the Orange Revolution of 2004, you and Prime Minister Yulia Tymoshenko, have plunged Ukraine into a constitutional crisis. Each is now branding the other as a traitor, as corrupt, or as a Russian agent. You yourself are losing influence at a dramatic rate. Why is it so difficult to reach a consensus among the political elite of your country?

Yushchenko: I don’t share your interpretation at all. I have paved the way forward for this country. Over the past four years, there has been a constant real growth rate in our gross domestic product of 7 percent. The national budget has doubled, the minimum pension has risen and foreign investments have quintupled. Show me other European countries with such results. Shouldn’t I be proud of that?

SPIEGEL: Nevertheless, there is great disappointment everywhere with your leadership.

Yushchenko: The problems began after the Orange Revolution, when we formed a government and our first differences surfaced. We argued over what policies we actually wanted to pursue. Prime Minister Tymoshenko put a halt to market economy reforms and resorted to excessive state control. She limited exports of grain and vegetable oil under the pretense of combating inflation. Last year she destroyed the livelihoods of tens of thousands of small farmers with massive meat imports, after which livestock herds dwindled dramatically. Populism and corruption took the place of market economy competition.

SPIEGEL: In European democracies, it would be up to the parliament to take action.

Yushchenko: But in our country there is no functioning majority in parliament. The prime minister cannot pass a budget or a law; there is no concept for foreign policy problems or economic issues. The prime minister does not even mention the word NATO — she has forgotten the democratic values that we strove to uphold in the Orange Revolution. The policies of the populists are depriving our country of its rights and responsibilities, despite the fact that many people are currently applauding the populists. Maintaining power has become an end in itself — and this at any price: through betrayal, secret deals, putsches.

SPIEGEL: Those are tough allegations against a former fellow activist who stood at your side on Kiev’s Independence Square.

Yushchenko: Unfortunately, she later even sought allies among the former opponents of the revolution in order to topple the president. MPs from my party’s parliamentary group were bought off so the prime minister could secure her post.

SPIEGEL: That sounds more like a banana republic than Europe.

Yushchenko: This is due to the constitutional reform that parliament passed in 2004 to prevent a violent end to the revolution. Over time, this has paralyzed the entire power structure. My rights to appoint members of the government were drastically curtailed.

SPIEGEL: There are also rumors of mafia-style groups in parliament.

Yushchenko: We have a number of convicted criminals there; they could form their own parliamentary group. The failed constitutional reform has meant that we have representatives in parliament who are only interested in acquiring certain companies and controlling private financial interests.

SPIEGEL: Moscow is only an observer here?

Yushchenko: Just look at the activities of the prime minister and her trips to Moscow: When I warn of a fifth column, I know what I’m talking about.

SPIEGEL: The only problem is that in opinion polls 30 percent of respondents support Yulia Tymoshenko, whereas you enjoy at best between 6 and 8 percent. You are the big loser of the Kiev power struggles.

Yushchenko: Please don’t come at me with such numbers.

SPIEGEL: Apparently, you have asked too much of many Ukrainians with your rapid embrace of the West.

Yushchenko: After 18 years of independence, drawing closer to NATO holds a particularly high priority for me. We have already achieved incredible things in our relations with the EU: easing trade barriers, forging visa agreements. I am convinced that for this country there is no alternative to the course that I stand for.

SPIEGEL: You have become a lonely president. Will you nevertheless run for re-election in January?

Yushchenko: Of course. My popularity ratings are rising again. The Medvedev letter should further enhance this trend.

SPIEGEL: Before the election is held, can you — as promised — clear up the two high-profile controversial cases in Ukraine: the murder in September 2000 of journalist Georgy Gongadze, who had written about high-level corruption, and the poison attack on yourself in September 2004? The truth apparently only comes out bit by bit, only when someone expects to gain something politically.

Yushchenko: You are under a false impression; the president does not have the right to supervise judicial inquiries. Clearing up Gongadze’s murder is a question of honor for me. Three of those directly involved in the murder have already been convicted, and I’m proud of that. Now we have to find the person who ordered the murder. What nobody in the West will understand is that the key witness who we have arrested — a police general — has to be protected 24 hours a day so no one will take revenge on him. There are people in the entourage of the prime minister who are not interested in seeing the inquiry make progress because they worked under former President Leonid Kuchma, who was in power when the murder took place.

SPIEGEL: And your poisoning at that official dinner party in 2004?

Yushchenko: The investigations have been completed; state prosecutors have interviewed over a thousand witnesses. A number of members of parliament — including opposition leader Viktor Yanukovich, who headed the government at the time — have not made statements. People who directly organized my poisoning have been in Moscow for the past four years. I have appealed to the Russian president three times, and asked him to have them questioned by Ukrainian investigators at our embassy in Moscow. The suspects include the former deputy director of the intelligence agency, the cook and one of the waiters. All of these people are in Moscow.

SPIEGEL: Mr. President, thank you for this interview.

Interview conducted by Uwe Klussmann and Christian Neef

This is a must see report from BBC News. The article and video explores investment in Ukrainian farmland by foreign companies and governments, and gives a relatively balanced view. As we have stated before in this blog, Ukraine is sitting on a vast and virtually untapped source of wealth. How this is managed, is critical to whether this wealth is ever realized and to the future of this nation and region.

The real question-and this report hints at potential problems and issues- are the way these agricultural investments are structured, as well as how all of the parties in the transaction…including the government and people of Ukraine…derive the maximum benefit beyond the huge increase in productivity and revenue. As noted investment guru Jim Rogers has stated, farmers in the future may be the ones driving Lamborghinis rather than investment bankers. Will it be Ukrainians behind the wheel, or others?

Although we have been highly critical of the economic situation here in Ukraine given the endemic corruption and political stalemate, this is one area where we are unreserved in our enthusiasm. MBS Ltd. is working with several large investors to secure leases on Ukrainian farmland. We believe that it is in the best interest of Ukraine to allow long term leases-perhaps as joint ventures with the Ukrainian government. Direct and unrestricted land sales would be ideal from an investment point of view, but are highly unlikely given the history of Ukraine. Moreover, if they were to occur, they could generate a very negative political backlash that would affect the long term viability of investment.

In many ways, land deals can be structured like oil leases, with profit sharing and other incentives to local, regional and national governments that make it less likely that nationalization or re-nationalization would occur.

Jeremy Cooke BBC Newsnight, Ukraine Jeremy Cooke explains how derelict farmland is being transformed The landscape of western Ukraine feels like the land that time forgot. In the patchwork of tiny fields local farmers work as they have for generations - hay is cut with hand scythes, the carts which bring in the harvest and the ploughs that work the land are horse drawn. It is a bucolic scene seemingly untouched by the struggle, violence and revolution which have so dominated the country’s history. PERFECT STORM 2030 BBC correspondents explore the forecast by UK chief scientist John Beddington, of a “perfect storm” of food, water and energy shortages in 2030. They also consider what scientists and members of the public can do to help avert a crisis. Overview: A grim forecast But now - once again - forces from far beyond these fields are at work. The world is getting hungrier and the old “wheat basket” of Eastern Europe is offering new opportunity. You could call it the latest foreign invasion. No tanks this time, but a state-of-the-art agricultural army is on the move. In large swathes of the country fleets of ultra-modern combine harvesters are bringing in the harvest from new mega farms. Food security But it is not Ukrainian money and know-how which is driving this agricultural revolution. It is foreign governments and companies. Richard Spinks’ company is centred in fertile western Ukraine The Libyans are negotiating for land here, as are the Russians and others. Many governments are looking to secure land overseas as a way to ensure the food supply to their country does not fail. In this part of Ukraine it is the British, in the form of the company Landkom, who are making moves which are transforming the landscape, investing millions in machinery and infrastructure. This year the company will harvest 60,000 tonnes of wheat from Ukrainian land holdings totalling some hundred square miles. The company, like so many others, seems to have calculated that if predictions of global food shortages prove accurate over the coming decades, there will be big money in food production. The founder and CEO of Landkom is a former RAF man turned entrepreneur, Richard Spinks. Mr Spinks is clearly immensely proud as he watches thousands of tonnes of wheat being harvested in the fields he has leased. Most of the agricultural land in Ukraine is broken up into tiny plots, each allocated to a family. Mr Spinks explained that the field we were standing in would have originally been split into 190 different holdings. Landkom’s success has been to negotiate thousands of lease deals to put together huge new farms. ‘Land grabbing’ I feel sorry for Ukraine… it was colonised by the Russians, it was the grain basket for many, many years, it went downhill and now it is being asset stripped again by the West Tim Lang, Professor of Food Policy, City University It is a sensitive issue, since by taking long leases on huge amounts of land the foreigners are actually taking control of Ukraine’s famously fertile soil. We met people in Ukraine who are unhappy about the situation. They do not reject technological advances but believe overseas investors should back Ukrainian farmers rather than setting up new “foreign” enterprises in their country. “Every human being is a patriot of their own land, so yes it would be nice to have our own companies, we’d love that, but for right now it is what it is, whoever has got the money, they control the gain,” says Stepan Ryzna, a local small holding farmer. Others go further, condemning the deals done by foreign companies as a “land-grab”, as rich countries and corporations snap up huge swathes of land in poor, developing countries. Professor Tim Lang, one of the British government’s leading food security advisers, is one such critic: “I feel sorry for Ukraine, here it is, it was colonised by the Russians, it was the grain basket for many, many years, it went downhill and now it is being asset stripped again by the West,” he says. “You could say that it is good for the Ukraine, that it is getting inside investment from rich countries, that its productivity will go up, that since the collapse of the Soviet Union it has not had the requisite investment, that at least under Stalinism there was a huge amount of that sort of investment - you can paint that picture - but I’m not convinced by that.” Greater development Landkom vies for support by donating to the local hospital This assessment draws an angry response from Mr Spinks: “He needs to come and he needs to get his story straight before he makes opinions which are unfounded. First of all we lease every hectare of land, secondly we pay our lease payments, thirdly we don’t bully people to lease us their land - they choose to lease us their land. “The reasons they choose to lease us their land has nothing to do with money - it is an emotional desire to see their region go forward, that’s all.” And it is clear that many Ukrainians do want to see greater development. Vasili Pryza, head of the local farmers’ union, told me he is not against foreign investment, but that ultimately it must be for the good of the Ukrainian people, not for overseas corporations: “In this region we are looking for people who will treat the land properly. We are looking for investors who will invest in things that are in our interest. “It doesn’t matter to me if you are English, Chinese or American if foreigners do what is good for this place. That is just my personal opinion.” Global trend Hearts and minds are crucial here and Mr Spinks knows it. Landkom makes frequent donations to the local hospital, its corporate logo visible on the ambulance it funded. “The key to the whole thing is, and if you get this right I think then you win, that it has to be better that we are in the community than if we’re not, than if we went away,” Mr Spinks explains. But it is difficult territory which brings up big questions, and it is a global trend - Arab countries are buying up huge swathes of Africa, the Chinese are in Cambodia, and so on. To some the idea of rich, powerful countries acquiring land in poor, underdeveloped ones is highly questionable. But while some call it “new colonialism” and “asset stripping” others defend the practice as a way of introducing new agricultural technology where it can make a real difference to the global food supply. And, if the warnings of global food shortages are accurate, the basic terms of this debate may shift. The ethical emphasis then may not be on preserving the culture and autonomy of individual nations, but on increasing the food supply to a ravenous world.

Ukraine farmland

This is not a good sign for the Ukrainian economy. It signifies shrinking foreign currency reserves as well as the Ukrainian government and banks inability to secure financing and investment.

In the short term, it will take some pressure off of the Ukrainian currency-the hryvnia. However, it will have a very profound effect on the overall economy when entrepreneurs and companies cannot get the financing they need to grow, or even operate their businesses.

Ukraine to Ban Foreign Currency Loans, Kommersant Says

Sept. 7 (Bloomberg) — Ukraine’s central bank wants to ban loans in foreign currency to ease pressure on the hryvnia, Kommersant-Ukraine reported, citing An unidentified bank official.

The Natsionalnyi Bank Ukrainy wants lenders to stop giving foreign currency nominated loans to individuals and companies, the reported. The central bank did not specify when the decision will come into force, Kommersant said.

Often when I think about Ukraine, and the poverty and showy wealth that exists here, I am reminded of a 1960’s American television show called “The Beverly Hillbillies.”  This was a comedy program about simple minded farmers (they were called hillbillies because they came from very isolated areas in mountainous regions) who one day discovered oil on their land. After they became wealthy, they moved to Beverly Hills, a city in California that is home to millionaires and movie stars.

Of course, the farmers kept their traditional ways & customs, and the interaction between them and “sophisticated” city-folk made for some very funny tales. Many of the best episodes were of the hillbillies trying to emulate the wealthy Beverly Hills types, often by buying fancy cars or other status symbols at very inflated prices from sly city folk. There were also scheming bankers who looked for ways to rip off the hillbillies and get their oil rich land.

Getting back to Ukraine….

As the article below suggests, the real wealth of Ukraine is the rich farmland that sits underutilized and undervalued. Like “The Beverly Hillbillies,” Ukrainian farmers are sitting on vast untapped wealth. Will they be able to convert it in a way that best helps them? the Ukrainian economy? and ultimately the world’s hungry? OR…will Ukraine’s farmers get taken advantage of by “global players?”

Many here fear American and European agricultural conglomerates buying large swaths, and particularly Chinese government sponsored entities buying below real value.

The answer may come after Ukraine’s elections. The Ukrainian Government is running out of cash, and running out of options to stave off a complete economic meltdown. While the global economy is poised to recover, Ukraine…and many nations in Eastern Europe…are still mired in a crisis. Allowing for the sale of Ukrainian farmland, may be the most viable option for this nation. If the legislation permitting the sale of agricultural land is done correctly…and that will be difficult in a country with endemic corruption…then Ukraine and her farmers might indeed live more like “The Beverly Hillbillies.”

Social Ills Still Plague Ukraine’s Fields Of Dreams