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Poland, Belarus & Ukraine Report: October 29, 2003

29 October 2003, Volume 5, Number 40
GOVERNMENT SEEKING ECONOMIC GROWTH, BUDGET CUTS. The Sejm on 23 October passed bills regulating personal and corporate income taxes. The current personal-income tax brackets (19 percent, 30 percent, and 40 percent) remain unchanged; however, in 2004 individual entrepreneurs will be given the right to decide whether they want to pay a 19 percent corporate income tax, like large firms, or remain in the three-tier personal-income tax system. Also, a 19 percent tax will be paid on capital gains. Additionally, most tax deductions and some tax preferences will be abolished. The tax bills will now be considered by the Senate.

The tax bills are essential in the process of drafting the 2004 budget that was adopted by the government on 27 September and is being discussed in the Sejm. Prime Minister Leszek Miller has claimed that the budget has three priorities, i.e., boosting GDP growth, profitable integration with the European Union, and granting more financial decisions to be made by local administrations. He added that thanks to lowering the corporate income tax from 27 percent to 19 percent, it is going to be a budget of the lowest fiscal stringency since 1989 and simultaneously conducive to job creation. The government foresees the following economic indicators in the 2004 draft budget: GDP growth of 5 percent (in 2003 this growth is expected at 3.5 percent), inflation of 2 percent (0.8 percent in 2003), unemployment at 17.8 percent (18.4 percent in 2003), an 8.7 percent increase in exports, a 6.4 percent increase in imports, a 5 percent increase in domestic demand, the average exchange rate of 4.25 zlotys to the euro and 3.78 zlotys to the U.S. dollar. The government also projected the 2004 budget deficit at 5.3 percent of GDP.

Miller argues that increasing budget spending is unavoidable considering that the country is preparing to enter the EU, absorb EU funds (a move entailing a contribution of the country's own funds), and lower taxes. The planned deficit is one of the most criticized indicators, since some analysts are claiming that the growing budget deficit may lead to an economic crisis. Furthermore, analysts are warning that the easing of government spending may result in increasing the national debt above the constitutional limit of 60 percent of GDP. If the debt exceeds this limit, the constitution provides that in the following year there can be no deficit, which means painful and radical budget cuts. Of course it is possible to avoid this pessimistic scenario, yet only under specific provisions. For instance, in order to keep the current deficit, the average exchange rate of the zloty to the euro should remain at the predicted level of 4.25 zlotys (it currently amounts to some 4.64 zlotys) and interest rates should drop (the increasing food prices and growing GDP make this possibility rather unlikely). Yet the policy of the Monetary Policy Council, which sets interest rates, depends on its new members, who are to be chosen in a couple of months.

There are many opponents of the draft budget. Aldona Kamela-Sowinska, former treasury minister, said the 2004 draft budget is a budget of "sadness and dishonesty," since it will not improve the Polish economy or the life of Poles and it does not reflect the real economic situation in Poland. Another critical voice comes from Zyta Gilowska (Civic Platform), who says that this is a budget for elections, which will enable the ruling Democratic Left Alliance (SLD) to wait calmly through 2004, until the spring 2005 parliamentary elections, after which someone else will have to worry about the financial situation.

Apart from the draft budget, there is another controversial program presented lately by the government. It is an austerity program named after it author, Economy and Labor Minister Jerzy Hausner, and called the Hausner Plan. The program is divided into two parts, the first providing for spending cuts in the administration and the other for savings in the social sphere (the latter will be subject to a national debate). The key points of the program are: unifying the pension age for men and women at 65 years and introducing a flexible pension age below 65 years; limiting the indexing of pensions and minimum wages; unifying VAT rates; and reducing administration spending. Moreover, farmers are to see the introduction of a personal income tax for them as well as changes in their insurance.

The program is very controversial because of its very liberal cuts in social spending. Therefore, it is not only criticized by ordinary voters but also by opposition parties and even by the ruling SLD and its ally, the Labor Union. SLD activist Krzysztof Martens has opined that the Hausner Plan is good for the country but lethal for the SLD. Miller responded that everything that is good for Poland is also good for the SLD. However, even if the plan succeeds, it may prove to be very costly from a political point of view. The cuts in social spending may affect the so-called hardcore SLD electorate, which is accustomed to the fact that the SLD always opts for a protective state that spends lavishly on the social sphere. The weekly "Wprost" wrote that in October 2003 Polish socialism entered the lethal phase of its illness.

Henryka Bochniarz, president of the Polish Confederation of Private Employers, said she does not know a country that has achieved success while simultaneously having a huge redistribution of income, excessively interfering with the economy and therefore destroying individual initiative. She added that there is no other path than the one shown by Hausner and Miller's cabinet. Yet it seems that Miller will need a lot of courage and tenacity to implement the Hausner Plan. "Rzeczpospolita" revealed on 23 October that although 91 percent of Poles claim that the situation of state finances is bad or critical, Hausner has a paltry 16 percent public support for his austerity plan. Its implementation may even lead to social unrest and strikes.

This report was written by Bartosz Stefanczyk, a student of international relations at the Warsaw School of Economics and of history at Warsaw University.

SPAT OVER SPLIT IN SPIT SET TO SEETHE. The Ukrainian-Russian controversy over the Russian construction of a dam in the Kerch Strait (see "RFE/RL Poland, Belarus, and Ukraine Report," 14 October 2003), which was apparently intended to reconnect the Russian mainland with the former Russian Tuzla spit (now a narrow, 6-kilometer long island in Ukraine's possession), reached the top echelons of power in both countries last week. Ukrainian President Leonid Kuchma interrupted his tour of Latin America and hastily flew to Tuzla to inspect the readiness of Ukrainian border guards for fending off any Russian encroachment on Ukrainian territory. Subsequently, Kuchma held a telephone conversation with Russian President Vladimir Putin in which the latter reportedly said he will request that authorities of Russia's Krasnodar Krai halt the construction of the controversial dike.

Prime Minister Viktor Yanukovych, who also rescheduled his planned trip to Baltic countries last week to oversee, in Kuchma's absence, what looked like a looming Russian-Ukrainian border clash, was sent to Moscow on 24 October to discuss the dam controversy with his Russian counterpart, Mikhail Kasyanov. What happened in Moscow is not known. Kasyanov told journalists, with Yanukovych in attendance, that they reached the following agreement: the dam will not be extended any further toward Tuzla in exchange for the removal of Ukrainian border guards from the island. Yanukovych did not oppose such a conclusion in Moscow but, after returning home, apparently changed his mind.

The Ukrainian Foreign Ministry issued a statement on 27 October refuting that such a deal has been concluded. "For his part, Prime Minister Viktor Yanukovych noted that the position of Ukraine on the Azov Sea and the Kerch Strait during the talks was clear cut: the Tuzla island is an inalienable part of the Ukrainian territory," the statement says. Taking away the guards from Tuzla under Moscow pressure would certainly be perceived as Kyiv's admission that the island is disputable territory. The Ukrainian border-guard unit, which was hastily deployed on Tuzla after the Russians began the dam construction, has not been removed from the island. What is more, lawmaker Borys Andresyuk told journalists on 28 October that Kuchma has ordered that a permanent border post for 50 men be constructed on the island. As to the Russians, they reportedly halted the dam construction some 100 meters from the Ukrainian frontier, which is marked with buoys.

Kyiv says its right to the Tuzla island is unquestionable, adding that appropriate documents confirming it were passed to Moscow six years ago. Thus, in Kyiv's opinion, this right is based on an edict by the Presidium of the Supreme Soviet of the Russian Soviet Federative Socialistic Republic of 7 January 1941 on the transfer of Tuzla from the administration of Krasnodar Krai to that of the Crimean Autonomous Socialistic Soviet Republic; the edict of the Presidium of the Supreme Soviet of the Union of Socialistic Soviet Republic of 19 February 1954 on the transfer of the Crimean Oblast from the Russian SFSR to the Ukrainian SSR; and the instruction of the Main Department of Geodesy and Cartography of the Union of Socialistic Soviet Republics of 8 September 1958 on drawing the administrative border between the Russian SFSR and the Ukrainian SSR in the Kerch Strait on Soviet maps.

Russian Foreign Minister Igor Ivanov is arriving in Kyiv on 30 October to discuss the Tuzla controversy with his Ukrainian colleague, Kostyantyn Hryshchenko. One should not expect a breakthrough from this meeting, as Kyiv's position is firm. Hryshchenko said on 28 October that discussing the ownership of Tuzla with Russia is tantamount to allowing any other country to lay a territorial claim to any part of Ukraine. And this is not just a figure of speech. Despite an impressive number of bilateral meetings and other signed documents, Ukraine is still in a bitter dispute with Romania over the Serpent Island in the Black Sea and the delimitation of the sea border in the vicinity of this islet. The resolution of the Tuzla dispute may have a direct and important significance for resolving any other territorial disputes by Kyiv.

Why Moscow has decided to escalate the border dispute with Kyiv now is not clear. It cannot be ruled out that ahead of Russia's parliamentary election in December and presidential election in March, some forces in Russia are willing to make the delimitation of the border with Ukraine in the Kerch Strait and the Azov Sea an election issue that could stir Russian patriotic/nationalist sentiments and rekindle the reputedly cherished desire by many Russians to make Russia an "empire" once again. "We understand everything," Kuchma commented on the dam construction in the Moscow-based "Izvestiya" on 28 October. "Some in Russia want an imperial self-assertion." But he seemed to exclude the current Russian leadership from harboring such a desire. "One cannot help sympathizing with the Russian leadership that sometimes is forced to take into account neocolonial sentiments in Russian society, in the Russian ruling class, and among the Russian generals," Kuchma said.

The demarcation of the Ukrainian-Russian border in the Kerch Strait seems to be the key to the much larger issue of drawing a border in the Azov Sea. In the treaty on the land border that Kuchma and Putin signed earlier this year, the Azov Sea is defined as the "internal waters" of both countries. But both countries apparently attribute different meanings to this term. Kyiv insists on demarcating the sea on both the bottom and the surface, while Moscow says the borderline should be drawn only on the bottom while the water should become available for "joint use" of both countries. Kyiv's stance is understandable. Taking into account that some 70 percent of the Azov Sea coast belongs to Ukraine, Kyiv apparently expects that such a proportion should be maintained in the division of the sea's surface. The demarcation of the border on the bottom appears to be a difficult task as well. More than 100 oil and natural gas deposits of industrial importance have been discovered in the Azov Sea, and their division between Ukraine and Russia may prove to be a tricky issue.

In the long run, the continuing border controversy between Kyiv and Moscow may contribute to indenting their "strategic partnership" and shifting Ukrainian moods as well as Ukrainian foreign policies more to the West. "The closer the dam is to our shores, the closer we are in our moods to Europe and the West in general," Kuchma told "Izvestiya." In Kuchma's mouth this statement may have been only a verbal attempt at blackmailing the Kremlin. But a poll conducted by the Kyiv-based Razumkov Center on 15-21 October found that 25 percent of respondents said their attitude toward Russia worsened because of the dam controversy. (Jan Maksymiuk)

WILL ADVERTISING IN UKRAINIAN PROMOTE THE LANGUAGE? Last month the Ukrainian parliament adopted a law stipulating that all advertising -- in newspapers, on billboards, and on television and radio -- should be in the Ukrainian language. The law forbids advertising in any other language and is punishable by a fine of four times the cost of the advertisement.

Critics of the new law say advertisers will not want to advertise only in Ukrainian because they won't be able to reach the audiences they are targeting.

Aleksandr Bazelyuk leads the Slavic Party, based in the eastern city of Donetsk, which seeks closer ties with Russia. He says the new law could ruin many Russian-language newspapers, since advertisers in regions where Russian is predominantly spoken will not pay for ads in the Ukrainian language.

"Where we live, people speak Ukrainian very poorly. In our region -- that is, the left bank [eastern] Ukraine -- people don't know Ukrainian well, and when Ukrainian ads appear in a newspaper, nobody wants to reach for a dictionary to find out what it all means," Bazelyuk said.

He said the law will also hurt companies that can't afford to produce new Ukrainian-language advertising materials: "Let's take the example of a company which wants to advertise in shops. Say it can spend $3,000 on that. Now it's obliged to spend more money and resources to produce Ukrainian ads. They don't have money for that in the firm's budget."

Bazelyuk also believes the law is discriminatory, principally against Russian speakers, and is a breach of human rights.

"Let's say I travel from Ukraine to Germany where there are many Germans of Russian origin. I place an ad, counting on the fact that it will be read by Russian emigrants to Germany. That's normal, isn't it? But if a German or Briton or a Czech wanted to place an ad [in a Ukrainian newspaper], they could do so only in Ukrainian in accordance with the new law. Therefore, from a purely humanitarian point of view, this is discrimination -- firstly, against the Russian language, and secondly, against all other languages," Bazelyuk said.

Many Russian-language publications have so far ignored the new law. Bazelyuk said only two cases have been brought to court so far and in both cases the people who advertised in Russian won their cases. Bazelyuk said the defendants successfully argued that the new law breaches Ukraine's commitments to European Union legislation safeguarding minority languages. He hopes parliament will soon amend or scrap the new law.

But some involved in the advertising industry in Ukraine disagree.

Sashko Kovtonenko is the co-owner of a successful advertising agency called KAS, based in Kyiv. Since its beginning 10 years ago, KAS has produced advertising exclusively in the Ukrainian language.

"I want to tell you that many companies which use the Ukrainian language in their advertisements -- and the biggest of these are in the alcohol and tobacco sectors, these are the two which spend the most money in the Ukrainian market -- they always, and I emphasize always, worked in the Ukrainian language and gained great results and success and nobody saw any problems in that," Kovtonenko said.

Andriy Hunder is the head of publicity for one of Ukraine's largest mobile-phone operators, UMC. He also believes advertising in the Ukrainian language is effective and has helped UMC reach a large number of people: "Really, from day one, all of our advertising has been in Ukrainian, so the law has had no major influence on the company, as we were advertising in Ukrainian anyway. So there's been no major change, and especially all our outdoor advertising was in Ukrainian in all regions of Ukraine, so I can't see any drastic changes in our approach to advertising," Hunder said.

Hunder says he believes that predictions that the new regulation will bring ruin to Russian-language publications are wrong.

"I was speaking to a number of senior editors the day before yesterday and we've been doing our own monitoring, looking at whether the volume of advertising has decreased. And what the editors have said and what the results have shown is that the volume of advertising remains at the same level that it was. So there has been no visible decrease in the level or amount of advertising," Hunder said.

Ironically, one newspaper that fears it may be critically wounded by the new rules is the "Kyiv Post" -- Ukraine's largest English-language newspaper and widely acknowledged as its best. "The Kyiv Post" relies on ads in English for its mainly foreign audience of business people, diplomats, and visitors.

The State Committee for Technical Regulation and Consumer Rights, which will enforce the new law, says its effect on other foreign media such as English-language publications was unforeseen and that they will try to ensure there are no adverse consequences for them.

Many people believe the new measure is aimed specifically at curtailing the use of Russian. Ukrainian is only predominant in the western part of the country, which was incorporated into the former Soviet Union only in 1944.

But those who want to see the Ukrainian language more widely entrenched dismiss claims that Russian is being unfairly treated or edged out. Before going into advertising, Kovtonenko worked in the propaganda department of a political movement called Rukh, which spearheaded Ukraine's drive for independence. He is still involved in politics and says that it is the Ukrainian language that is in danger of being swamped by a mass of Russian-language media.

"There should be a fuss in Ukraine not because ads are to be in Ukrainian but that today all 20 of Kyiv's radio stations are Russian-language and all the songs they play are Russian, thus breaching Ukrainian laws," Kovtonenko said. "The Russian press wants to exclude the Ukrainian language completely and is doing that in a shameless way. The new owners of the television stations also conduct themselves in a shameless way and don't want to allow the Ukrainian language on the air. That's happening for one simple reason that in the last four years the Ukrainian government has allowed the sale of media outlets and only 3 percent of those have been left in Ukrainian control. Today, the majority of the owners of the new media -- television, radio, or print -- are Russians or their vassals in Ukraine. It's obvious they're never going to tolerate the Ukrainian language."

Kovtonenko says that what he calls the attack on the Ukrainian language is Russian government policy. Last month, the Ukrainian government condemned a statement by Russian Deputy Foreign Minister Eleonora Mitrofanova that one of Moscow's foreign policy goals is to get official status for the Russian language in former Soviet republics.

But the Ukrainian government is conscious that the language issue is a dangerously volatile one in Ukraine and is treading warily and emphasizing that change will be gradual.

Last month, the Education Ministry announced plans to increase the number of schools where Ukrainian will be the language of tuition in areas where Ukrainians are currently a minority. In southern and eastern parts of the country, around 75 percent of schools teach in Russian, while in Crimea only four out of 640 schools teach in Ukrainian.

Earlier this month, Ukrainian President Leonid Kuchma went to Crimea to lay the foundation stone for the first Ukrainian-language college on the peninsula, where the majority of the population is ethnic Russian. He said the introduction of teaching in the Ukrainian language in Russian-speaking regions "must not be revolutionary" but rather "gradual and evolutionary."

This report was written by RFE/RL correspondent Askold Krushelnycky.

"There is no country, no elite, no nation.... Therefore, there is no future [for Ukraine]. There can be no future in the state, in which not a single group of students has raised its angry, insistent, and critical voice during the three weeks of the 'national disgrace' [the Tuzla controversy].[There is] no independent future. And the elite, which has enraptured many by its alleged ability to unite in the face of an external threat, is a self-deceit. Because the threat has not begun with Tuzla -- it has begun, and is continuing, with the backstage expansion of Russian capital [in Ukraine], secret bargaining about all the movable and immovable properties, offstage no-necktie foreign-policy decisions, the Eurasian Economic Community, the gas pipeline, the Odesa-Brody [oil-pipeline] reversal, the Single Economic Space. And the slow-witted leaders of flocks of slow-witted sheep who did not resist, or even were financially interested in, pushing this process to the Tuzla stage, are not an elite. They are shits. They are shits that bunched together and bulged after they heard the reaction to the Moscow moves from their shit regulator." -- Tatyana Korobova in the Kyiv-based "Grani" on 27 October, a weekly linked to the Socialist Party of Ukraine.