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Ukraine: U.S. Releases Aid

By Tiffany Carlsen and Stephan Korshak

Kyiv, 30 April 1998 (RFE/RL) -- Despite continuing objections from the American Chamber of Commerce in Kyiv, U.S. Secretary of State Madeleine Albright has released the second half of Ukraine's $225 million aid package to Ukraine. Albright notified the U.S. Congress that Ukraine's government has made progress in resolving long-standing complaints of American investors.

State Department Spokesman James Rubin - in a statement made available in Kyiv yesterday - said, "we have worked very closely with the government of Ukraine over the past year to push for resolution of the 12 specific complaints covered by the legislation. The Secretary's decision to certify recognizes that the government of Ukraine has made progress, although not all of the cases have been resolved." Rubin's statement added, "we remain concerned, however, about U.S. investor problems that remain unsolved, and more generally about Ukraine's poor investment climate and slow pace of economic reform. In addition to resolving the investment disputes, we urge the government of Ukraine to take specific steps to improve its investment climate, including instituting more transparent procurement and licensing requirements, implementing regulatory reform, improving protection of shareholder rights, improving enforcement of judicial decisions, and enforcing a strong code of ethics," Rubin said.

According to a U.S. Embassy official, U.S. Ambassador Steven Pifer delivered a letter Wednesday from Albright to Ukraine's President Leonid Kuchma emphasizing those concerns.

Kuchma responded by calling Albright's decision to release the aid "a good sign," the Interfax news agency reported. Kuchma's top aide, National Security Council Secretary Volodymyr Horbulin told Interfax that the release of aid had been expected. "We have been doing and will do the utmost to create favorable conditions for the work of American companies on the Ukrainian market. This is in our best interests as well," he was quoted as saying.

The American Chamber of Commerce in Ukraine (AmCham) disagrees. In an April 15 letter to Albright, also released yesterday, the business group said six of the dozen U.S. investor complaints taken up by U.S. diplomats remain unresolved. The Chamber of Commerce specifically named Gala Radio, R&J Trading, Perekhid Media, Lviv Grand Hotel, NCH Advisors and Alliant Kyiv, and it urged Albright to withhold aid.

Some of the disgruntled investors protested Albright's decision as well.

"I am surprised. ...Absolutely no progress has been our case," said Jacob Yampel, president of R&J Trading, a American pharmaceutical company that claims its Ukrainian partners stole the assets of their joint venture. Several Ukrainian court decisions have upheld R&J Trading's claims, but the firm is still waiting for the rulings to be enforced, Yampel said. "For two-and-a-half years we have tried to reach our goal. And, despite promises from the highest level that our case would be resolved in our favor, there's been absolutely no forward movement."

Other investors, however, say they are getting fairer treatment.

"We are very pleased with the results of the government certification," said David D. Sweere, President of Kyiv Atlantic Ukraine. "We have always felt that withholding aid is not the way to resolve differences. U.S. aid goes towards infrastructural reform. That's what Ukraine needs." Kyiv Atlantic, an agricultural commodities trader, has challenged tax authorities' interpretation of the nation's labyrinthine tax code. "In the last six months, Kyiv Atlantic has faced controversial tax difficulties complicated by differences of opinion between interpretation of tax law between Kyiv Atlantic and the Ukraine Tax Inspectorate," Sweere said. "In our opinion, due process was not observed. But, when the issue was elevated to a higher level, we found a much more favorable review of our case. ...In our case, the government of Ukraine has made very concrete, positive steps."

Some observers, Ukrainian and foreign, suggested the decision to release aid might have been based on Ukraine's strategic importance to the U.S., as much as on its treatment of American businessmen. Currently the fourth-largest recipient of U.S. aid after Israel, Egypt and Bosnia; Ukraine has been seen in Washington as a crucial counterweight to Russia's efforts to rebuild its influence in former Soviet republics.

"I think that (certification was granted) not only because some problems were solved," said Valery Lytvytsky, an economics adviser to Kuchma. "The problem has several aspects and people who say it's because of the geopolitical location of Ukraine have a good argument."

Experts suggest a suspension of U.S. aid would have quashed Ukraine's hopes for resumed loans from the International Monetary Fund and the World Bank.

To assure future good behavior, the U.S. State Department announced that it will withhold from the Ukrainian government a fraction of the aid in areas where reforms have been stalled, or where such assistance has been used ineffectively. The money is to be redirected to the private and non-governmental sectors, if significant progress has not been made in the next several months.

Richard Morningstar, U.S. President Bill Clinton's adviser on the former Soviet Union, estimated Wednesday that around $25 million could be redirected, unless Ukraine moves quickly to reform its tax and banking systems, fiscal policy and the energy and agricultural sectors.