www.ukrweekly.com INSIDE: • A perspective on the investment climate in Ukraine — page 3. • Canada’s Ukrainian and Jewish umbrellla organizations confer — page 4. • Clinton reaffirms support for Ukraine’s territorial integrity— page 6. HE KRAINI A N EEKLY T PublishedU by the Ukrainian National Association Inc., a fraternal non-profitW association Vol. LXV No. 16 THE UKRAINIAN WEEKLY SUNDAY, APRIL 20, 1997 $1.25/$2 in Ukraine House subcommittee hearing on foreign aid Kuchma establishes advisory council focuses on reports of corruption in Ukraine to spur foreign investment in Ukraine by Michael Sawkiw Jr. program or country. Ukraine and by Roman Woronowycz a level that makes Russia’s system look Ukrainian National Information Service Armenia are the only two countries with- Kyiv Press Bureau pristinely laissez-faire. Corruption has in the NIS and Central and Eastern increasingly become a problem for foreign WASHINGTON – The House Europe that have received earmarks in KYIV – Attempting to attract investors investors who are often forced to pay and Appropriations Subcommittee on previous fiscal years.) from abroad who are shunning the re-pay bribes at every level of govern- Foreign Operations on April 9 heard tes- Rep. Callahan suggested administra- Ukrainian market, President Leonid m e n t . timony from three senior administration tion officials urge the Senate not to Kuchma on April 14 established a consul- Another problem foreign firms face is officials regarding fiscal year 1998 fund- include earmarks in FY 1998 legislation. tative council for foreign investments that the constant changes in commercial laws at ing for programs in Central and Eastern Several other House members, as well as will include heads of leading multinational the local, oblast and national levels. Europe and the new independent states Ambassador Morningstar, agreed that c o r p o r a t i o n s . Motorola Inc. announced early this month (NIS). The Clinton administration has deleting these earmarks would allow the The president was reacting to the that it would not act on a bid it had won to requested $900 million in assistance for Clinton administration to respond to cer- removal of tax breaks for foreign investors develop mobile communications in Ukraine the region, an increase of $275 million tain needs and emergencies as they arise. and an opinion developing in the world because it could no longer continue to over last year’s appropriated amount. During his testimony, Ambassador business community that it is not worth invest in Ukraine when the government is Testifying before the subcommittee Morningstar focused on the successes of doing business in Ukraine. constantly changing the rules of the game. were Ambassador Richard L. the region in general, and Ukraine specif- President Kuchma will chair the council, Motorola, which had planned to invest $500 Morningstar, special advisor to the presi- ically, pointing to advances in privatiza- which will also include the chairmen of cor- million into the Ukrainian economy, also dent and secretary of state on assistance tion, reasonably fair and open elections, a porations such as Deutsche Telekom, alluded to favoritism and corruption in the to the NIS; Thomas Dine, assistant developing civil society, an independent British Petroleum, Daimler Benz, Coca- communications sector. administrator of the U.S. Agency for media, functioning capital markets and Cola Amatil Europe, Boeing, Siemens, But a move by the Verkhovna Rada that International Development for Europe financial institutions. Mitsui, Fiat, Royal Dutch Shell and Cargill. removes tax incentives for foreign invest- and the NIS; and Ambassador James He also outlined the Partnership for All are among the leaders in their fields, and ment could further strangle potential foreign Holmes, coordinator for East European Freedom (PFF) program, a new presiden- all have some sort of investment in Ukraine. investment. A key tax break that the anti- assistance at the U.S. Department of tial initiative that refocuses the U.S. The group will meet every six months to reform Rada has suspended allowed a two- State. approach to assistance to the NIS. The iron out difficulties for foreign investors and year exemption from taxes for firms invest- Members of the subcommittee in PFF will comprise activities such as to develop an image for Ukraine as a place ing at least $50,000 (U.S.). The legislature attendance included: Chairman Sonny investment and capital mobilization, and attractive for foreign investment. The coun- also rescinded a law allowing firms to bring Callahan (R-Ala.), Frank Wolf (R-Va.), consolidation of gains in building cil’s statutes state that its objective is “to capital equipment into Ukraine without Ron Packard (R-Calif.), Joseph democracy and civil society that will ensure the elaboration and implementation paying customs duties. Knollenberg (R-Mich.), Rodney include expanded law enforcement and of a policy for drawing foreign investments The lawmakers said the law is meant to Frelinghuysen (R-N.J.), Nancy Pelosi criminal justice reform to address prob- into Ukraine’s economy and using world discourage businesses that do not produce (D-Calif.), Nita Lowey (D-N.Y.) and lems of crime and corruption. experience to accelerate Ukraine’s integra- goods in Ukraine. But at least one business- Thomas Foglietta (D-Pa.). Mr. Dine’s testimony included charts tion into the system of international eco- man thinks that it will only further discour- The hearing began on a negative note and graphs to illustrate and compare eco- nomic ties.” age foreign investment – something when Rep. Callahan, chairman of the nomic progress and democratization to Ukraine’s business climate is suffocat- Foreign Operations Subcommittee, date in the NIS. He said that, although ed by a huge government bureaucracy on (Continued on page 7) referred to The New York Times story none of the countries are ready for headlined “Ukraine Staggers on Path to European Union or World Trade the Free Market.” The article, published Organization membership, it is impera- Justice Ministry announces the day of the hearing, focused on offi- tive to continue working in the region to cial government corruption in Ukraine. ensure that reform progresses and has a The chairman said he and his subcom- lasting effect. In highlighting some program to fight corruption mittee wished to explore the issue in achievements, Mr. Dine mentioned more detail. USAID’s work in restructuring the ener- by Roman Woronowycz relations with international financial institu- Although Rep. Callahan said he recog- gy sector, stating that the program is Kyiv Press Bureau tions and multinational corporations. nizes the presence of corruption in coun- The World Bank has said it would tie “showing great progress in Ukraine.” KYIV – Acting on President Leonid tries other than Ukraine, he said this is Classifying NIS countries’ reform continued aid to the development of a pro- exactly why his constituents are against Kuchma’s declaration of war on corruption, gram to fight corruption. Corporations such efforts as ranging from progressive to the Ministry of Justice on April 11 revealed foreign aid and one of the reasons he non-progressive, Mr. Dine grouped as Coca-Cola and Motorola have had prob- would not approve an almost $300 mil- its “Clean Hands” program to fight criminal lems doing business in Ukraine because of Ukraine, Russia, Uzbekistan and financial dealings in government structures. lion increase in funding for FY 1998. “If Kyrgyzstan as states within the “middle illegal demands for financial compensation, you want to resubmit your request and The program is a comprehensive attack with Motorola earlier this month opting to sector” of development. on corruption designed not only to ferret out tell us how you want to allocate it (the Following the witnesses’ testimony, leave the Ukrainian market. $625 million allocation from FY 1997), the corrupt elements in government but to According to the Ministry of Internal Chairman Callahan asked Ambassador reorganize various sectors to make them go right ahead, but forget about the $300 Morningstar to specifically address Affairs, in 1996 4,600 crimes involving million increase ... (it) is not in the less susceptible to criminal activity. “organized structures” were investigated funding for Ukraine and the situation It comes in response to a presidential cards,” he told the witnesses before they reported in The New York Times article along with more than 2,500 cases of corrup- decree that resulted from an appearance by testified. that morning. The ambassador noted that tion (in the form of graft, favoritism or gov- President Kuchma on February 14 before Chairman Callahan raised the issue of the FY 1998 request for Ukraine is ernment theft) by legislators and govern- the Committee on the Fight Against earmarks for Ukraine and Armenia, stat- $225.5 million, a slight increase of ment officials at all levels. Corruption and Organized Crime, during ing that last year’s earmarks had been $500,000. He stressed that this funding In presenting the program at an April 17 which he suggested the creation of a Clean requested by the Senate, not the House of level is warranted based on recent suc- press conference, Minister of Justice Serhii Hands program similar to what Poland has Representatives, particularly not the cesses in Ukraine, such as the removal Holovatyi said the source of the problem is House Foreign Operations Subcommit- of nuclear weapons from Ukrainian soil, instituted. After that speech the president not simply the people who demand illegal tee. According to Rep. Callahan, the adoption of a democratic constitution, fired the head of the committee for lack of payments for licenses and permits but the administration would have greater flexi- introduction of a new currency and the progress on the problem and the ministers system itself. “How many levels of bureau- bility in developing policy if it were not evolution of the U.S.-Ukraine strategic of agriculture and transportation for dubious cracy must a business go through to receive forced to function within the restrictions partnership.