Now It’s Much Easier to Go Bankrupt in Ukraine

In May 2009 a 28-year-old real estate developer from Kharkiv, Artem Misyura, won a seminal case in the Supreme Court. His real estate development business as many others went bankrupt. So the entrepreneur filed for the bankruptcy of his privately-owned firm. Ukraine's Law on Bankruptcy would allow a liquidation of the private firm if the owner as a judicial entity took a responsibility for all firm's financial liabilities. Basically, the bankruptcy of the private firm was virtually a masochistic process because it would still hold you as an individual responsible for all loans, delinquent payments, etc. Moreover, it will affect your credit history so that you cannot start a new business or even take a loan to buy a car. However, Mr. Misyura who holds a Law Degree from Kharkiv Law School and his former classmates who are corporate lawyers filed a law suit to the Supreme Court where they requested a revision of the Law on Bankruptcy by appealing to the Constitution of Ukraine. And they won a case. As a result, any entrepreneur can file for the bankruptcy with his individual credit history staying intact. Ukraine's lawyers have already nicknamed the case after the entrepreneur. The Misyura Case is really a seminal change in Ukraine's Corporate Law that was a very convoluted and business-hostile piece of legislation. The Law on Bankruptcy was one of the major obstacles to the business in overcoming the current economic crisis. Since it's much easier to file for a bankruptcy and liquidate business, Ukraine's private sector might have a second wind to rebound from the economic crisis.

The Economist: Dear Viktor, You’re Dead, Love Dmitry

I've already blogged about Russia's President Medvedev's letter to Ukraine's President Yushchenko. But The Economist has a very cool piece about it "Dear Viktor, You're Dead, Love Dmitry".

Two great quotes from the Economist's article:

1. Zbigniew Brzezinski, a Polish-born American national security adviser, once wrote: "Without Ukraine, Russia ceases to be an empire, but with Ukraine, suborned and then subordinated, Russia automatically becomes empire".
   
2. At a NATO summit in Bucharest last year Mr. Putin reportedly told President George Bush: "You understand, George, that Ukraine is not even a state".
   

And related links:

1. The letter: Russia's president Medvedev's letter to Ukraine's President Yushchenko.
   
2. Medvedev's video blog message to Yushchenko aka "Relations between Russia and Ukraine: a New Era Must Begin".
   

Ukraine Celebrates Its Independence Day

It has been 18 years since Ukraine's breakaway from the former Soviet Union. Ukraine's parliament declared the independence of Ukraine on August 24^th, 1991. The former Soviet republic of Ukraine has changed a lot in the last eighteen years. The first wave of major structural changes, perestroika, was initiated in the 1980s. The second wave of market and political reforms stormed through the early 1990s when Ukraine was already a sovereign state. These political and economic changes have transformed FSU country into a modern Eastern European state with a consolidating democracy and emerging market economy.

Happy Independence Day! (ukr. Vitau s Dnem Nezalezhnosti)

 

Assorted links

Here are websites of the potential presidential candidates in the upcoming January elections:

1. Arseniy Yatseniuk, a former speaker of the parliament, OUNS party.
   
2. Yulia Tymoshenko (eng), the incumbent prime-minister, BYUT party.
   
3. Viktor Yanukovych (eng), a former prime-minister, POR party.
   
4. Sergei Tigipko, a former chairman of the National Bank of Ukraine.

To Be in EU or Not to Be: That is the Question

Shakespeare's Hamlet asked the quintessential question: "to be or not to be". In the light of the upcoming presidential elections, the Ukrainian politicians should ask themselves a similar question with a tiny specification: "to be in EU or not to be". Should Ukraine invest in becoming a member of EU? Or should Ukraine prioritize its relations with Russia? These questions have been central political issues for each president of Ukraine, including the incumbent president Yushchenko.

The potential presidential candidates are the incumbent prime-minister Tymoshenko (BYUT party), the former speaker of the parliament Yatseniuk (OUNS party), and PORs' leader Yanukovich. Each of them will use the EU issue in the upcoming campaign. According the recent public opinion poll conducted by the Razumkov Center (July 20-28, 2009), three-quarters of Yanukovich's constituency prioritize relations with Russia and only seven percent of his voters prefer relations with EU. These numbers don't come as a shock because POR's constituency dominates regions across the Russian-Ukrainian border. According to the same poll, a quarter of Tymoshenko's constituency supports the North-Western vector (i.e. Russian) of her foreign policy while almost forty percent of her voters prioritize EU-Ukraine relations. Yatseniuk's voters seem to share their views with Tymoshenko's voters: 44.5% of them prefer relations with EU and 26% of them prefer relations with Russia. The supporters of the incumbent president Yushchenko also prefer the EU-oriented foreign policy (45%) rather than the Russia-oriented (14.5%). Indeed, the Ukrainians have different views on whether Ukraine should prioritize foreign relations with EU or Russia.

However, how is the question really relevant to the Ukrainian reality? Ukraine is not even among the candidate countries. Moreover, it's no-brainer that Ukraine's foreign relations must represent a healthy balance between EU-oriented and Russia-oriented policies because of the current economic and political positions that Ukraine holds in the Eastern European region.

Russia’s President Medvedev Celebrates Putin’s Decade in the Traditional Russian Style

I would not believe this if I have not read Russia's president Medvedev's letter to Ukraine's President Yushchenko (also see New York Times, Zerkalo Nedeli (ukr)). So it's only two days since Putin has officially celebrated his decade in power. I am sure that Putin received bunch of phone calls from all over the world, including Belarus, Kazakhstan, China, North Korea, Venezuela and other places from the sub-democratic climate zone. And only president Medvedev made a very unique gift to Vladimir Putin. The Russians often say that the best gift is a personally hand-made one. In this case Medvedev's letter to Yushchenko is one of a kind. This letter is so good that it's really scary to read it and think about it. But after reading Zakaria's Post-American World and witnessing a reset-button stage of American-Russian relations the context of the letter is not so surprising after all. We all asked for it. And we got it. The official Kremlin's foreign policy has been served. And Ukraine will be the next democratic state after Georgia to test drive it. It will be a bumpy ride because Ukraine will have the presidential elections less than in five months.

So let's summarize the letter. First, Russia can't forgive Ukraine's political support of Georgia during the Russian-Georgian war conflict. Second, President Medvedev accuses Ukraine's military industry for selling tanks, guns and missiles to Georgia that used Ukraine-made weapons to kill innocent Russian citizens who accidentally found themselves in the middle of the war conflict in South Ossetia's town of Tskhinvali. Medvedev writes that "those in Kiev who supplied the Georgian army with weapons and, by the way, do not intend to stop doing so, fully share with Tbilisi the responsibility for the committed crimes". Second, Russia's president does not want to see Ukraine in NATO. He writes that "ignoring the views of Ukrainian citizens as well as Russia's well-known position, the political leadership of Ukraine stubbornly continues to pursue accession to NATO". Medvedev is also very cranky about Russia's Black Sea fleet situation. Officially, the Russian fleet must leave Ukraine's Black Sea seaports by 2017. Both president Yushchenko and prime-minister Tymoshenko made it clear in their many statements that they will not renew a seaport lease with Russia. Third, Medvedev does not avoid the energy issue. He writes that "Kiev has consistently sought to sever existing economic ties with Russia, primarily in the field of energy. These actions threaten the ability of our countries to reliably use what is, in fact, a unified gas transmission system that ensures the energy security of Russia, Ukraine and many European nations". Then, Russia's president briefly mentions a discrepancy between Ukraine and Russia in their views on the unification of the Eastern Orthodox Christian Church under the umbrella of the Russian Church, reestablishment of Ukrainian's UPA-OUN warriors as WWII freedom-fighters, and finally the 1930-1933 Soviet terror-famine as an act of genocide against the Ukrainians. Finally, Medvedev makes a statement that a social capital built between Russia and Ukraine is their competitive advantage in the globalized world and cooperation between Russia and Ukraine will lead to the mutually beneficial prosperity. Oh, really?

Well, there is nothing in this letter that could really surprise me. All points have already become a cliché of the Russian-Ukrainian relations. What is interesting about this letter is that it just cries out loud about Russia's difficult economic situation. The recession hit Russia hard. The falling oil and gas prices lowered the prospects for the fast economic recovery. Moreover, constant tensions between Russia's GAZPROM and Ukraine's NAFTOGAZ just increase the transactions costs and thus decrease Russia's oil and gas revenues. What is the next big industry in Russia after the hydro-carbon one? It is the military industry. Ukraine is actually one of Russia's main rivals in the weapons business. Moreover, both Russia and Ukraine have nearly the same cluster of customers worldwide. Thus, Medvedev simply wants to lower Ukraine's competitiveness by tarnishing its reputation and calling for international regulations to reduce Ukraine's sales of weapons abroad. Finally, the whole story about the Black Sea Fleet has a very simple cost-benefit analysis explanation. It is hell expensive to replicate Sebastopol's (i.e. Ukraine's seaport) infrastructure on the Russian side of the Black Sea. And Russia is not financially ready for such a massive investment project, especially, in the light of the ongoing recession. So I guess that one of my readers is actually right when she says that both Putin and Medvedev simply care about their own pockets which are filled by the revenues from the state-owned companies such as GAZPROM or NPOMASH. In this case, Medvedev's foreign policy could be much better understood through the lenses of the political economy rather than foreign affairs.

Today Russia celebrates Putin’s decade

Now it is official that Vladimir Putin has crossed a decade of being in power. He was Russia's second president. Now he is a prime-minister. But everybody thinks that he is still in charge of Russia. He entered the executive branch of power when the former president Yeltsin appointed Putin as a prime-minister on August 9, 1999. Since then Putin has become one of the most charismatic as well as one of the most odious world leaders. He made everyone count with Russia's political and economic power. On his watch Russia became one of the BRICs. The Russians praise him for the stability that he brought to the country. An international development community ostracizes his ability to curb individual liberties and media freedom while improving Russia's living standards. The Russians have accepted a trade-off between prosperity and freedom so far. China that is another BRIC also shows that such a tradeoff works in the short-run. The main question is: how long will China and Russia be able to curb individual liberties in exchange for rising living standards?

However, Putin enjoys great public support. His record is not immaculate. A long-lasting war conflict in Chechnya and the Russian-Georgian war demonstrates Putin's imperial appetite. A constant interference in Ukraine's domestic policy is another sign of Putin's imperialism. In 2004 the Kremlin officially backed up Viktor Yanukovich, a presidential candidate from the pro-Russian Party of Regions. And then Putin was the one of the few political leaders who rushed to congratulate Yanukovich with the rigged victory in the presidential elections.

So what does Putin's decade mean for Ukraine that will have the presidential elections in January 2010? The incumbent president Viktor Yushchenko, a conservative democrat, has very low public support. So he's less likely to become a presidential candidate from OUNS party (i.e. Our Ukraine and National Self-defense). Moreover, Russia deals with the current recession better than Ukraine does (see a blog post from July 24). Russia's fall in GDP was smaller than Ukraine's. But the Ukrainians enjoy more freedom than the Russians who in return enjoy higher living standards than the Ukrainians. Let's not forget that Russia's economic growth is not a real value-added growth. It's oil-driven. Russia does what the former Soviet Union did. Russia cashes in oil and gas resources. It has very abundant natural resources and the oil-driven growth can last for a long time. However, I can assure you that a dominating majority of Russians will celebrate Putin's decade. They will toast to his health and happiness. What will Ukraine and the rest of the world do? Let's just hope that Putin's charisma will not reverse Ukraine's political and economic development.

Ukraine’s Car Dealerships Deal with the Credit Crunch in Their Own Way.

Ukraine's entrepreneurs don't stop to demonstrate their resilience in the light of the current recession. A persistent credit crunch paralyzed the car sales in Ukraine. Moreover, hryvnia is depreciating so that fewer Ukrainians can afford the imported cars. The car sales have declined by 78% since January 2009 as compared to the previous year. While banks start showing the signs of the stabilization, the car dealerships decided to step in and offered their customers to lease a car without the third party – banks (see "Let's Put Banks Aside", Korrespondent, August 5, 2009). The car dealerships offer more flexible payment plans than the banks can offer at the present moment. Their rates are also lower than in the banks. The real estate developers quickly adopted the business model of the car dealerships. Instead of dealing with a crippled banking system, a customer can obtain a loan directly from the construction company if he decides to purchase a housing unit. The main question is: how do the car dealerships and real estate companies finance this new service?