UKRAINIAN JOURNAL
Daily Business Newsletter
Oleh Borsuk, Publisher
Kyiv, Ukraine, Thursday, April 10, 2003

Kyiv, April 9....Ukraine would face a dramatic plunge in foreign investments if the authorities go ahead with a plan to strengthen state controls over the agriculture sector, business leaders warned Wednesday.

President Leonid Kuchma told regional governors earlier this week that regulations over the sector must be strengthened to prevent grain shortages.

Kempton Jenkins, president of the Ukraine-US Business Council, said the move would be a major mistake.

"You and your government should be aware that reintroducing centralized control of the grain market would have a severe chilling effect on all foreign investors in Ukraine," Jenkins said in a letter to Ukrainian Ambassador to U.S. Kostyantyn Gryshchenko.

The development comes as the country's law enforcement agencies have arrested former deputy prime minister for agriculture Leonid Kozachenko, accusing him of abuse of power and tax evasion.

The prosecutors also accuse Kozachenko of encouraging grain traders to boost grain exports. The prosecutors believe the exports led to sweeping grain shortages on domestic market.

"All of a sudden, over the past month we have seen a series of actions by the Ukrainian administration which indicate a decision to re-intervene in the grain markets," Jenkins said.

The prosecutors "announced some 300 legal actions against grain market participants, while calling for the reintroduction of government control over grain markets," he said.

Ukrainian Agro-Industrial Complex Ministry called on investors on Tuesday to continue investments in the grain sector amid signs that the investments had been already postponed.

The government hopes private investors would contribute 3 billion hryvnias ($560 million) for spring grain planting, with the money to go to replant areas under winter grain crops that had been killed by the weather.

Ukraine's foreign direct investment was reported at $5.3 billion as of the end of 2002, or $111 per capita, according to the State Statistics Committee. This is one of the lowest level of FDI in the region as foreign investors shy away from investing in the country due to a range of political and privatization scandals.

"We hope that this effort to turn back the clock to Soviet-style management of Ukraine's critical sector will soon disappear and allow Ukraine's dramatic march to productivity and prosperity to resume," Jenkins said.

The complete letter from the Ukraine-U.S. Business Council follows:

April 8, 2003

His Excellency Kostyantyn Gryshchenko
Embassy of Ukraine
3350 M Street, N.W.
Washington, D.C. 20007

Dear Mr. Ambassador:

For the past three years, we have been heartened by the re-birth of the historically powerful Ukrainian agricultural market, known universally as the breadbasket of Europe.

After decades of Soviet mismanagement and brutally enforced collectivization under Stalin, the transition to a market economy in agriculture in Ukraine was slow to evolve after Ukraine gained its independence. But when President Kuchma and the Verkhovna Rada combined to re-establish private ownership of farmland, Ukraine's farmers responded with dramatic results - record harvests for the next two years. As a result, foreign direct investment in the sector also grew rapidly. A critical factor in this agricultural revolution was the privatization of the sector and withdrawal of the Government from the delicate but productive grain market process.

All of a sudden, over the past month we have seen a series of actions by the Ukrainian Administration which indicate a decision to re-intervene in the grain market. The Government's Prosecutor General has jailed the former Deputy Prime Minister Leonid Kozachenko for alleged bribery and tax evasion. And the same lady has announced some 300 legal actions against grain market participants, while calling for the reintroduction of Government control over grain markets.

We obviously are not in a position to judge the legal claims involved, but you and your government should be aware that reintroducing centralized control of the grain market would have a severe chilling effect on all foreign investors in Ukraine.

We are encouraged by statements of several top officials in Ukraine in support of Kozachenko and the market reforms which President Kuchma introduced. We hope that this effort to turn back the clock to Soviet-style management of Ukraine's critical sector will soon disappear and allow Ukraine's dramatic march to productivity and prosperity to resume.

We look forward to meeting with you to discuss this matter.

Very truly yours,

Kempton B. Jenkins, President
Ukraine-US Business Council
1615 L. Street, N.W., Suite 900
Washington, D.C. 20036
Tel: 202 955 4504, Fax 202 955 4506
ukrusbc@earthlink.net