Kyiv, Ukraine, April 11, 2002

It is an honor to speak with you at this wonderful university. President Briukhovetskyi, again let me thank you for the invitation to speak here. I was telling the President a little earlier that as I go around town I often ask businesses about which universities they really admire because the students not only learn technical knowledge, but learn how to think critically; people who can be the leaders for the next generation of Ukraine. And everywhere I go, they tell me: Kyiv Mohyla University. Of course, President Briukhovetskyi said, "I could have told you that." And I told him "Yes, but what counts is that these businesses tell me that, and that's a tribute to you and the way that you run this institution." It's a tribute to all of the students who are here, because it shows that you are recognized for your skills, and those who have graduated from here have been recognized for their skills.

The United States has had an opportunity to maintain a good relationship with this university for some time. It houses the American Library, which used to be in our American Center. We have a long tradition of exchanging Fulbright scholars, there is a partnership with the University of Maryland, some of our Fulbright scholars are even here in this room today. It represents the kind of partnership that we like to see between American institutions and Ukrainian institutions, where people with common interests can share their knowledge, can share their understanding, and on an equal basis can really learn from one another. So, we thank you, President Briukovetskyi, for that partnership and we thank all of those from the American side who have been engaged and involved in making this kind of partnership work.

In accepting this invitation today, I gave some thought to what might be most interesting for me to talk about. In general, I would like to talk about U.S.-Ukrainian relations. But I also would like to talk about setting the context for those relations and the trend of developments in Ukraine, the trend of developments internationally, and how those developments affect the bilateral relationship between the United States and Ukraine.

Many of you may know that my friend and the previous Ambassador to Ukraine Steve Pifer and I jointly wrote an article not too long ago - I think we wrote it in September and October and it was published in November [The Washington Quarterly, vol.25, No.1, Winter 2002]. In that article, we tried to look at the past and understand how the relationship had evolved over 10 years, and to give some suggestions about where U.S.-Ukrainian relations stand today. The question that I find many people ask me -- certainly foreign investors ask this of me when they come, political leaders ask this of me when they are visiting the country, and many Ukrainians ask me -- "What type of country is Ukraine and where will its future lead?"

UKRAINE: A COUNTRY OF PARADOXES

Ukraine is indeed a country of paradoxes and a country of multiple realities. For example, is it a country of 9 per cent GDP growth? A country where last year real incomes increased by 16 per cent, where over the past two years international currency reserves have doubled, where the currency has been stable, where Ukraine, in fact, in 2001 had the best performing international debt in the world, where agriculture grew 24 per cent since the year 2000?

Or is Ukraine a country that has been embroiled in political controversy? A controversy which reached a pinnacle with the death of Heorhii Gongadze and the so-called tape scandal. Is it a country that has lived under a political cloud, a country where a reformist Prime Minister was removed from office in April of last year? Or is it a country that has rallied together to pass critical legislation, that over the last seven months of last year was able to pass a land code, a budget code, a civil code, a criminal code, a customs code, a law on an independent judiciary, and a new elections law? Or is Ukraine a country where the rule of law is subjective, where the courts are at times unpredictable, where shareholder rights have been violated, where it is difficult to get judgments enforced even when courts make decisions?

Or finally, is it a country where even during times of turmoil, for example in May of 2001, Ukraine was able to come together and follow its Constitution to put in place a new Prime Minister; or in just these past weeks, in a very heated political environment, conduct an election, which certainly demonstrated progress over 1998, even if there were flaws, and where the actual results generally tracked with the exit polls?

In some ways, all of these realities are true. And if you were to ask me to look ahead, it would be easier for me to tell you where Ukraine will be 25 years from now. Because at that point, I can say with confidence, that Ukraine will be recognized and established as a Central European state, as a mainstream part of Europe's political, and economic, and security developments. What is harder to say is what will happen in Ukraine in the next one to three years. Now, one thing that I feel very positive about is that a great deal of that future depends on people in this room. Because it is indeed in your hands to influence that future. I personally am an optimist. But not just a blind optimist. And what I'd like to do is review with you some of the international dynamics and domestic dynamics that influence my thinking.

INTERNATIONAL DYNAMICS

Let me start with the international side. The first point is that the European security map and political map is changing. In November, NATO will invite countries to become members. Sometime next year we expect the European Community to invite new members. To the west of Ukraine, every single country is either a member of the European Community or a member of NATO or aspiring to become a member. To the east of Ukraine, Russia has begun to develop new relationships with the United States, with NATO, with the European Union. And a question people often ask is: in this environment, will Ukraine be lost, or will this be an opportunity? I think it's an opportunity. It's an opportunity because it is a moment of dynamism, and in that dynamism there is a chance to tear down any lingering dividing lines in Europe. It is a moment of opportunity because Russia itself is establishing new relations with the West. And for those who previously said: deeper Ukrainian relations with the West were simply impossible because Russia would object - that argument is gone, because Russia itself is now moving in that direction. And for itself Ukraine has come to understand that isolation is not the answer.

A second aspect of the international dynamic is Russia. Russia is indeed intensely engaged in Ukraine. There are real commercial interests here, there are real political interests here, and there are real security interests here. What are our observations? First of all, Ukraine and Russia will always be neighbors. And you should have good relations with your neighbors. It is our view that a reforming Ukraine is good for Russia, and a reforming Russia is good for Ukraine. So the answer in both countries is to continue the process of reform and allow greater transparency in your relations to underlie those relations, because in the end both Russia and Ukraine - a reforming Russia and a reforming Ukraine - can be good for one another.

A second point: for those people who think that Ukraine is a political football between Russia and the United States - they are simply wrong. There is nothing in this allegation which is true. Ukraine is an independent state. It is a sovereign state. It is a state that should be pursuing its own interests. And the interests of the United States are indeed to reinforce that sovereignty, to reinforce that independence, and to help the Ukrainian people achieve the vision that you have for this country. Indeed, the best way to protect against those allegations of Ukraine as a political football is to ensure that the actions that Ukraine itself takes are based on Ukraine's own national interests.

Let me make some other observations about Ukrainian-Russian relations. A year ago there were people who were making predictions about security compromises between Ukraine and Russia: that Ukraine would give Russia veto power over its participation in NATO exercises and in Partnership for Peace exercises; that the two were creating some form of a joint combat unit in the Black Sea Fleet. None of these dire predictions have been realized.

We have seen as well that there have been serious negotiations between Ukraine and Russia on commercial issues, on trade matters, on debt. These negotiations continue now on tariff questions, on the applications of VAT, on questions of gas debt. On gas debts, Ukraine has held extremely firm to maintain the position that it will not provide a sovereign guarantee on commercial debt; this is extraordinarily important to maintaining Ukraine's sound international financial status. On energy issues Ukraine has continued to strike out on an independent path. It has continued to develop the Odessa-Brody pipeline. There are discussions that are beginning internally about how to better manage Ukraine's own gas transit system, so that as gas demand in Europe is increasing and new pipelines are being considered, those who both consume the gas and provide the gas will consider Ukraine as a serious transit alternative.

If there is an area in Ukraine-Russia relationship that has raised question marks, it's been particularly in the area of privatization. Especially in some privatizations that took place last year, what some people called "back-door privatizations" where particular energy companies were brought to near bankruptcy and the assets were sold for almost no value in a very non-transparent way. Which brings me to my final point on Ukraine and Russia.

The most important aspect, from our perspective, in these relations is that they be handled on a transparent basis. Because if the relationship is transparent, if commercial relations are transparent, if security discussions are transparent, then there can be trust from the Ukrainian people, from the Russian people, and the international community. Transparency itself will then begin to put an end to the speculation on whether Ukraine is a political football.

A third point on the international dynamics is Ukraine's own stated directions in policy. For the first time I feel that we have the President of Ukraine, Prime Minister, Foreign Minister, the National Security and Defense Council, and I believe now perhaps the majority of the Rada, all taking the same direction, which is that European and Euro-Atlantic integration is the top foreign policy priority of this country. That has been stated unequivocally. To be sure, Ukraine has also said relations with Russia are important, relations with the United States are important, but European and Euro-Atlantic integration are key. I want to read a quote from President Bush last year in this context. Many of you will remember it, but I think it's good to highlight it again. He said in a speech in Poland: "The Europe we are building must include Ukraine, a nation struggling with the trauma of transition. Some in Kiev speak of their country's European destiny. If this is their aspiration, we should reward it. We must extend our hand to Ukraine, as Poland has already done with such determination."

So, in this context, I think the next question that we have to ask is can we improve the dynamic of Ukraine's relations with the United States and Europe to help Ukraine achieve its European and Euro-Atlantic aspirations?

I want to be clear: engagement between the United States and Ukraine, between Ukraine and Europe has been very intense. Secretary Rumsfeld has been here, National Security Advisor Rice has come, we have had many other senior officials come here. Prime Minister Kinakh has gone to the United States, Foreign Minister Zlenko has gone the United States, we've had extensive parliamentary exchanges. On a working level, we have very active bilateral committees on economics, on foreign policy, on defense issues. On the European side there have been exchange visits with Mr. Prodi, Mr. Patten, Mr. Solana; NATO Secretary General Robertson has come to visit Ukraine. But despite the fact that there have been these broad and widespread contacts, the relationship between Ukraine and the West has not achieved the depth in the past two years that I think we all wanted to achieve. And the question is how do we build that base?

Over the past months one of the things that we have been doing is trying to identify very specific issues that can help build greater understanding and allow for the relationship to move forward. Let me highlight three of those.

One has been the Gongadze case. There is currently a team from the FBI that is here in Ukraine. They are working with the Prosecutor General's Office and with other law enforcement officials. They are not here to investigate. They come from a National Center in the United States. This National Center involves specialists who are the best in their field. Law enforcement agencies from all over United States, indeed all over the world, go to this National Center and seek their advice on difficult cases. There are exchanges, for example, with Italy and Germany. There are people from this Center who went to Georgia and assisted the Georgians in their review of the last assassination attempt of President Shevardnsdze. This is the kind of thing that we, the United States, try to do because we believe that cooperation on law-enforcement issues is a good thing. We are here to share ideas, share theories, and we hope that as a result, perhaps, we can build a better understanding on the Ukrainian side of where they can go with this case, and how they can continue to demonstrate that there is progress.

A second area has been arms transfers to Macedonia. There have been, I believe, unfortunate misunderstandings on both sides of this issue -- misunderstandings on the NATO side and on Ukraine's side. I think we have worked through those.

Fundamentally, what we want is to give peace a chance to work in Macedonia, and on that we have full agreement. In order to do that, we have now established in Brussels a consultative mechanism between Ukraine and the Allies where information can be exchanged in both directions about the security situation on the ground in Macedonia and the Balkans with practical exchanges of information on arms transfers that are going into the region, which I believe will protect the interests of all the countries involved and, just as importantly, strengthen the prospects for peace.

A third issue is, of course, the elections. One of the reasons that the United States focused so much on this election process is because, first of all, we truly believe that it was good for Ukraine to allow its own citizens to express their views and make their choices about how they want to proceed with the leadership of this country and the direction of this country. Just as important is the fact that the way Ukraine handled these elections will influence international perceptions of the health of Ukrainian democracy and could open doors to Ukraine's integration and interaction with Europe and the United States. As I said earlier, there has been significant progress since 1998. There were still flaws. But the key here is that from those flaws there is an opportunity to learn; our hope is to see a continuing movement forward where that progress continues to build on itself. The goal that we are trying to achieve is to establish a base and a platform for deeper involvement, for deeper relations, because in the end it is in the United States' interest to see a prosperous Ukraine, and we want to see Ukraine succeed.

DOMESTIC DYNAMICS

Let me spend a little bit of time on the internal dynamics and start with our perceptions of what the Ukrainian people want and how they registered those desires in the election process.

Again, let me reiterate: I am not going to make news on an American assessment of these elections. We stand by the statement that was made by the OSCE that there was improvement, there were flaws, and there are areas to continue working on. We support the OSCE in the statement that it made that it will send a return mission here to see how the post-election period is handled.

In making some observations, one of the things that we can certainly say is that these were the most seriously contested elections that Ukraine has had since its independence. It was not just an election of the Communists versus everybody else. It was an election where there was real politics in the middle, which is much more reflective of the kind of elections that you see throughout Europe. And in that sense, these elections, perhaps, reflected a broader shift in the politics of the country: a new political consensus is moving the country more and more to the middle.

During these elections we also saw an unprecedented level of engagement by NGOs and the media. That engagement helped people learn more about their rights as voters. Many people in this room were involved in helping educate other Ukrainian citizens about how the election process works, about questions that they should be asking as they were approaching the polling booth. And it is that kind of engagement, upfront, and the transparency that comes with it, that leads to a stronger election process. As a result of this transparency, there probably were cases where more violations were reported than in the past. I think that we should approach this with an open mind. Because the message that we desire to send is that transparency is a positive development, not something that countries should suppress because they might be criticized. Indeed, the balance here is to ensure that as a result of the lessons that are learned from transparency, there can continue to be progress and movement forward.

Another observation reinforces my sense that there has been political movement toward the center. If we take the party list vote as a referendum on Ukrainian politics, 70 per cent of the Ukrainian people voted for parties that support market policies, support private ownership, and support democracy. When you think of where Ukraine was 10 years ago, this is a huge step forward. In this next parliament the strength of the Communists will be reduced by half. The parties that were most vehemently anti-Western and anti-European integration did not make it to the parliament.

In this light, let me digress a moment and say a few words about anti-Americanism. There was a fair amount of anti-Americanism just prior to the parliamentary elections. Some of it is to be expected. It happens in all political systems that candidates and parties will highlight negative issues that they think might somehow play a role in the election campaign and either help them or hurt another candidate. But what was interesting to me was a particular moment on ICTV on March 24th. It was after the U.S. Congress had passed two resolutions urging Ukraine to implement its election law and to have fair and transparent elections. Viewers had an opportunity to call in and say whether they thought these resolutions were supportive of Ukraine's democracy, or were interference in Ukraine's internal affairs. Interestingly enough, by the end of this program, 6,901 viewers had said that the resolutions actually supported Ukraine's democracy, and 4,780 said that they were interference. So, even during that very heated pre-election period when there was some considerable amount of anti-American propaganda, the majority of those people who called in said that, in fact, encouraging a free and fair election process is a good thing for Ukraine. And I personally found that very encouraging.

There has also been some anti-Americanism because, frankly, there have been difficult issues in the relationship. You know them and I know them. Issues related to sanctions regarding intellectual property, sanctions related to steel, disputes on poultry issues, and some tough discussions that we have had over election-related questions. These kinds of issues tend to dominate the headlines. What often happens is that the other part of the story is missed. People forget the positive parts of the relationship. They forget that the United States is still the largest bilateral donor in Ukraine; they forget that American companies still are the largest investors in Ukraine; they forget that the United States has sponsored over 25,000 exchanges with Ukrainians and that every year we send about 2,500 Ukrainians to the United States on exchange programs. They forget that the United States is still the strongest supporter and the largest supporter of small business development in Ukraine; they forget that the United States is still the largest donor and the most active donor in the agricultural sector; that we are intensely involved on energy issues, in helping Ukraine, for example, make the Odessa-Brody pipeline a commercial reality. They forget that the United States has some of the strongest military-to-military ties with Ukraine of any country in the world conducting more exercises than just about any country in the world, probably double the number of exercises conducted with Russia.

In effect, the United States sees that there is a changing Europe and a changing world and we want Ukraine to be part of that. Our engagement in this country is designed to support Ukraine's integration with that changing European community and world community, and that is what we will continue to do in our relationship.

Finally, another point regarding the evolution of domestic politics. A concern that I have often heard after these elections is whether a line was drawn in Ukraine between the East and the West and Center, a line that divided the Communists on the one side and Nasha Ukraina on the other. On the other hand, if we would look at this from a different perspective and color red all of those regions where the Communists won a plurality, and color blue all of those regions where non-Communist parties gained at least 50 per cent of the vote, the entire Ukrainian map would be blue. So, what we have come to is actually an interesting stage in Ukrainian politics, one in which there is a challenge of consolidation and coordination in the middle, where Ukrainian people have definitely and very convincingly, I think, moved to the center of the political spectrum. Now the challenge is whether those political parties who are at the center can work with one another in an effective way.

THE NEW PARLIAMENT AND THE GOVERNMENT

This brings me to my next point: parliamentary developments and their relationship to the government. First of all, if any of you were to ask me what I think is going to happen in the parliament or the next government, the honest answer is that I don't know. You all know the results of the elections and the number of seats that have been divided up among the parties. One of the big questions is how the independents, the 93 or so independents, will be divided up amongst the parties. I will not try to guess.

There are three scenarios that we often hear in terms of potential coalitions. One is a coalition of For United Ukraine, Nasha Ukraine, independents, and perhaps the Social-Democratic Party (united). A second is a coalition of For United Ukraine, the Social-Democrats, the independents, and the Communists. A third might be that there is no formal majority at all. Rather, Nasha Ukraine and For United Ukraine informally cooperate to select the Speaker and committee heads and that the current government continue onward for a period of time. These issues will be decided by Ukrainians.

Several factors that I think are important to note. One is obviously this process of political consolidation is affected by the 2004 Presidential election. Parties are looking ahead, candidates are looking ahead. They are trying to decide what is going to be best for them. Another factor is that parties with an independent base were the ones that most surprisingly did best in these elections. So, how does that affect them as they assess the prospects for consolidation? Third is that there are personal animosities. People have emotions, and some of these people don't get along with each other, as happens in the United States. There are people in the Republican Party and the Democratic Party that can't talk to one another. Can the new Rada members overcome their personal animosities? Another factor is that you have two major blocs - For United Ukraine and Nasha Ukraina - that still have not become formal parties; can they make that transition? And then, of course, there is the reality that most in the political system see the Prime Minister's seat as a true gift for the potential successor of President Kuchma, and that whoever gets that position will have a leg up in the presidential race.

As an outsider, what I can say is that right now a key factor will be whether decisions by politicians are made on the basis of what is good for politics or what is good for Ukraine. What is encouraging to me is that these elections showed that people vote on the basis of results. If they moved to the center, it was because they saw economic growth, they saw that pensions began to be paid, that wages began to be paid, that they had a little bit more security for their future, a little bit better sense of education possibilities for their children. In order to achieve results, you need good policy. If, at this point, good policy becomes a fundamental consideration in determining how political parties and individuals take political actions, that can be a major turning point for Ukraine. A key factor will be reaching that stage in Ukraine's development where its politicians no longer see that there is a potential contradiction between good politics and good policy, that these two can co-exist together, if they can reinforce one another, then that will be good for Ukraine, for its people, and its future international image.

THE POLICY FRONT

Let me say a few words about the policy front. There are many aspects that I think have been encouraging. Despite this very intense political period over the past months there has been continued macroeconomic stability. What I find particularly impressive is the way that a commitment to fiscal responsibility, a good budget and sound budget policy has almost become an accepted position among a broad Ukrainian political spectrum. We have also seen tremendous progress in the small business area, particularly in the area of deregulation. And as a result of that, small businesses have become the fastest growing part of this economy. As small businesses have been growing, they themselves have become a force for political change, because they are the ones who are arguing for the types of policies that would be good for their own business growth and for a more open and transparent environment.

In agriculture we have seen tremendously positive changes. Already, we have seen a shift in land ownership where 2.7 million out of 6.7 million titles have been issued to Ukrainian citizens; a land code that has been passed that provides for private ownership. We have seen changes in the way that subsidies are handled in the agricultural sector so that they are much more transparent and handled essentially as a subsidy on interest rates so that they are more consistent with market forces.

There are also issues that we need to work on. These are some of the issues that I think are important to the U.S.-Ukraine relationship, that I hope we can continue to work on in the coming months. One is the rule of law. In some ways establishing the rule of law and confidence in the rule of law is one of the hardest parts of transition. It is one story to tear apart an old command-style economy; it's another to build the laws and the institutions that are necessary to make a law-based society function. The Law on an Independent Judiciary was an important step forward. Now there is a challenge of implementation. I truly believe that the rule of law has become a key factor in the politics of the country, as we saw during the election process where a big question that consistently would come up was the ability of the courts to respond to allegations of election violations. And the rule of law is certainly a major issue for investors.

A second issue is tax reform. Ukraine has struggled to pass an effective tax code. I think it took a very important and reasonable step last year in not passing the tax code when there were calls for simply reducing tax rates without expanding the base - something which could have been a fiscal disaster. But now to remain competitive in this geographic region, Ukraine has to face up to this issue and it has to see what kind of tax code it is willing to pass that will provide a stable income for the government, yet at the same time provide the kind of business incentives that it needs in order to stimulate growth.

A third issue is the role of agriculture. The state is involved in agriculture in this country; it is involved in agriculture in my country. But the state cannot be the entity which both regulates and intervenes, because that becomes a conflict of interest. So this role needs to be rationalized, and it is going to imply changes, for example, in the functions of Khlib Ukrainy.

A fourth issue is WTO. Recently Minister Zlenko said to me that one of the priorities that he has, that this country has, is joining WTO, because this is also a critical step in European integration. And we concur. But it is not an easy process, because it means that Ukraine needs to pass a whole series of laws that will make its legal base consistent with the standards that have been established in the World Trade Organization.

A fifth issue is the development of civil society. We all saw in the run-up to the elections, for example, quite an extensive debate about the role of civil society and the role of NGOs in Ukraine. Whether this was a constructive role, one which allowed debate, one which was indeed a moderating and a stable force in society, or one which could be destabilizing. You have all seen articles in the press about the so called "Yugoslav variant" - that NGOs are intended here to somehow bolster the opposition and undermine the authorities. That is absolutely contradictory to our perception of the roles of NGOs and a strong civil society in the United States. From our perspective, civil society is a stabilizing force. It is a way that communities organize themselves and express their needs and express their views. How they express their views to government and private sector, how they organize themselves to undertake charitable activities for themselves. This is an issue that, I think, now has become important for Ukrainians to debate, because civil society is your civil society, and you need to decide what role you see civil society playing in the future of your country.

A sixth issue is the relationship of Ukraine with NATO and Ukraine with Europe. The reason I say this is so important - and I emphasize what I said earlier - is that the political map is changing. Isolation is not an option for Ukraine. It cannot afford to be left alone in the middle of redefined security relations throughout the continent.

And, finally, a seventh issue that we hope to continue working on together, is a question of a new global security framework. As all of you know, the United States has indicated that it intends to withdraw from the Anti Ballistic Missile Treaty. There was a time when people felt that doing so would result in a security crisis, and certainly that has not happened. We proceeded to work together with our friends and our partners and our allies in order to find a new global relationship. We want to do that in conjunction with Ukraine as well. And so, one of the things that we hope in the coming months becomes possible is that there is cooperation on practical global security issues, some of them even related to missile defense, that can be in the interests of Ukraine, the United States, and the region.

CONCLUDING OBSERVATIONS

Let me conclude with just a few observations. I reinforce what I've said earlier that I remain an optimist. I remain an optimist, first, because politics in Ukraine moved to the center. Second, because I truly believe that increasingly in Ukraine people see good economics as consistent with good politics. That will lead to greater consistency in policy and will continue to drive politics towards the middle.

Third, I believe that in Ukraine we can see the beginnings of a shift in its political paradigm where people are seen to matter. There was a time in the Soviet period when elections were won on the basis of who officials knew, and how the heads of state farms and state enterprises directed their people to vote. As we have seen, Ukrainian people will vote their minds, they will vote their hearts, they will vote on the basis of what they believe is good for this country. And as political leaders understand that the interests of the Ukrainian people will drive their vote, then politicians will be pushed to be responsive to these issues, and that will be good for Ukraine's future.

A fourth factor is the change in the international dynamics. Those international dynamics are forcing choices, and, I think, Ukraine has seen that isolation is not an answer. And the fifth factor that makes me optimistic are the opportunities of this country: its people, its land, its technology, its location.

Let me close with a reflection on the people in this room. You truly have the opportunity to shape your future, to shape the future of this country. You are the next generation. You are the next set of leaders, whether it be in business or in government. You have a choice that you can make on the kinds of activities you want to pursue in your communities, in your jobs, in your school environment, and the kind of Ukraine that you want to create for yourselves, for your families, for the next generation. That's a tremendous responsibility, but at the same time it's a huge opportunity, and one that I believe you can fulfill. Thank you for this chance to discuss these issues.