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Wednesday, October 28

Courts Move Against Western Reforms...Britain’s MI6 Reportedly Tells Zelenskiy His Chief of Staff is a Russian Agent...As Hopes Dwindle For IMF Tranche, Bond Auction Flops...Klitschko Wins on First Round...Farmers Thresh 50 Million Tons
James Brooke
by James Brooke
UBN Morning News is reported and written by James Brooke, a former New York Times foreign correspondent and Bloomberg Moscow Bureau Chief

Threatening Ukraine’s IMF accord and potentially its visa-free agreement with the EU, Ukraine’s Constitutional Court has ruled invalid the law on illegal enrichment and penalties for false declarations of assets and income, Sergii Leshchenko, a former Rada member, wrote last night on Facebook. The Court’s move comes as four judges are under investigation for potentially lying on their asset declarations. Earlier this month, in advance of President Zelenskiy’s visit to Brussels, several key members of the European Parliament said Ukraine’s failure to combat corruption threatens the 2017 visa-free deal.

Separately, the Kyiv District Administrative Court, has ordered the dismissal of a Western-supported anti-corruption investigator that was investigating corruption in the Court. Justice Minister Denys Malyuska responded on Facebook that he would not dismiss the investigator, Artem Sytnyk, head of the National Anti-Corruption Bureau of Ukraine. The Bureau said of the Court ruling. “Its purpose is to block the work of an institution that has exposed large-scale violations and an attempt to usurp power by the Kyiv District Administrative Court’s judges…investigations of multi-billion corruption in the Ukrainian government will be blocked.”

Concorde Capital’s Zenon Zawada writes of the Kyiv Court judge, Pavlo Vovk: “A critical battle is underway in the Zelensky administration that could mark a fatal rift in its relations with the IMF and the West…Not only does Zelensky need to keep Sytnyk in place (even as a mere symbolic gesture towards the West), but now he needs to get rid of Vovk, who is actively working to undermine Ukraine’s relations with the West.”

Vitaliy Shabunin, head of the Anti-Corruption Action Center, writes on Facebook that the ultimate goal is to cut off Western support for Ukraine: “Who is organizing this? [Zelenskiy Chief of Staff Andriy} Yermak and [Yermak’s deputies Oleh] Tatarov and [Andriy] Smyrnov. This trio is responsible for the attack through the Constitutional Court, covering up for the Kyiv Administrative District Court and assaults on the NABU and a lot of other stuff.”

Richard Peter Moore, the new head of Britain’s MI6 intelligence service, warned President Zelenskiy in a face to face meeting in London earlier this month that his chief of staff, Andriy Yermak, is a Russian agent, reports PolitUA. The news site bases the charge on an extensive interview with Andrei Piontkovsky, the Russian mathematician and dissident living in the US since 2016. One week after Zelenskiy’s Oct. 7-8 trip to London, it became public that Moore met with Zelenskiy and warned him about leaks from his office.

Piontkovsky tells PolitUA’s Ksenia Kirillova that his knowledge of Yermak’s code name and Russian ties comes from his own “insider information from Moscow, from people close to Putin’s ‘bunker.’” But, Piontkovsy adds, “the actions of Andriy Yermak speak about this much more than any operational pseudonyms. He consistently harms the national interests of Ukraine by fulfilling ‘the desires’ of Moscow.”

Appointed Presidential Aide for Foreign Policy Issues in May 2019, Yermak offered a series of concessions to Russia and Russia-controlled Donbas. These moves were blocked by protests from Ukrainian civil society. On Feb. 11, Zelenskiy promoted Yermak to Head of the Presidential Office. Three weeks later, Zelenskiy purged most of the prominent, Western-oriented cabinet members, including Prime Minister Honcharuk, who previously ran a thinktank funded by EU and Canada. Over the summer, Yermak was seen as behind the purge of Ukraine’s central bank, a move contrary to the $5 billion Stand-By Arrangement signed June 9 with the IMF.

With skepticism growing about the IMF accord, the Finance Ministry managed yesterday to sell only 400 million in hryvnia bonds — about 7% of the volumes of the previous two auctions. After consulting with bidders, the seller decided not to put up for auction 6-month and 21-month bonds. After offering 4-year bonds, the seller rejected all six bids, for rates ranging from 11.4% to 12.5% ​​per annum. In the only successful offer, the Ministry sold the equivalent of $14 million worth of 1-year bonds at the previous rate of 10.3%. The seller rejected six bids at rates up to 11%.

State-owned Ukreximbank has offered to buy back up to $300 million its Eurobonds maturing in 2022 and 2025. The bank will use its own money to buy back the bonds in an operation designed to cut debt costs. Goldman Sachs International is the dealer-manager.

Kyiv Mayor Vitaliy Klitschko narrowly won reelection on the first round, eliminating the need for a runoff vote in Kyiv on Nov. 15, Sonya Koshkina, editor of LB.ua reports on Telegram. With 99.5% of the vote tabulated, Klitschko, a former champion boxer, won 50.6%. In voting for City Council, Klitschko’s UDAR [Punch] and Maryna Poroshenko’s European Solidarity scored 20% each. Other party votes were: Yednist [Unity] – 8.6%; Opposition Platform — For Life – 7.7%; Yulia Tymoshenko’s Batkivshchyna – 7.4%; Zelenskiy’s Servant of the People – 7.4%; and Holos [Voice] – 5.9%.

Ukraine’s farmers have threshed 50.5 million tons of grains and legumes from 12.9 million hectares, or 84% of the projected area, reports the Ministry of Economic Development, Trade and Agriculture. Harvests of the big crops are: sunflower – 11.6 million tons from 92% of the planted land; soybeans – 2.2 million tons from 80% of the land; corn – 14.5 million tons from 56% of the land; and 3.7 million tons of sugar beets dug from 41% of the planted land. Looking ahead, as of Tuesday, farmers have sown  89% of their winter crops, including 91% of winter wheat.

In the first four months of the grain marketing year, Ukraine has exported 15 million tons, down 16% from this time last year, reports the Agriculture Ministry, citing Customs Service statistics. After drought slowed the corn harvest, wheat and barley accounted for 90% of exports. With Black Sea wheat prices strengthening, Ukraine exported 57% of its 17.5 million ton self-imposed annual export quota. Due to poor weather last summer, the National Bank of Ukraine has cut its total grain and legume harvest estimate for 2020 to 67 million tons, down 11% from last year’s 75 million tons.

South Korea’s Posco International imported last week its first load of 41,000 tons of feed wheat from Posco’s new terminal at Mykolaiv. Last year, Posco completed construction in Mykolaiv of its terminal with an annual capacity of 2.5 million tons. At the time, Ju Si-bo, president and CEO of Posco International, said of his company, largely known as a steel maker: “In the face of growing instability in the global grain market, the company seeks to turn the food business into the next engine of growth and create a stable food procurement system to ensure the country’s food security.” Since then, due to the coronavirus pandemic, 22 countries, have partially or completely stopped exporting food.

Editor’s Note: There is a saying that you can push a Ukrainian – until his forehead touches the ground. Then watch out. Having been in and around Ukraine since shortly after the 1990 Revolution on Granite, I sense that patience is wearing thin with the government’s double-speak on Ukraine’s European path. Pretty speeches in Brussels are can’t paper over the methodical purging in Kyiv of Western-oriented reforms and reformers. In Sunday’s City Council elections in Kyiv, supporters of those Western reforms won by far the most votes. President Zelenskiy’s party came in 6th. Given Ukraine’s history over the last 30 years, losing support in the nation’s capital and largest city, makes life unpleasant for the nation’s president. With Best Regards, Jim Brooke.

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Tuesday, October 27

Poor Election Showing Could Prompt Zelenskiy to Fire Economic Ministers...Government Predicts IMF Mission Will Come After US Vote...China-Ukraine Sign 5-Year Deal on Space Research...More Chinese Trains Roll to EU...Kyiv Metro Has Not Recovered from Covid Shutdown
James Brooke
by James Brooke
UBN Morning News is reported and written by James Brooke, a former New York Times foreign correspondent and Bloomberg Moscow Bureau Chief

Exit polls indicate that President Zelenskiy’s ruling Servant of the People Party did not win mayoral races Sunday in any of Ukraine’s 10 most populous cities, including Zelenskiy’s home town, Kryvyi Rih. Although no national party did well in a day dominated by local politicians, Sunday’s election spells hard times ahead for the neophyte president who was overwhelmingly elected 18 months ago.

“Less than a year and a half since his inauguration, the Zelenskiy presidency appears to be in grave trouble…Zelenskiy’s Servant of the People party looks to be in terminal decline,” Anders Åslund, the Swedish economist, writes in an Atlantic Council blog.  “These local election results appear to have confirmed that Ukraine no longer has the basis for a functioning parliamentary majority. Indeed, in the months ahead, it may even prove problematic to form coalitions of convenience for specific pieces of legislation.”

With a budget debate looming next week in the Rada, Zelenskiy may reshuffle the cabinet again, writes Timothy Ash. “Zelenskiy probably won’t be able to help himself, but will likely respond with a far reaching cabinet reshuffle,” he writes from London. “Likely we will see the minister of economy changed again, and likely also the minister of finance.”

Dragon Capital emailed clients yesterday that the weak showing “could precipitate potentially significant changes on the central government level, such as a reconfiguration of the parliamentary majority and/or a cabinet shuffle.”

The low turnout – 37% — and the failure of national parties to dominate regional strongholds means that no national political leader of party can claim victory. However, the poor showing of the Servant of the People party is expected to erode its once solid majority.

Voters were skeptical of the only economic proposal on Zelenskiy’s nonbinding referendum of five questions. Asked about a free trade zone for Kyiv-controlled Donbas, only 45% supported the idea, well below the 70% favoring legalizing cannabis for medical purposes. Final vote results are expected by the end of this year.

Ukraine expects an IMF review mission to come to Kyiv in mid-November, Yulia Kovaliv, Zelenskiy’s deputy chief of staff, tells Bloomberg. Approval by the team would lead to the release of a $700 million tranche, a move that would trigger the release of an additional $1 billion in EU and World Bank aid, says Kovaliv, who is in charge of cooperation with foreign donors. After Naftogaz pulled its $500 million Eurobond placement last week, Kovaliv said Ukraine will only return to the Eurobond market with an IMF program on track.

Two issues cloud a resumption of IMF disbursements for Ukraine: the budget deficit and central bank independence.

Through September, Ukraine’s budget deficit is $2.9 billion – four times greater that it was for the first nine months of last year, according to the State Treasure Service.  About 80% of the deficit stems from the creation last April of a special fund to fight Covid. About half of this money ended up being spent on road construction.

Central bank independence returned yesterday to the headlines with angry public statements by two Board members who were reprimanded two weeks ago. Both members, Kateryna Rozhkova and Dmitro Sologub, are the only holdovers from the National Bank of Ukraine Board that carried out the massive bank cleanup of 2015-2017.

Rather than leave quietly, Rozhkova, first deputy governor, posted a blast on her Facebook page yesterday. “Such a decision destroys collegiality and poses threats to the National Bank’s truly impartial decisions,” she said, reacting to last week’s decision to strip her of almost all her power inside the central bank. “This does not comply with the principles of independence that were laid in the basis of the transformation of the National Bank in 2014-2015. I will remind you that this transformation was carried out with the IMF requirements.”

Sologub, also a deputy governor, tweeted that the attempted purge “was done in a murky and non-transparent way.”

China and Ukraine have signed a 5-year space research cooperation deal that encompasses 69 projects. The work is valued at “over 70 million,” reports Ukraine’s signatory, the State Space Agency. SpaceWatch.Global, a news site based in Bern, Switzerland, writes of Thursday’s deal for new information exchanges: “China has been pushing into countries like Ukraine for some time. Ukraine has a lot of technological knowhow that could (presumably) be acquired at relatively low prices, and with relatively less political resistance.” In 2016, an analysis by Kyiv’s Institute of World Policy totaled 21 China-Ukraine space contracts, worth $67 million.

Nippon Express, one of the top five global logistics services providers, plans to double its China-Europe container trains to 5,000 a year, reports RailFreight.com. Due to Covid restrictions, air freight is now 10 times the cost of rail. Before Covid, it was four times as expensive. With the rail gauge break in Belarus struggling to cope with the surge in traffic, Ukraine hopes to win more and more Chinese freight destined for Central Europe and the Balkans. At Kazakhstan’s main rail crossing point, Dostyk, expansion is underway to handle 1 million containers a year.

More Turkey-Ukraine military joint ventures are under discussion and negotiation. These include: joint production of mobile anti-tank missile systems, joint production of drone and helicopter engines in Turkey, and participation in a possible Turkish advanced combat aircraft. Oleh Urusky, deputy Prime Minister for Strategic Industries, told reporters in Kyiv on Friday that Ukraine’s Defense Ministry also is interested in Turkish corvettes, for production first in Turkey, then in Ukraine.

Five months after the Kyiv metro reopened after the strict coronavirus shutdown, its ridership is only 40% of capacity, Natalia Makogon, deputy head of the underground rail system told an online conference Monday. At peak periods last year, the system carried 90% of its capacity of 2 million daily riders. Last year, the system carried 495 million riders, or 1.35 million a day.

In time for the fall foliage season, the Zhitomir Cardboard Factory, has produced its first paper – 1.5 tons – from fallen tree leaves. “We are currently preparing to convert the paper batch into paper bags, paper dishes and cardboard,” Valentyn Frechka, the inventor, writes on his Facebook page. He posts a video of this new industrial process.

Editor’s Note: The leaders of Ukraine – and every other nation in the world — are handicapping the odds of a Biden presidency and what it would mean for them. In Kyiv, a dangerous line of thinking would be to assume that the Democrats in their eagerness to take a whack at Putin will turn a blind eye to Ukraine backsliding on creating EU-standard institutions. Ukraine should embrace the EU choice with actions over words. If there is to be a post-Trump America next spring, it will be an America with a new caution about spending on foreign aid and foreign military adventures. With Best Regards, Jim Brooke.