Passing on gas: don't point fingers

Of course, I've been following the news of the Ukraine-Russia-Europe natural gas debacle. It's hard not to when you're living in the middle of it. Friends and family have asked if we're sitting in our homes freezing or if we've started to burn the furniture yet. Neither is the case. The radiators are warm and we can even keep turning on our Christmas tree lights. How long that will last, I don't know but we're living in the moment.

I've been working a post that gives my opinion on the whole mess. But there has been so much written already, that I don't want to regurgitate all of it, and I don't want to write a book. But this morning I read a commentary in The Moscow Times that prompted me to respond. The commentary, written by a French deputy, annoyed me on a number of levels, not all of which I addressed in my response. In general, anyone who tries to point the finger exclusively at one country makes their objectivity suspect in my book. And the fact that this person seemed to touch on practically every aspect of the Kremlin's version of things, makes it even more suspicious to me.

But instead of writing a full analysis, I decided to merely post the commentary and my email response to the editor. Feel free to send your response to them as well. I kept their contact info in the article. I'm told that my response will be printed in the next letters-to-the-editor section.


FROM THE MOSCOW TIMES

Kiev Must Pay the Price For Victimizing the EU

15 January 2009

By Thierry Mariani

The crisis between Russia and Ukraine that threatens gas supplies to Europe each year was caused by Ukraine's refusal to pay Russia what it owes and the attempts by Kiev to escape its responsibilities. Throughout this conflict Ukraine tried to put pressure on Europe, using it as a pawn in its economic dispute with Gazprom and to avoid paying the billion dollars Kiev still owes.
At the onset of the crisis, Ukrainian President Viktor Yushchenko made multiple reassuring declarations affirming that Russian gas destined for Europe could continue to transit through Ukrainian territory -- regardless of what happened in the conflict with Moscow. We have seen what his promises are worth: The Ukrainians have not respected their commitment.

This manipulation of Europe by the Ukrainian government is even more questionable than it may appear. Each day it becomes more and more evident that Kiev's stance was driven by internal politics and rivalry among the top Ukrainian business clans. Yushchenko left the field free for Naftogaz to break negotiations and has continued to block attempts by Prime Minister Yulia Tymoshenko to mediate the conflict.

Europe should not have to pay for these mistakes. Europeans have been the victims of Ukrainian blackmail as well as Kiev's incapacity to insert itself into a global market economy and achieve political maturity. The envoy of European observers to Ukraine was an indispensable measure for the return to normality, but it is not sufficient in the long term. This situation cannot continue. We Europeans must think now about the future.

With regard to our supply levels, we must begin to work on finding diverse ways of transporting Russian gas to Europe -- for example, the Nord Stream project to transport gas through a pipeline under the Baltic Sea or the European Union- and U.S.-backed Nabucco pipeline, which envisions transporting gas from Azerbaijan and/or Kazakhstan through Turkey and the Balkans.
On a political level, this crisis confirms the urgent need to reinforce the partnership between Europe and Russia, which is essential for the equilibrium of the European continent. Ukraine can and should have its place in this partnership, but the country must understand that this depends on its own actions -- particularly, its ability to provide political and economic stability.Thierry Mariani, a deputy in the French National Assembly from the Union for a Popular Movement, is president of the Black Sea Economic Cooperation.

Thierry Mariani, a deputy in the French National Assembly from the Union for a Popular Movement, is president of the Black Sea Economic Cooperation.

To Our Readers
The Moscow Times welcomes letters to the editor. Letters for publication should be signed and bear the signatory's address and telephone number. Letters to the editor should be sent by fax to (7-495) 232-6529, by e-mail to oped@imedia.ru, or by post. The Moscow Times reserves the right to edit letters.


MY RESPONSE

Dear Editor:

Thank you for publishing Mr. Mariani's insightful yet disturbing and one-sided commentary. It speaks volumes about the current problems with Ukraine, Russia and Europe and the attitudes which perpetuate them. Anyone who is familiar with Russian and Ukrainian relations, particularly since 2004, should understand that there are always at least two sides to every story and every conflict in this relationship. Informed people know that this gas crisis is not merely a commercial dispute, and anyone who points the finger exclusively at one country or the other suggests to me that person is either ill-informed or biased in some way.

I do agree with Mr. Mariani that Europe needs to diversify its energy supplies. But it needs to diversify its energy sources as well as its routes, particularly central and eastern European countries. Merely shifting the pipes through which Gazprom's gas flows may be a short-term solution for Europe, it does not change the fact that Russia has shown itself willing to use energy as a foreign policy tool. I don't blame them for that, but it is a fact that must be considered as Europe plans its energy strategy. I hope the western European countries will listen and learn from the experience of their newer member countries.

I am not an apologist for Ukraine's political leaders. In fact, the opposite. All of them have let down their citizens. Guided by their own self-interests, they are the main obstacle, to use Mr. Mariani's words, to the country "inserting itself into the global economy and achieving political maturity". The past four years have been extremely disappointing for anyone who cares about Ukraine's political, economic and societal development. However, one cannot deny that Ukraine's geopolitical status makes it an extremely important political battleground for other countries' to achieve their own foreign policy goals, which only exascerbates its internal divisions.

It is disappointing to see this opinion coming from an EU citizen who is also leading a regional body whose mission it is to foster economic interaction and harmony among the Black Sea countries. Even if this is Mr. Mariani's position in his private dealings with BSEC's members, it seems to me that publishing these kinds of opinions only polarizes people and squelches open discusson.

I hope that The Moscow Times has remained an independent publication and will also publish opposing or more balanced opinions (whether it is mine or someone else's) to give your readers a balanced viewpoint on which to base their own opinions.

Thank you.

Tim McQuillin

Where is George Bailey when you need him?

While my list of mobile industry topics I'd like to cover grows, the impact of the economic crisis and bank-related issues continue to take center stage in my mind for now. And for some reason, my banking experience during the past few days brought to mind that classic American Christmas tear-jerker, It's a Wonderful Life. For those of you who haven't seen this movie, here is the Wikipedia entry about it. It is a must-see in America during the holidays, with at least one cable channel using running a 24-hour marathon. Despite being released over 60 years ago, the situation in the clip below will be eerily familiar to today's Ukrainians:


These days I can relate to the depositers in this clip who stormed the Bailey Brothers' Building & Loan looking to withdrawal their savings. That's exactly what I went to do, as well as change it from hryvnia into dollars. This not so much anymore because I fear my bank will close its doors, but mainly due to the risk that the currency with further devalue.

Although in the end I completed my transaction, it took me 7 visits to 3 different bank branches over 3 days to do it. Actually, by Ukrainian banking standards that's not too bad, especially considering most bank employees were friendly, efficient and, of course, actually allowed me to do what I needed to do. Below are the main highlights of my experience:




Day 1:

• Branch #1: I'm told that there is a limit on the amount of dollars I can buy each day from a given branch. At the same time, I'm informed that I could repeat the transaction at an unlimited number of branches per day. Don't ask me what sense that makes. After completing my withdrawal and dollar purchase at Branch #1, I casually ask if I could also buy euros, even if I'd max'ed out my dollar limit. The answer is "yes". Again, don't ask me why. Result: 13% complete.
• Branch #2: After a 20-minute walk to the next branch on a bitterly cold day , I'm told there that my limit for buying dollars per day is not X, but 3X. Good news, but they couldn't explain to me why Branch #1 told me X. Result: another 13% complete
• Result for the day: about 25% completed

Day 2

• Branch #3: I remembered that a new branch opened up near my apartment, so I thought I'd save some time and make a withdrawal there. The quite snitty and self-confident bank teller there informs me that it is illegal for the bank to sell foreigners like myself currency. When I explain that two other branches sold me currency yesterday, she simply shrugs, indignantly said her memo informed her that is impossible, and shows no interest in looking into the matter. After many run-ins with these types of people over the years, I've learned not to waste my time on them. So I quickly tell her she is wrong and set off for the better informed branches. Result: 0% completed, 30 minutes of my time wasted, and my patience lost
• Branch #2, Visit #2: The same teller I spoke with on Day 1 tells me that she got yelled at for selling me currency over the X limit. She doesn't have any dollars to sell, but tells me to come back near the end of the day and she'll probably have some. Result: 0% completed, 1 hour of my time wasted
• Branch #1, Visit #2: I play dumb and tell the teller I'd like to withdrawal hryvnia and buy dollars. "How much," she asks? "As much as I can," I reply. I learn for the first time that there is a daily limit on hryvnia withdrawals. If converted to dollars, this limit is almost 7X the original dollar limit I was told. After checking with her colleague, the teller tells me I can buy 4X dollars and 2X in euros. Again, good news but why didn't any of the other tellers do this? For some reason, this transaction involved additional paperwork to be completed, but after about 45 minutes standing at the window, I had my money. Result: another 50% completed
• Result for the day: another 50% completed, but half my morning wasted to get it done

Day 3

• Branch #1, Visit #3: No messing around this time, back to Branch #1. This time all goes smoothly. My remaining balance is withdrawn, dollars purchased (3X the original limt I was told on Day 1), streamlined paperwork process (for some reason).
• Result for the day: mission accomplished

What would George Bailey think about this experience? He'd probably say that I should be grateful to get my money at all.

Unfortunately, a vast majority of Ukrainians believe that their banks are run by a bunch of Potters, even in the best of times. Given their experiences to date, whether the result of bank policy, government regulation, or incompetence, you can't blame them. My first inclination is to be suspicious of banks, which makes me ultra-sensitive to the inconvenience and inconsistency of information that I had to go through, especially because I think this type of thing would happen even without a crisis.

I can't say that George Bailey would have convinced me to leave my money in his bank if it had a Ukraine address. But then again, George Bailey probably would either have lost his bank to some oligarch or government official, or become one himself by now.

Stop, thief!

Walking on Maidan Nezhaleznosti the other day, I saw this banner and understood enough to know it was connected with the economic crisis. I thought I should probably snap a photo of it just in case. I was told later it translates roughly as:

ESCAPING THE CRISIS IS NOT AN EXCUSE TO STEAL FROM THE WORKERS!

Don't take back people's salaries!

Don't lay people off!

I'm not sure who exactly who is sponsoring this banner, but I believe it is some kind of workers' union. While I can't blame them for defending the interests of their members, I can't buy into equating business owners and managers who lay people off and cut salaries as stealing from the people. Granted, there are employers whose owners may actually did steal from the people 17 years ago to get where they are. But does lumping in all companies together like this really help? To me, it creates another division within a country that already has too many.

Don't get me wrong, I'm quite pissed off at the American financial system for the whole sub-prime mortgage fiasco, and think someone needs to go to jail and give back lots of money, not to mention keep an eye on these guys in the future to prevent this from happening again. But accepting the underlying premises of the belief expressed in this banner would get one a lifetime Communist Party membership. And at the risk of sounding insensitive, I also think it perpetuates the legacy of an entitlement mentality, that has been a drag on Ukraine's economic progress and social reform.

I'd be interested what alternative these guys are giving to entrepreneurs and businesses who are facing the prospect of bankruptcy by continuing with business as usual. In that case, who is trying to steal from whom?

Anyone have another opinion?

Window to Ukraine is open - peek in if you dare

Well, after a 5-month stint helping Microsoft build its Windows Mobile presence here in Ukraine, I finally have some time to once again open the curtains on my personal window into Ukraine. While I have lots of new gleams flashing through my head about the mobile industry and now smart devices, the hot topic on my and everyone else's mind is the economic crisis. How bad is it? How bad will it get? How long will it last?

I say from the start that no one outside the handful of banks and puppet masters controlling the Ukrainian economy have a good idea which way things will go, particularly over the next 6-9 months. In fact my wife recently attended the Adam Smith Conference on real estate last week, and some of the analysts said they've given up for now trying to forecast the real estate market. I've heard similar utterings from other business people I've spoken with. So while I am far from an economist or even a financist, given that everyone's crystal ball seems to be foggy, I guess my opinion is as good as anyone else's - which is scary.

I've heard varying opinions about the economic outlook, ranging from the very negative to cautiously positive. The positive say that Ukraine is facing an "artificial crisis" caused by the credit crunch, and that the current fall in demand will quickly bounce back once the credit situation stabilizes and NBU unfreezes bank accounts. Yes, many people including myself cannot get access to some of their money in local banks. The impact on consumer demand, they contend, was driven primarily by the panic caused by the fallout of the sub-prime mortgage crisis in the U.S., and the hryvnia's subsequent 20% devaluation versus the dollar in October. Beyond that, everything else is largely psychological. So, if everyone calms down and doesn't over-react, they say, everything will go back to normal.

I agree that people should not panic and, in fact, most people have calmed down to a state of heightened anxiety, which is probably quite rational right now given the current instability. However, I think the impact on people (i.e. consumers) will be more than psychological, and that things are going to get worse before they get better. In a nutshell, my reasons are the following:

1. A large part of Ukraine's economy are commodities and depend on exports, so when other economies fall like dominoes into recession, that will severely hurt these industries.
2. Business expansion and consumer demand during the past several years was fueled largely by credit denominated in foreign dollars or euros. The hryvnia's devaluation has pushed up interest rates and the monthly payments of these loans, creating a high risk of default and a drag on additional consumer spending.
3. While consumers' monthly loans payments are increasing, as well as the cost of most other items, more and more are being laid off or being forced to take salary cuts as businesses go into survival mode. Granted, salaries also rose a lot during the past several years, so certain segments of the population will be relatively unscathed. But, as usual, the middle-class will take the hardest hit just as it was beginning to develop.
4. High-level corruption is still alive and well. You can be sure that the economic power brokers and government officials will take care of themselves first. And I'm not talking about simply taking advantage of the "buy low, sell high" approach or doing what it takes to merely stabilize their companies and take a reasonable profit. You can be sure they see this huge opportunity for siphoning off more state and foreign funds, and are actively expropriating as much money as they can as fast as they can during this period.
5. Not only is the Ukrainian parliament on vacation (physically and mentally) during this crisis, the entire government is not functioning. The politicians are using this as an opportunity to either gain more power or simply weaken their opponents. There is no patriotic feeling to put country above self.

So, I believe the economy is going to get worse over the next 6-9 months before it gets better. On the bright side, I also think that it will be somewhat healthier when it comes out on the other end. Real estate prices may come out of the stratosphere, smart companies should be somewhat more efficient, corporate balance sheets should be stronger, and lenders should improve their loan practices and may even finally drive widespread use of credit history checks when making loans. But I say this with a good deal of skepticism. As they say, hope dies last.

Making matters worse are the external political pressures that Ukraine is enduring now, and will continue to endure, over the next several years. In case you haven't been following the news, Cold War II has started between the US and Russia. The chess board looks quite a bit different than it did 60 years ago, but the rhetoric and tactics coming from Russia are from the same playbook. Ukraine, now that it is an independent state, is the focus of a tug of war between the two countries. And while it seemed like the US and Europe were set to win at the end of 2004 a l'Orange Revolution, Russia is now gaining back some lost ground. Stratfor.com's "Countries in Crisis" series on Ukraine gives a very concise analysis of the situation in its "Countries in Crisis" series. Suffice it to say that Russia is using its considerable leverage over Ukraine in the areas of politics, energy, military, economics, intelligence, organized crime, population and even religion to either bring Ukraine firmly back into Russia's orbit or completely destabilize it.

A few of its latest high-profile tactics are:

1. Doubling Ukraine's price for gas, suing it for apparent non-payment, and threatening (again) to turn off Ukraine's supply this winter. It did this a couple of years ago as well.
2. Russia's TV channels, most of which are effectively under the Kremlin's control, are broadcasting anti-Yushchenko propaganda into Ukraine. Yushchenko recently pulled the licenses of several of these channels to broadcast in Ukraine.
3. Financial support of Yulia Tymoshenko's presidential ambitions. Until recently, Russia and Yulia were bitter enemies, but now they seem to have buried the hatchet for some reason.
4. Issuance of thousands of Russian passports to pro-Russian Ukrainian citizens, most likely with the intent to give it an excuse to "rescue" those of its new citizens who might claim persecution by the Ukrainian authorities.
5. Russia's action in Georgia was also meant to send a signal to Ukraine and the other CIS countries. Even if Georgia did fire the first shot, Russia had been looking for, if not actively provoking, a confrontation with Sakashvili and relished the idea of making an example out of him.

I understand why Russia is doing all of this, and were the US in the same situation it would probably be doing the same thing. However, if one believes in democracy, rule of law, free enterprise, and personal freedom are the ultimate end game, the difference between our two countries becomes very clear.

Regardless, the fight itself will only have a negative impact on Ukraine by dividing its citizens, encouraging the current corrupt system, and thereby delaying further the reforms needed to bring the country to European economic standards.

Sorry to make my first post in 5 months so gloomy. But I call 'em like I see 'em.