Carlos PASCUAL: “It doesn’t so much matter what the US government thinks about Ukraine, but what the business community thinks”
The US Ambassador Extraordinary and Plenipotentiary to Ukraine Carlos Pascual assumed his duties at a time when the administration in the White House is changing, when Ukraine itself is experiencing changes, and all that is against the background of global changes in the world. Ambassador Pascual believes there will not be fundamental changes in the Ukrainian- US relationship, but Ukraine should be prepared to compete for investment, to acknowledge itself as a European state, and to concentrate on solving its domestic policy problems, and on guaranteeing transparency in the privatization process. In his interview with The Day Ambassador Pascual said it is in the interest of the United States to support a democratic Ukraine. And with a democratic Ukraine one can move forward in spite of differences.
It would be very interesting for many people to hear your view on the situation with US elections.
Even though this is a difficult time and there is a lot of uncertainty, it is also extremely important that there has been a great deal of openness in public attention to these issues in my country. It’s really this kind of public openness and public scrutiny that is going to assure that we have a very transparent outcome to this process. I think what we found out is as difficult as it might be, our society and political system gets stronger when we confront issues and problems openly and try to find constructive solutions to them.
What new nuances in Ukrainian-American relations can appear after these elections?
Before coming here I had an opportunity to meet with great number of people, both democrats and republicans, inside and outside of government, and also in our Congress. And one of the things I was struck by was the unanimity of opinion on US policy toward Ukraine. You’ve heard me and my predecessor (Ambassador Pifer — Ed.) say this before, but the fundamental principles are going to remain consistent. This is essentially that the United States sees it in America’s interest to promote an independent, democratic, and market-oriented Ukraine. I think that one of the key questions that is arising among most interested people in the United States is how Ukraine wants to continue to move in the future.
Specifically, President Kuchma has indicated that Ukraine has made a European choice. That European choice, however, is not so much a question of foreign policy as it is of domestic policy. For example, how Ukraine structures its political system, how it conducts its elections and its relationship to the press, how it proceeds to strengthen the concept and the legal foundation for an independent judiciary, how it structures the tax system, whether there are strong and effective steps against corruption. The point is how these issues are addressed, are they going to fundamentally create people’s perception of Ukraine as a European state.
There are two kinds of things that we can do to be helpful.
One is to define very specific and concrete actions that can be taken, that will improve life here for Ukrainians and will make a statement in and of themselves on Ukraine’s attitudes and policies toward the future.
And the second way that I think we can particularly help is to reinforce and strengthen the emergence of Ukrainian civil society, those organizations and individuals who are working to promote change from the bottom up.
Speaking about the fundamental principles of relations that, according to you, will remain constant, the term of strategic partnership has often been used. What meaning do you put into these words?
I think this is a good question because it’s useful for both Americans and Ukrainians to discuss it and have a common understanding of what a strategic partnership is and what it can be useful for. I find it helpful to think about it in this way and it has three components or elements.
The first is to share with one another a broader vision about how the world is changing, the values that we support in that changing world, and how Ukraine fits into it. For example, the international environment is evolving quickly, information moves quickly throughout the world, borders don’t have the same kind of meaning that they once had, marketplaces are increasingly global and are not regional or national. More specifically, in this area the concept of Europe is changing. People have a broader conception of what it means to be European and what states are European. Your neighbors are moving rapidly to associate themselves with European integration (Poland, the Czech Republic, Hungary, Slovakia, etc. In many ways it’s good for Ukraine because you are a part of a dynamic neighborhood. But it’s also a challenge, because it means that in order to be able to be noticed, to draw attention, to attract investors, Ukraine has to keep up with its competitors. And this has implications then for Ukraine’s internal vision, of how it sees itself and where it wants to go in the future.
The second part of the vision is how we set practical priorities for our work. And the goal here is to be able to in fact move from the broad vision that we might share, to translate that into a practical work program that we can both pursue, jointly or in parallel, so that we can actually help Ukraine come close to realizing the broader vision that I’ve just discussed. Let me mention some of the things that are on our priority agenda now. One issue is a whole series of economic and macroeconomic questions that relate to Ukraine’s macroeconomic stability and also relate to its relationship with the IMF. Ukraine and the IMF will have to negotiate directly on the specifics of a program with the IMF. But I think that there are times when we can be helpful by having a discussion about some of the substantive questions at hand. For example, the kind of budget deficit that Ukraine might pursue in its budget for next year and what the implication of this budget deficit might be, for how it would effect inflation, and depending on that inflation rate and people’s perception of Ukraine’s fiscal soundness and how that might affect the investment climate. In other words, we recognize that Ukraine is going to make choices on its macroeconomic policy based on how Ukrainian politicians and policy-makers decide what actions are best for Ukraine. But as strategic partners we can have a dialogue which informs both Ukraine’s choices for itself and could also inform the kind of dialogue that Ukraine might have with the IMF that may in fact be helpful to create a stronger and more stable macroeconomic environment.
There are other examples we can point to. There’s been a lot of cooperation and work between our countries on the closure of Chornobyl. For example, the US has been a leader in raising international financing for stabilization of the shelter around Unit Four. The US was very directly involved in discussions about a recent EBRD loan that was provided for one hundred million dollars to finance the importation of fossil fuels. The US is very involved right now in discussions that Ukraine is having with EBRD on financing for the two reactors that Ukraine would like to complete in Khmelnytsky and Rivne. The US has been very involved in working with Ukraine to help create some of the conditions that might need to be put in place to attract other kinds of financing and investment in the energy sector.
Many times we agree, sometimes we disagree, but part of being a strategic partner is to be able to in fact set common goals, work through the differences and even when problems exist to be able to continue to move forward.
The third part of the strategic partnership is to be able to work together to set common goals and objectives on foreign policy issues and security issues. We’ve taken a very clear stance that we support the concept of Ukraine as a European state. We’ve supported Ukraine’s integration with a number of European institutions like OSCE and Council of Europe. We’ve supported the development of a strong relationship between Ukraine and the European Union. At the same time, we see strong relations between Ukraine and Europe, Ukraine and the Euro-Atlantic community, as completely consistent with strong and stable relations with Russia.
On security issues we’ve supported a strong relationship between Ukraine and NATO. Indeed, the US played a leadership role in bringing together the NATO alliance to sign with Ukraine a Distinctive Partnership with NATO in 1997. That partnership continues to play itself out in ways that people don’t always notice but, I think, are very important. For example, in December Minister Kuzmuk and then, later in the month Minister Zlenko will have an opportunity to meet with the 19 foreign ministers that represent the members of NATO. And this is a tremendous opportunity for Ukraine to give its vision of the directions of its foreign policy, of its security interests, and have a dialogue with some of the most important and powerful political figures and security figures in the West.
Thus, the nature of a strategic partnership is complex, there is not one specific thing that one can say that, ah, this is a strategic partnership. This is part of an inner woven web of political, economic, foreign policy, and security relationships that draw our countries together.
Your predecessor, Ambassador Pifer, called our bilateral economic relationship “underdeveloped”. What is your view of this? Why, in your opinion, the Kharkiv Initiative does not develop, as it should?
One thing that Ambassador Pifer and I very much share in common is an incredible appreciation for the potential of the Ukrainian economy. You have extremely talented people. That creates a tremendous amount of potential for work together on high technology. You have, perhaps, the most productive agricultural potential in Europe. You have an incredibly strategic position in Europe as well, which gives you the potential or opportunity to take advantage of being a transport center or a transport hub. The question that Ambassador Pifer was asking and which I would ask, and I think Ukraine’s own leaders ask, is given the fact that this potential exists, has it produced the results at this point that the Ukrainian people desire? I think that in that context we can all agree that the Ukrainian people want to see a more prosperous Ukraine.
The question that investors have to answer for themselves is “if I have $100 to invest am I going to make the most money on that $100 if I invest it in Ukraine, or in Poland or Slovakia or maybe somewhere else completely different?” It doesn’t so much matter what we the United States as a government thinks. But what is really most important is what the business community and potential investors think about the climate.
Let me tell you some of the reactions that I’ve heard from businesspeople while I’ve been in Ukraine and even before I came here. Generally, very positive views about the Ukrainian labor force. Generally positive views about potential with raw materials, especially in agriculture. Where the greatest difficulties come are with the creation of the laws and institutions that are necessary to make a market economy function effectively. There is still uncertainty about the tax system and how it’s going to be enforced. There is still uncertainty about the legal system in the case that disputes arise. There are still questions about the court system and how it functions and how different parts of the court system relate to each other. There is a sense that the economic environment is still highly, highly regulated. That doesn’t mean that regulations are inappropriate but the when businesses have to spend too large a share of their time fighting or dealing with those regulations this makes it impossible for them to function effectively.
And finally there have been a number of recent surveys, the two that are most well- known are one by Transparency International and another that was sponsored by the World Bank that have indicated that businesses feel that there is still high level of corruption in Ukraine. That doesn’t mean that corruption doesn’t exist in other countries. But when it comes to the point of Ukraine demonstrating that this could be a better environment for investors to bring their money, it is yet another factor that makes it more difficult for them to make that decision. Now the positive thing here is that these are all issues that can be addressed, that can be fixed. For example, Verkhovna Rada is considering a new law on the judiciary, and if this law was passed in the way that reinforced the concept of an independent judiciary and helped people better understand the relationships of different parts of the court system, that could actually be a very positive step for investors.
Another example, Ukraine is currently in a process of moving forward with the privatization of a number of oblenergos. There are many potential international investors who are interested in this privatization. If the privatization is handled in a transparent way that brings in strategic international investors, I think two things will happen: the international community will take notice and say: hey, something different is happening, and we can see a positive development and trend on economic and financial transactions that are big and make a difference. And the second positive thing that can happen is that Ukrainians themselves will begin to feel some of the benefits by introducing international management into Ukraine’s energy sector.
I think, in many ways the Kharkiv Initiative illustrates some of the positive aspects of our cooperation and some of the difficulties and problems that we face. There have been a few examples of investments that have already been made, business partnerships that have been formed and created.
The Kharkiv Initiative also indicates the difficulty of forming some of those kinds of business relationships when there are in fact a lot of general kinds of business climate problems that I just mentioned. One of things that we have seen is that an area where there is a tremendous amount of potential is in the small and micro-enterprise sector. Where you have new entrepreneurs bringing their ideas to the marketplace and starting to create a new Ukrainian economy from the bottom up. There are a number of micro-enterprise-related programs that are at the point of now just being opened up in Kharkiv. It’s not the kind of thing that people have traditionally looked at as part of our economic cooperation, but it in fact is actually a crucial element of Ukraine’s future. Sometimes people think about economic cooperation in terms of very big and visible projects. What we found in the US is that small and medium enterprises actually produce 50% of our national income. From what I’m told the figure in Ukraine is well less than 20%. So the potential for expansion here is just tremendous.
You mentioned the problem of fighting corruption. In what way our countries could cooperate here, including our special services? What are the prospects on Lazarenko case? By the way, what do you think about possibility of involving the FBI in journalist Gongadze’s disappearance?
In order to tackle this problem effectively, our perception is that we need to work on it together at many different levels, and this in fact how we are pursuing it with our Ukrainian counterparts. One critical factor is to be able to talk frankly about the problem and to recognize in public that issues exist, and to develop strategies together to be able to combat the problem. The fact that Ukrainian officials now come forward and recognize that this is an issue and problem for Ukraine opens the door to potential cooperation. A second area for cooperation is to identify very high profile economic and financial transactions to ensure that they are completed effectively so that they are free of corruption. Because that begins to set an example for how Ukraine wants to operate and how it wants to be perceived internationally and domestically.
I mentioned the oblenerho privatization. Let me give you another example: the management of the gas transport system, the privatization of Ukrtelekom. How these issues are handled and managed is going to speak for itself.
A third area is to cooperate on reducing the opportunities that exist for corruption. When there is an excessive number of regulations in economy that creates a number of roadblocks and hurdles which give an opportunity for corruption. Another area for cooperation is to provide support for organizations and groups, and the press that continue to bring focus on questions of corruption. Because as Ukrainians increasingly are able to bring pressure within their own society to in fact address these problems and resolve them, then that creates the political incentive to make sure that there is positive movement forward.
Cooperation on law enforcement issues is part of this overall equation. But the reality is that it is a very small part of that overall cooperation. The US does not have the capacity to be able to conduct investigations on the kind of scale and volume that would make a broad, significant difference in Ukraine. When there are specific cases that are brought to our attention, where we could potentially cooperate and we have the legal framework in order to do so, then we try to be helpful.
The most efficient thing for us to be able to do is to work on ways to prevent problems of corruption from even arising, and that’s how most of our assistance is structured. On the Lazarenko case, I think you know very well what the status is, and that the investigation continues in the United States. Lazarenko was indicted last May, and this is proceeding in accordance with our laws in the United States.
