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Strategies & Market Trends : Investment in Russia and Eastern Europe

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To: Paul Berliner who wrote (1103)8/11/2000 1:24:49 AM
From: CIMA   of 1301
 
Blackjacks and Bears: Ukraine Sends Bombers to Russia

Summary

Washington has threatened to halt aid for nuclear disarmament in
Ukraine. The government of President Leonid Kuchma reportedly
continues to ship nuclear capable bombers - including the
supersonic Tu-160 Blackjack - to Russia, while accepting
Washington's money. The Clinton administration will find it hard to
bring sufficient pressure to bear on Kiev.

Analysis

The United States will stop financing Ukraine's nuclear dismantling
if Kiev trades any more strategic bombers to Russia, Steven Pifer,
the U.S. ambassador to Ukraine said on Aug. 7, according to the
Interfax news agency.

Ukraine, however, stands to make much more money by continuing to
give the bombers to Russia. Although Washington does intend to
withhold the funds, it will not likely do anything more. By calling
Washington's bluff and ignoring its warning, Ukraine may stress
relations with its Western sponsor. But Washington is unlikely to
get its way.

With the collapse of the Soviet Union in 1991, Ukraine inherited
the third largest nuclear arsenal in the world. It included 25
Tu-95 Bear and 19 Tu-160 Blackjack heavy bombers. The Bear is an
aging intercontinental bomber with a range of about 13,000
kilometers; the Blackjack is a supersonic multi-mission bomber,
similar to the U.S. B-1 bomber, capable of carrying cruise
missiles, short-range guided missiles, as well as nuclear and
conventional gravity bombs. Under the 1991 Cooperative Threat
Reduction Program, Ukraine is obligated to physically destroy 44
Soviet-era bombers by the first quarter of 2002.
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Instead, Ukraine last year traded 11 bombers - eight Tu-160s and
three Tu-95s - and almost 700 cruise missiles to Russia in exchange
for $285 million worth of debt forgiveness. Ukraine owes Russia for
natural gas shipments. In July, Ukraine offered Russia another 10
bombers in exchange for more debt relief; Russia has not yet
formally responded. Pifer pointed out that Washington pays for the
decommissioning of the aircraft, because they were built
specifically to target the United States with nuclear weapons,
reported Interfax.

Although the United States cannot prevent Ukraine from giving the
planes to Russia, it can cease payments meant to cover the cost of
the planes' destruction. The United States has promised
approximately $500 million for the Cooperative Threat Reduction
Program to be carried out in Ukraine. Of that, $13 million is
allocated for heavy bomber elimination, and of that $6 million has
already been spent.

But from the Ukrainian standpoint, working with Washington doesn't
make sense. Financially, forfeiting $7 million from the United
States in order to wipe out hundreds of millions of dollars worth
of debt to Russia is a bargain. But is it politically affordable?
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Ukraine is the third largest recipient of U.S. financial aid,
behind Israel and Egypt; U.S. Secretary of State Madeleine Albright
has said that Ukraine is one of Washington's top four international
priorities. Since independence in 1991, the United States has given
the country almost $2 billion. In March, Ukraine was promised $170
million for this year; while in Kiev in June U.S. President Bill
Clinton pledged another $80 million for the safe closure of
Chernobyl.

In return, Ukraine - which is geographically strategic and
challenged with diplomatically juggling Washington and Moscow - has
increased its military and political cooperation with the United
States, often at the risk of Russian reprisal. It is a member of
NATO's Partnership for Peace program, and this May the country
promised to bring its military into line with NATO standards by
2005, reported Agence France Presse.

Kiev and Washington have been, however, unreliable allies. Ukraine
has witnessed Washington's hesitation to protect some of its other
allies in the region, such as Georgia and Azerbaijan. The Kuchma
government will not count on the United States to protect it from
Russia, for example.

Ukraine will not bow to the tune of a mere $7 million. Unless the
United States is willing to withdraw additional aid -not
specifically tied to nuclear disarmament - Ukraine will likely keep
right on calling Washington's bluff - and shipping nuclear-capable
bombers to Russia.
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