A Conversation with Viktor Yushchenko

PETER ACKERMAN: Good afternoon. Welcome to today's Council on Foreign Relations meeting. I'd like to ask you to turn off -- I mean, completely turn off, and not leave on vibrate, all your phones, Blackberries, all wireless devices, any other electronic gadgetry, so we make sure none of those interfere with the sound system. I would like to remind the members that this meeting is on the record.

My name is Peter Ackerman and I'm a member of the board of the Council on Foreign Relations. And I also have the honor of being executive producer of "Orange Revolution," a documentary that's going to appear on the Public Broadcasting System this fall. From my experience, great documentaries, like great movies, tell compelling stories featuring heroic figures who willingly endure -- willingly endure personal sacrifice for a greater good.

Our speaker, Viktor Yushchenko, a short five years ago risked his life for the principle that his fellow citizens have the right to pick their leaders by free, fair and accurately-counted elections. Today he's considered by many an iconic figure, much admired for the courage and leadership he displayed in the tumultuous Orange Revolution until his election to the office of president of Ukraine in December, 2004.

What may not generally be known is that our guest also had a distinguished career as governor of the National Bank of Ukraine for six years, until becoming prime minister from 1999 to 2001. President Yushchenko is also a well-regarded economist in his country, becoming a member of the National Academy of Economic Science.

President Yushchenko was born in 1954 to two parents who both became teachers. And, in an interesting twist on contemporary gender stereotypes, his father taught English and his mother taught math and physics.

Our speaker is married to Kateryna, who's here today -- - a Chicago native, and has five children and two grandchildren. So, I'd like to ask the president to offer his remarks, which will last about 15 minutes. I'll ask an opening question. Then we'll have the members ask the questions they're interested in.

Mr. President.

PRESIDENT VIKTOR A. YUSHCHENKO: (Through interpreter.)

Dear Mr. Chairman, dear ladies and gentlemen, guests, this is a great honor for me to have this discussion with you today and to express on issues that are of mutual interest for us. We're going to discuss about -- discuss Ukraine. We're going to be speaking to its economic development, political development, and social; what has changed in Ukraine for the last four years and where we are today; what are the challenges that Ukraine is facing. And we will -- we may to consider foreign political issues, bilateral agenda

And let's not waste time. I'll probably start with my introduction. I'll start saying, dear guests, I'm very proud of what's happened in Ukraine in the last four years, and I'm telling you this with absolute confidence. We have lived a very important years for the Ukrainian establishment, and I would like to give several arguments about that.

Let's start with the economy, where that's probably not that many discussions going on. Taking our development for the last three-and-a-half years, it was the first time when we came up with the economic performance, on the annual basis, from 7 to 7.5 percent of GDP growth. There's never been such dynamics in Ukraine in the last 18 years. This is the highest economic development that the independent Ukraine ever witnessed.

If we speak about industrial sectors, the industry grows at 17 percent; shipbuilding, 28 (percent). Speaking of that, the agriculture -- we had two major records in our harvest: 53 million tons, and 45 billion tons of grain. And we came up as the fifth biggest exporter of grain in the world, and it's been already -- in the last three years, in the fourth place on the corn exports; second place on barley export; and the first place on sunflower seeds.

So I should say that this process can be called a "renaissance." We returned what always belonged to Ukraine, if we stick to that agricultural development. It was always a breadbasket and it was a country that was actively operating in external markets. And, in the last three years, Ukraine has proven again that we are in an -- (inaudible) -- phase of developing our economy.

It's obvious that things are going right. In the financial sector, if we speak about the state budget, it's grown in the previous three years. It at least doubled in the previous three years. And if mentioning the foreign direct investment, four years ago we had only 6.8 billion U.S. dollars, while today we have $38 (billion). So, therefore we can confidently say that 90 percent of the total investment was the investment that we received in the last three years.

Apparently, that gave positive impetus on social standards, on employment rate. It's already been three years when we have positive labor migration. More people come into Ukraine than leave it. If we speak about social standards, for instance, I could possibly give you such an example as just one index -- that's pensions. Four years ago, the minimum pension was something like $8, and today it is $100. And similar dynamics there is on salaries and living minimum.

So what actually -- what's happened for the last three years in the economic life was the performance we could only dream about. We managed to form high macroeconomic culture that led to successful economic evolution -- price and money stability, the development of budgeting processes. And undoubtedly -- and I want to say it once again, obviously this is very important to emphasize that we have very good progress in social standards and social development.

I want to say it once again, Ukraine has never witnessed such dynamics. And this would be a great response for what the competitive economies giving what public -- public finances are given within the framework of high macroeconomic culture.

And the third thing I would like to tell you about -- I guess probably I would put it in the first place, those who visit Ukraine in the last years, you know, because we could see a different country. This is a democratic country, first of all. This is probably the biggest accomplishment. That is probably given less value -- like air, when you have it, you don't see it, you don't mention it. But that's probably the biggest thing, and that assured our progress and dynamics that I just mentioned.

You know, I don't have to give any scaled comments, but just say but one great accomplishment: We do have the freedom of speech. We do have free journalists. We have journalists that could be shot four years ago, who could receive news only from one spot -- from the president's cabinet. And that's how the entire country lived and thought. And I'm deeply convinced that free journalists is probably a key to our freedom. This is -- one of our biggest accomplishments is free journalists.

I'm not saying this just to say that it was so much easy, because in this very matter we still have certain problems. We need to make free journalists free from their orders, have to make them free from the clans, and many other challenges that the Ukrainian journalists are still facing.

But on behalf of the state, I'd like -- I want, and I can say this is a genuine and free profession. Whether we speak -- (inaudible) -- we attained, for the last four years, the freedom of choice. The dramatic -- what happened four years ago, that actually brought people to the streets, gave birth to the Orange Revolution, where the facts that teachers were shown who they should vote for, and medical people and soldiers were shown who you should -- who they should have voted for. So it was about students and anybody.

But in the last four years we had two parliamentary -- pre-term parliamentary elections, one preterm and one regular. In both cases, the opposition would win. And that's interesting. The results of both elections were recognized by all the observers -- from Europe, from the States, from East. All recognized that the elections were just, legal -- and truthful, that was the evaluation of those results. And in both cases the opposition would win. Those were honest and just elections.

With this, I'd like to say that one of the most fundamental accomplishments we have is that, through democracy, through the freedom of choice we gave answer to any challenge that Ukraine faced, even if we speak about very baffling processes going on in the Ukraine in parliament and government. If we have enough time I'll tell more details.

So, in summarizing the last year, I think the assessment was -- came from Freedom House, when Ukraine, for the first time in the 18-year history, was -- actually belonged to the group of free countries. And we covered the pace for the 17 years, but the biggest accomplishment is that our country is today a free democracy, and that's the accomplishment of the last three years.

So I thank you very much, Mr. President, that you introduced myself as an economist, as a financist (sic). It's very easy for me to speak about the economy. But, first of all, I'd like to say that the biggest success we had in these years was the political success, because we accepted the values and principles of civil life organization purely on a democratic basis. And there is a lot of optimism, because it is purely on this basis that we can speak about our future, and in this context.

I'd like to comment some very important positions, without which it would be really hard to speak about Ukraine's fate, and the years lived through -- in the last three or four years. Obviously, relations with the United States are strategic for us. These are friendly relations. These are relations between very good friends. This is the country that we communicate freely and openly, and we openly speak about what we need -- that we need a very intensive dialogue, a very close political and -- (inaudible) -- relationships.

That's why, within the framework of the last visit of the U.S. vice president, we agreed about the strategic group. We came up with a road map. We signed strategic agreement -- a strategic agreement in December last year. This means, obviously, that the two countries have very high ranking status of relationships, and they have the action plan that determines the agenda for 2009-2010.

We obviously will be repeating that we are very interested in genuine strategic relationships and very dynamic relationships. That's why this is a particular address to you, your colleagues and your friends: Do not forget Ukraine. Always remember that we are in need for our contacts, because things I'm going to be speaking are only -- not only challenges for the Ukraine, but also for the entire world, and we have to solve those problems together.

I'm very proud that because -- and owing to such dynamic relations with the United States, we managed to solve issues that we couldn't solve three years ago. The Jackson-Vanik Amendment was cancelled and we became the members of WTO. We changed -- we radically changed the intensiveness and results of our relations with the European Union and NATO. And I'd like to touch upon those relations a bit because they are very important to characterize the Ukrainian policy.

Speaking, as of today, where we are in our relations with -- for instance, with the European Union, then I should start speaking about what we are working on today. Those are three reports of completed work on developing the association agreement between Ukraine and the European Union, and I hope that in December this agreement will be signed. We do not see any serious political or applicable problems.

For the first time, the association agreement will be one half a part which fixes the free trade area between Ukraine and the European Union. It was the first time when this agreement will contain security chapter. So we're going to have an agreement which has no analogies, according to seriousness. The third and the fourth wave came through the association agreement -- I mean, those countries that managed to have accession to European Union, but the agreement we have has no analogies whatsoever.

So we signed the protocol and during the Bologna process. It's the first area where Ukraine entered and became the member of the European educational area. So starting from 2010, the Ukrainian diplomats will be fully adapted to the European standards, and the same is related to the scholar grades.

Today we are working on the harmonization of our electricity system. This is applicable integration for us. Today one of the working groups is working on "Common Sky" with the European Union. You probably remember the March declaration signed on the gas transit system with Ukraine -- that we signed with the European Commission. And today we work on Ukraine's joining the European Energy Association.

Several -- three, four months ago we accepted the feasibility study on -- it is called, in Europe is it is called the "Euro-Asian Oil Transport Corridor." This is a project to supply Caspian oil through Caucasus and the Black Sea, through Odessa-Brody pipeline straight to the European Union, the project that was financed -- the feasibility study that was actually financed by the European Commission. And we believe that it's one of the most feasible and successful projects to supply Caspian oil through Ukraine to the European Union. This is the most attractive and the most economically efficient project.

This, and many other projects with the European Union and the EC, were over the last three or four years. And our relationships have become radically different. This is a very thick portfolio of different projects that we consider, and I'm very proud and happy that the dynamic relations we have with the European Commission -- this was never the case in any part of Ukraine's history of relations with the EU.

If we speak about regional issues and regional policy, then it would be probably very important to say about the Ukraine's relations with Russia. They are not the best. They are not like making you proud of, because I'm sure that neighbors need to have better relations, and to be able to solve even inherited challenges.

But with that, I'd like to say that we have very clear agenda of our relations with Russia. Obviously there will be time when the Russians will find guts, and wisdom and possibilities to welcome such relations. Obviously, we have the whole range of challenges we have to solve, and we would be willing to do that but not everything is now within Ukraine's will.

What's the most sensitive for our relations? I would mention probably three, four issues, so it would not be the complete list. But start with the border issue. This year Ukraine celebrated the 18th anniversary of its independence. But, unfortunately, the entire surface border between Ukraine and Russia is not demarked. We don't have any single foot of our border where we would have legitimate and approved line of borderline.

And it's not a political issue that stand in the way to take the problem off. We don't have these problems on the surface border. We had 27 round of negotiations about that. And we finalized them, and have taken away all the problems about the surface border. And we believe that the both side, from the technical standpoint, are for a long time ready to sign the respective agreement and demark the border.

They should clearly state where the land of one country ends -- and where the rules of one constitution ends, and where a different one starts. Unfortunately, that work is not being done, and this is not our fault. However, I always put those things into our agenda. And I recently sent a letter to the Russian president with a proposal to come back to that issue again.

The situation is quite complicated on delimitation of frontiers -- of water frontiers, especially such sensitive points like Tuzla Island, where the territory that belongs to -- and from the administrative standpoint belongs to Ukraine, and on all the administrative maps of the Soviet Union it's always belonged to Ukraine.

And obviously we will never approach this issue with any other conditions, because Tuzla Island would always remain Ukrainian. But, unfortunately, Russians have different thoughts about that, which are not acceptable for us whatsoever. They are not, and will not, be acceptable.

Another serious problem is the presence of the Russian Black Sea navy deployed in the Crimean Peninsula. Ukraine's position is clear. And since that agreement that was signed in 1997 forced over 20 years of Russian Black Sea navy deployment until May 27, 2017, but the Ukrainian side believes that the Ukrainian constitution prohibits any military bases deployed in the Ukrainian territory -- I mean, military bases of foreign states. This is an imperative and direct norm of the constitution.

Obviously, agreements are signed and have to be fulfilled. We hope that the Russian side, and the word that they gave back in 1997 will be kept, and the Russian Black Sea fleet will leave the country before May 27th, 2017. We truly want to cooperate, and we declared that the Ukrainian side will fulfill all the conditions foreseen until the year 2017 on the Russian Black Sea navy deployment.

However, there are many problems. They're starting from the issue of the land lots, and their applications -- the application of real estate, and radio frequencies, coast navigation that fully belongs to the Russian side. However, there's nothing like that in the agreement. And there are many other issues.

So only that we want to have normal political and diplomatic communication about that. We do not try to avoid it. We want to have an open discussion about that. We want the results of those discussions to be delivered to the two nations, to the two countries, so that the communities would be informed how the countries approached those problems.

You know, the fathers of the Ukrainian constitutions -- when they adopted it in 1996, they told us the biggest priority in national interest is the absence of any foreign military bases on Ukrainian territory. And the agreement that was prolonged until 2017 was concluded by the previous administration only because there were no conditions enough to make the fleet leave right away, because this issue -- this matter requires the great deal of preparatory work. You cannot do it in a year or two. And we still hope to find understanding about that. But, in the core, the Ukrainian constitutions will always be.

Obviously, the issue of our integration to NATO adds more complicated things into the Ukrainian-Russian relations. And here I would like to give you two -- several pieces of information as an official Ukrainian position. First of all, when we speak about our NATO integration it's not about how to form new threats or challenges for any other third party. However, that matter is very often speculated in Russian press. This is not our target -- to make it harder for something, but this is the target of giving the answer to the sufficient national security policy.

A little bit of a history. Just within the last four years -- since 1917 we declared our independence six times. And five times we lost it. And there was only one reason behind it -- the international factor. And that's why we need to take out take out lessons, the only way to -- and not only for Ukraine or the European continent -- to have perfect --- (inaudible) -- defense policy to have the status of --- (inaudible) -- European collective security.

There is no other answer to this. We don't want to lose our independence like we did many times in the 20th century. NATO membership and the Ukrainian independence, let's say, are synonymous. That's why we speak about our natural aspiration. When we're told that Ukraine will enter NATO and we're going to have a NATO base in Sevastopol we say, no, our constitution gives a guarantee that no foreign military base, either Russian or no other country. This is very important in our constitution. We are often reproached that they can install some nuclear deposits and nuclear weapons over there.

It once again comes back to the history of 1994, when Ukraine did an unprecedented step, when we took away 2,000 warheads unilaterally from our territory. And then in 15 years --- after 15 years we were told that, okay, you guys try to deploy some other military missiles, nuclear missiles. And we gave our international guarantees that Ukraine would not take such steps anymore.

And the same can be said about our territory, which will not be used to threat other countries. The same is about or as high --- we want to find a clear answer, a clear and open security policy for our country and this is where our inspiration is to get integrated into the North Atlantic Treaty Organization.

And lastly, because I can see that the Mr. Chairman already is looking at me that I already used my time limit.

About the political situation in Ukraine -- I will not be picturing it in very much of detail because I'm going to answer questions and a couple of things I'd like to mention.

The first thing that I would like you to know is that the Achilles heel of the Ukrainian domestic policy and the problem with political instability is, in fact, that back in 2004 --- this is not only my opinion but this is the opinion of many politicians in Ukraine and European experts and international experts, ones that are very --- (rushful and vague political ?) that led to the loss of balances and parities that existed in different authorities in Ukraine, I mean, the parliament, the president, and the prime minister, the government.

Unfortunately, the changes to the constitution that took place in 2004 led to the situation that Ukraine transferred from the presidential form to the parliamentary form of governance.

And at the same time, very skilled systemic issues on organizing authorities and put them into order was not organized. I think experts clearly know about that -- that's why I'm speaking about that very synthetically.

So the only --- there is only one way to find those balances and parities, which would be necessary to balance different branches of power. This is the constitutional reform.

And March this year I introduced an updated draft of the constitution to the parliament and I sent it to the Venice Commission and we received their vision from the Venice Commission that means that mentioned that the changes that the president offers are the changes --- the proposals made by the president are key and very important, fundamental.

And the Venice Commission is a very high affiliation to those changes and amendments -- things that Ukraine never changed about the construction of the authorities. And the Venice Commission emphasized that it was the first time when those changes, amendments, they are taken into account.

The self-governance of the two chamber parliament and forming the government from only one source, not from two like it is done today, and that's why this causes troubles. And there are many classical things to the countries of such governance. That's why I hope that national discussions will be finalized in the first of December, that the constitution will bring civil initiatives that will make the parliament come through the range of procedures and then the draft will be sent to the Constitutional Court for final decision making.

This is the only way to settle what's not been settled constitutionally. No other arrangements will solve the problem. That's why we ask many other things but when we speak about that the foundations, why there is the coalition in the parliament and there is no majority in the parliament, why the government is not formed and why not all the ministers are appointed, why the parliament actually stays idle.

I once calculated that they produce from eight to ten laws a month, produced by --- (inaudible). This means that there are fundamental things which are about the governance, so the only way is to introduce changes and then through the parliament, through public discussions to solve those problems for the nation.

And I already addressed to the nation such an initiative saying if we want to see the Ukrainian government and relations between the government, the parliament and the president, in the classical way we need to put classical foundation for forming the national power. And I hope that it will be the basic response to and the remedy to that political instability that we see today in the parliament where we actually have a block situation by two factions. This is either one faction has blocked the parliament or the prime minister's faction starts blocking the --- (inaudible). There's always somebody who tries to block it.

This is abnormal. I don't think there is such a situation anywhere in the world when the prime minister's faction blocks the parliament. I don't think it exists anywhere.

But this is the reality that needs to be answered to. Such challenges can be given in purely constitutional matter and that's what democracy is for. There are mistakes that, not we made, that were made before us, they were about the constitution's body. You cannot give the different answer if it is not regulated by the fundamental law. That's why I'm very optimistic and I'm sure this is democracy that gives the chance to respond to such challenges.

I thank you very much. (Audience applauds.)

ACKERMAN: Mr. President, thank you for those comprehensive remarks. And with your permission, I'd like to go directly to the membership and invite them to ask questions.

After I select you, please wait for a microphone, speak directly into it and stand first and state your name and affiliation. And please limit yourself to one question and keep it as concise as possible to allow as many as possible to speak.

QUESTIONER: Hello. Jonathan Tepperman from Newsweek International. Is Russia acting to destabilize Ukraine at the moment by distributing Russian passports in the Crimea or various other related activities?

PRESIDENT YUSHCHENKO: I would recall several things that I consider as those that destabilize the situation. We think about the State Duma's decision of 1993 that recognized the city of Sevastopol as a Russian city. Obviously that is a destabilizing decision and very few people pay attention to it today because it's been already 16 years after that. Apparently it is illegal but it just only means that in this relation there are things which make somebody's independence subdued and subdues territory integrity and sovereign right.

When we think about those passport issues, several months ago I once again instructed the prosecutor's office to make inspections of those facts. And it seems to be according to the last inspection's results, the citizenships of several hundreds of people were cancelled. Those are the people that started their service at the Black Sea navy counteragent.

It's thinking about the legal scale. The Ukrainian legislation does not allow to have double citizenship. So any combination of --- with any part of the Ukrainian society does not allow legitimate citizenship for the Ukrainian citizens of any other country. So when such take place we try to provide operative reaction to it.

I think today this period is very important when --- (inaudible) -- interference or not interference when there are only several months before the presidential election in January next year in Ukraine. So we'll obviously have to say that the presidential election is a sovereign right of the Ukrainian people that no pressure from international, informational, political, or diplomatic would like to see from nowhere, including Russia.

Obviously there is --- (inaudible). To be more correct I'd say there are politicians who would like to have and who are livened by such pressure, those who would like to have informational, financial, or any other support from Russia. They want to be engaged in economic projects.

And I did not accept it, as a citizen and the president. You know, there still are residues that still remain from those times when Ukraine was colonized and we could only dream about our independence for 350 years. Not all the politicians live with the national idea in their hearts. Not all of them think about the eternal Ukraine.

I think the most, the hardest for the nation, which has the history of 300 years like Ukraine does, apparently the hardest thing is to make a --- to answer to the question how to make a good nation from the nation that never had a state, to create a nation with your own history, language, memory, tradition, culture.

Of course we can accept all the cultures but if we don't have our own culture then there is a natural question -- what is this nation about? Is this a genuine nation or is this just step-children of some others, or foster children?

And these answers not only --- cannot only be made by the Orange Revolution. We need to find four to six million keys to those people's hearts. And we need to wake up something that genetically remains with the people. But in some of the cases, it's already lost. The feeling that you're Ukrainian, you're free of your own country and you are to choose the president of your country, this is your right. And not just to trade your feelings of freedom and will. So this is actually what is called the Orange Revolution, how to bring self-sufficiency to the nation back.

And I'm very optimistic about that in the sense the Ukrainian people from month to month become more Ukrainian. They form their own nation with their values, with their attributes of national life.

Dependency on other infants is kind of name decide where it comes from not to make neighbors embarrassed, just theoretically speaking, that the infants of the neighbors is not because it's getting smaller, not getting smaller because of its strength or weakness. It's getting smaller because people no longer react to it that much. The nation is getting changed.

People start thinking that people understand that at the end of the day this is their sovereign right. And there are more and more people like that every year. That's why I'm very optimistic.

Solving the issue of who will be the president of Ukraine in 2017 will not be out of Ukraine. However, there will be a desire to do that, how to decide those issues somewhere abroad. But the answer will be remarkable and it will be given by the four to six million Ukrainians.

QUESTIONER: Hello. I'm David --- (inaudible) -- with --- (inaudible).

Mr. President, thank you for speaking with us today. I wonder if you could give us your vision of what happened with the currency itself and how that effects the growth and the outlook for Ukraine? Is it an important issue? What other economic issues might be as important? Thank you.

PRESIDENT YUSHCHENKO: Speaking about the economic life and the challenges that are the most sensitive, I'd like to say this is a bad national currency stability, stability of prices, and budget -- three things that I think it's worth paying attention to.

And what are the processes that we should have to work on? If we speak about the problem of price, prices, and inflation problems, exchange rate. Last year, I want to be frank, without any reproaches to populistic policy proposed a very weak budget for the last year.

For instance, in January last year, social expenses increased by 65 percent just in January, 75 percent in one month. It obviously led to certain situations that the government lost control over the prices and the inflation was at annual index of 16.4 percent.

Just the government dispersed the annual inflation within a month. It's not because of a weak budget policy but the cash flow was so much intensive and, as you know, they are not very manageable. That's why it erupted with inflation.

And I think a big problem of the last year for the government and for the central bank was the very big trade deficit that we had. The deficit of trade and of commodities and services and their current account was minus 18 billion (dollars). It was one of the biggest problems that imposed very big pressure on the national currency.

The account of financial operations in the current account look very optimistic. We had 12 billion (dollars) investment over the last year. And therefore, since 2008 we had very weak traces of not successful budget policy and trade policy, while the investments were good, the investment was good. That's how the problem looked like last year and that's how this year's started.

In 2009 we managed to settle and adjust the trade balance. And right now there is no longer a dis-balance of 18 billion (dollars) but we seriously had to sacrifice our national currency. The only step that lead to the stabilization of trade balance was a very deep devaluation of the national currency by 52 percent in 2008.

Today, in the same way we managed to fix our trade balance but because of the global financial crisis this year has around 12 billion U.S. dollars drop in foreign currency inflow.

For that we had to sign the agreement with the IMF to compensate those 12 billion U.S. dollars through deposits paid, through declining investments, to replace those funds with the resources with international monetary funds. You know, we already signed the agreement. We already received three transactions and today the foreign exchange reserve of our country are the same like they were the beginning of the year, around 26 to 28 billion U.S. dollars.

So there is no such a big problem that could be interpreted as --- I mean, at the corporate level, as the problem of the financial operations account and the problem of foreign exchange reserve. We don't have those problems.

There is a third problem, which is very serious, about pricing and exchange policy. This is a very weak budget. I think the budget Ukraine today has and that the government promised to revisit several times and never find time to do that. The budget is probably the weakest link in the financial stability construction.

The budget is approved on the level of the last year's income, whether the last year was very successful, about the influence from the taxes, and the mistake of the government was that the 2009 budget was calculated exactly on the basis of last year.

For instance, according to the IMF's assessments, we foresee the decline of GDP by 13 percent, minus 13, while the --- if considering last year's revenues, the budget is lower by 30 percent, it's 30 percent lower from the actual revenues of the last year, just comparing the revenues of this year and last year.

So this is actually the problem, which is probably the sharpest and it's brought into foreign currency obligations of the government and it is very --- it will be very hard for the government to solve them. And the non-performing sovereign debt the government has, which will also have to be served.

So, this is not a problem of the foreign currency reserves, foreign exchange reserves, but this is a problem of the budget's non-performing obligations, including for public and corporate structures. So I think this is the number one problem. The budget is weak, mellow, and there's nothing about anti-crisis measures. The country that's trying to find the crisis should have much stricter budget and more weighted budget policy.

Sorry for my long answer.

ACKERMAN: Let's try one last question please.

QUESTIONER: Ruthard Murphy, New York Life Investments.

Mr. President, what's you assessment of the Obama administration cancelling plans for the European missile shield? And what impact do you think that'll have on your relationships with Russia?

PRESIDENT YUSHCHENKO: Well I promise not to be telling anything wrong about neighbors and friends. Well I'll try to give a delicate answer to your question. Obviously what is to be deployed in the Polish and Czech areas, is the confidence of the people of Czech Republic and Poland.

Apparently is the interests coincide with the American administration then it would be really good, if we speak about any defense initiative, including when we speak about the European continent and how to strengthen it, how to make it more efficient.

In other words, when we speak about the defense component of the international policy, in my opinion, this is always good. This is my personal conviction, to make defense stronger and make it more efficient is always good. And this gives more benefits than the policy of risk balances, because the risk management and the risk balancement is the policy of not --- is not a stable policy.

But when we try to ensure the concept of --- (inaudible) -- European and Euro-Atlantic security in this situation, including the American component, I think this should be perceived correctly by the parties that are involved or the parties that have to deal with the answer to this.

Once again, to be more precise, I think we have to be more about the initiatives to strengthen our defense and this is probably the way of developing the situation, whether it's about European or non-European territory, at the end of the day this is the right of any nation to have the more sufficient defense --- (inaudible). That's why strengthening the defense component, I think, has to be welcomed and developed.

If you could understand my answer I would be very grateful. (Audience applauds. Audience Laughs.)

ACKERMAN: We've come to the end of the meeting.

Mr. President, I want to thank you very much for being with us, for your useful and interesting remarks and we hope to have you back again soon. Thanks so much. (Audience applauds.)

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PETER ACKERMAN: Good afternoon. Welcome to today's Council on Foreign Relations meeting. I'd like to ask you to turn off -- I mean, completely turn off, and not leave on vibrate, all your phones, Blackberries, all wireless devices, any other electronic gadgetry, so we make sure none of those interfere with the sound system. I would like to remind the members that this meeting is on the record.

My name is Peter Ackerman and I'm a member of the board of the Council on Foreign Relations. And I also have the honor of being executive producer of "Orange Revolution," a documentary that's going to appear on the Public Broadcasting System this fall. From my experience, great documentaries, like great movies, tell compelling stories featuring heroic figures who willingly endure -- willingly endure personal sacrifice for a greater good.

Our speaker, Viktor Yushchenko, a short five years ago risked his life for the principle that his fellow citizens have the right to pick their leaders by free, fair and accurately-counted elections. Today he's considered by many an iconic figure, much admired for the courage and leadership he displayed in the tumultuous Orange Revolution until his election to the office of president of Ukraine in December, 2004.

What may not generally be known is that our guest also had a distinguished career as governor of the National Bank of Ukraine for six years, until becoming prime minister from 1999 to 2001. President Yushchenko is also a well-regarded economist in his country, becoming a member of the National Academy of Economic Science.

President Yushchenko was born in 1954 to two parents who both became teachers. And, in an interesting twist on contemporary gender stereotypes, his father taught English and his mother taught math and physics.

Our speaker is married to Kateryna, who's here today -- - a Chicago native, and has five children and two grandchildren. So, I'd like to ask the president to offer his remarks, which will last about 15 minutes. I'll ask an opening question. Then we'll have the members ask the questions they're interested in.

Mr. President.

PRESIDENT VIKTOR A. YUSHCHENKO: (Through interpreter.)

Dear Mr. Chairman, dear ladies and gentlemen, guests, this is a great honor for me to have this discussion with you today and to express on issues that are of mutual interest for us. We're going to discuss about -- discuss Ukraine. We're going to be speaking to its economic development, political development, and social; what has changed in Ukraine for the last four years and where we are today; what are the challenges that Ukraine is facing. And we will -- we may to consider foreign political issues, bilateral agenda

And let's not waste time. I'll probably start with my introduction. I'll start saying, dear guests, I'm very proud of what's happened in Ukraine in the last four years, and I'm telling you this with absolute confidence. We have lived a very important years for the Ukrainian establishment, and I would like to give several arguments about that.

Let's start with the economy, where that's probably not that many discussions going on. Taking our development for the last three-and-a-half years, it was the first time when we came up with the economic performance, on the annual basis, from 7 to 7.5 percent of GDP growth. There's never been such dynamics in Ukraine in the last 18 years. This is the highest economic development that the independent Ukraine ever witnessed.

If we speak about industrial sectors, the industry grows at 17 percent; shipbuilding, 28 (percent). Speaking of that, the agriculture -- we had two major records in our harvest: 53 million tons, and 45 billion tons of grain. And we came up as the fifth biggest exporter of grain in the world, and it's been already -- in the last three years, in the fourth place on the corn exports; second place on barley export; and the first place on sunflower seeds.

So I should say that this process can be called a "renaissance." We returned what always belonged to Ukraine, if we stick to that agricultural development. It was always a breadbasket and it was a country that was actively operating in external markets. And, in the last three years, Ukraine has proven again that we are in an -- (inaudible) -- phase of developing our economy.

It's obvious that things are going right. In the financial sector, if we speak about the state budget, it's grown in the previous three years. It at least doubled in the previous three years. And if mentioning the foreign direct investment, four years ago we had only 6.8 billion U.S. dollars, while today we have $38 (billion). So, therefore we can confidently say that 90 percent of the total investment was the investment that we received in the last three years.

Apparently, that gave positive impetus on social standards, on employment rate. It's already been three years when we have positive labor migration. More people come into Ukraine than leave it. If we speak about social standards, for instance, I could possibly give you such an example as just one index -- that's pensions. Four years ago, the minimum pension was something like $8, and today it is $100. And similar dynamics there is on salaries and living minimum.

So what actually -- what's happened for the last three years in the economic life was the performance we could only dream about. We managed to form high macroeconomic culture that led to successful economic evolution -- price and money stability, the development of budgeting processes. And undoubtedly -- and I want to say it once again, obviously this is very important to emphasize that we have very good progress in social standards and social development.

I want to say it once again, Ukraine has never witnessed such dynamics. And this would be a great response for what the competitive economies giving what public -- public finances are given within the framework of high macroeconomic culture.

And the third thing I would like to tell you about -- I guess probably I would put it in the first place, those who visit Ukraine in the last years, you know, because we could see a different country. This is a democratic country, first of all. This is probably the biggest accomplishment. That is probably given less value -- like air, when you have it, you don't see it, you don't mention it. But that's probably the biggest thing, and that assured our progress and dynamics that I just mentioned.

You know, I don't have to give any scaled comments, but just say but one great accomplishment: We do have the freedom of speech. We do have free journalists. We have journalists that could be shot four years ago, who could receive news only from one spot -- from the president's cabinet. And that's how the entire country lived and thought. And I'm deeply convinced that free journalists is probably a key to our freedom. This is -- one of our biggest accomplishments is free journalists.

I'm not saying this just to say that it was so much easy, because in this very matter we still have certain problems. We need to make free journalists free from their orders, have to make them free from the clans, and many other challenges that the Ukrainian journalists are still facing.

But on behalf of the state, I'd like -- I want, and I can say this is a genuine and free profession. Whether we speak -- (inaudible) -- we attained, for the last four years, the freedom of choice. The dramatic -- what happened four years ago, that actually brought people to the streets, gave birth to the Orange Revolution, where the facts that teachers were shown who they should vote for, and medical people and soldiers were shown who you should -- who they should have voted for. So it was about students and anybody.

But in the last four years we had two parliamentary -- pre-term parliamentary elections, one preterm and one regular. In both cases, the opposition would win. And that's interesting. The results of both elections were recognized by all the observers -- from Europe, from the States, from East. All recognized that the elections were just, legal -- and truthful, that was the evaluation of those results. And in both cases the opposition would win. Those were honest and just elections.

With this, I'd like to say that one of the most fundamental accomplishments we have is that, through democracy, through the freedom of choice we gave answer to any challenge that Ukraine faced, even if we speak about very baffling processes going on in the Ukraine in parliament and government. If we have enough time I'll tell more details.

So, in summarizing the last year, I think the assessment was -- came from Freedom House, when Ukraine, for the first time in the 18-year history, was -- actually belonged to the group of free countries. And we covered the pace for the 17 years, but the biggest accomplishment is that our country is today a free democracy, and that's the accomplishment of the last three years.

So I thank you very much, Mr. President, that you introduced myself as an economist, as a financist (sic). It's very easy for me to speak about the economy. But, first of all, I'd like to say that the biggest success we had in these years was the political success, because we accepted the values and principles of civil life organization purely on a democratic basis. And there is a lot of optimism, because it is purely on this basis that we can speak about our future, and in this context.

I'd like to comment some very important positions, without which it would be really hard to speak about Ukraine's fate, and the years lived through -- in the last three or four years. Obviously, relations with the United States are strategic for us. These are friendly relations. These are relations between very good friends. This is the country that we communicate freely and openly, and we openly speak about what we need -- that we need a very intensive dialogue, a very close political and -- (inaudible) -- relationships.

That's why, within the framework of the last visit of the U.S. vice president, we agreed about the strategic group. We came up with a road map. We signed strategic agreement -- a strategic agreement in December last year. This means, obviously, that the two countries have very high ranking status of relationships, and they have the action plan that determines the agenda for 2009-2010.

We obviously will be repeating that we are very interested in genuine strategic relationships and very dynamic relationships. That's why this is a particular address to you, your colleagues and your friends: Do not forget Ukraine. Always remember that we are in need for our contacts, because things I'm going to be speaking are only -- not only challenges for the Ukraine, but also for the entire world, and we have to solve those problems together.

I'm very proud that because -- and owing to such dynamic relations with the United States, we managed to solve issues that we couldn't solve three years ago. The Jackson-Vanik Amendment was cancelled and we became the members of WTO. We changed -- we radically changed the intensiveness and results of our relations with the European Union and NATO. And I'd like to touch upon those relations a bit because they are very important to characterize the Ukrainian policy.

Speaking, as of today, where we are in our relations with -- for instance, with the European Union, then I should start speaking about what we are working on today. Those are three reports of completed work on developing the association agreement between Ukraine and the European Union, and I hope that in December this agreement will be signed. We do not see any serious political or applicable problems.

For the first time, the association agreement will be one half a part which fixes the free trade area between Ukraine and the European Union. It was the first time when this agreement will contain security chapter. So we're going to have an agreement which has no analogies, according to seriousness. The third and the fourth wave came through the association agreement -- I mean, those countries that managed to have accession to European Union, but the agreement we have has no analogies whatsoever.

So we signed the protocol and during the Bologna process. It's the first area where Ukraine entered and became the member of the European educational area. So starting from 2010, the Ukrainian diplomats will be fully adapted to the European standards, and the same is related to the scholar grades.

Today we are working on the harmonization of our electricity system. This is applicable integration for us. Today one of the working groups is working on "Common Sky" with the European Union. You probably remember the March declaration signed on the gas transit system with Ukraine -- that we signed with the European Commission. And today we work on Ukraine's joining the European Energy Association.

Several -- three, four months ago we accepted the feasibility study on -- it is called, in Europe is it is called the "Euro-Asian Oil Transport Corridor." This is a project to supply Caspian oil through Caucasus and the Black Sea, through Odessa-Brody pipeline straight to the European Union, the project that was financed -- the feasibility study that was actually financed by the European Commission. And we believe that it's one of the most feasible and successful projects to supply Caspian oil through Ukraine to the European Union. This is the most attractive and the most economically efficient project.

This, and many other projects with the European Union and the EC, were over the last three or four years. And our relationships have become radically different. This is a very thick portfolio of different projects that we consider, and I'm very proud and happy that the dynamic relations we have with the European Commission -- this was never the case in any part of Ukraine's history of relations with the EU.

If we speak about regional issues and regional policy, then it would be probably very important to say about the Ukraine's relations with Russia. They are not the best. They are not like making you proud of, because I'm sure that neighbors need to have better relations, and to be able to solve even inherited challenges.

But with that, I'd like to say that we have very clear agenda of our relations with Russia. Obviously there will be time when the Russians will find guts, and wisdom and possibilities to welcome such relations. Obviously, we have the whole range of challenges we have to solve, and we would be willing to do that but not everything is now within Ukraine's will.

What's the most sensitive for our relations? I would mention probably three, four issues, so it would not be the complete list. But start with the border issue. This year Ukraine celebrated the 18th anniversary of its independence. But, unfortunately, the entire surface border between Ukraine and Russia is not demarked. We don't have any single foot of our border where we would have legitimate and approved line of borderline.

And it's not a political issue that stand in the way to take the problem off. We don't have these problems on the surface border. We had 27 round of negotiations about that. And we finalized them, and have taken away all the problems about the surface border. And we believe that the both side, from the technical standpoint, are for a long time ready to sign the respective agreement and demark the border.

They should clearly state where the land of one country ends -- and where the rules of one constitution ends, and where a different one starts. Unfortunately, that work is not being done, and this is not our fault. However, I always put those things into our agenda. And I recently sent a letter to the Russian president with a proposal to come back to that issue again.

The situation is quite complicated on delimitation of frontiers -- of water frontiers, especially such sensitive points like Tuzla Island, where the territory that belongs to -- and from the administrative standpoint belongs to Ukraine, and on all the administrative maps of the Soviet Union it's always belonged to Ukraine.

And obviously we will never approach this issue with any other conditions, because Tuzla Island would always remain Ukrainian. But, unfortunately, Russians have different thoughts about that, which are not acceptable for us whatsoever. They are not, and will not, be acceptable.

Another serious problem is the presence of the Russian Black Sea navy deployed in the Crimean Peninsula. Ukraine's position is clear. And since that agreement that was signed in 1997 forced over 20 years of Russian Black Sea navy deployment until May 27, 2017, but the Ukrainian side believes that the Ukrainian constitution prohibits any military bases deployed in the Ukrainian territory -- I mean, military bases of foreign states. This is an imperative and direct norm of the constitution.

Obviously, agreements are signed and have to be fulfilled. We hope that the Russian side, and the word that they gave back in 1997 will be kept, and the Russian Black Sea fleet will leave the country before May 27th, 2017. We truly want to cooperate, and we declared that the Ukrainian side will fulfill all the conditions foreseen until the year 2017 on the Russian Black Sea navy deployment.

However, there are many problems. They're starting from the issue of the land lots, and their applications -- the application of real estate, and radio frequencies, coast navigation that fully belongs to the Russian side. However, there's nothing like that in the agreement. And there are many other issues.

So only that we want to have normal political and diplomatic communication about that. We do not try to avoid it. We want to have an open discussion about that. We want the results of those discussions to be delivered to the two nations, to the two countries, so that the communities would be informed how the countries approached those problems.

You know, the fathers of the Ukrainian constitutions -- when they adopted it in 1996, they told us the biggest priority in national interest is the absence of any foreign military bases on Ukrainian territory. And the agreement that was prolonged until 2017 was concluded by the previous administration only because there were no conditions enough to make the fleet leave right away, because this issue -- this matter requires the great deal of preparatory work. You cannot do it in a year or two. And we still hope to find understanding about that. But, in the core, the Ukrainian constitutions will always be.

Obviously, the issue of our integration to NATO adds more complicated things into the Ukrainian-Russian relations. And here I would like to give you two -- several pieces of information as an official Ukrainian position. First of all, when we speak about our NATO integration it's not about how to form new threats or challenges for any other third party. However, that matter is very often speculated in Russian press. This is not our target -- to make it harder for something, but this is the target of giving the answer to the sufficient national security policy.

A little bit of a history. Just within the last four years -- since 1917 we declared our independence six times. And five times we lost it. And there was only one reason behind it -- the international factor. And that's why we need to take out take out lessons, the only way to -- and not only for Ukraine or the European continent -- to have perfect --- (inaudible) -- defense policy to have the status of --- (inaudible) -- European collective security.

There is no other answer to this. We don't want to lose our independence like we did many times in the 20th century. NATO membership and the Ukrainian independence, let's say, are synonymous. That's why we speak about our natural aspiration. When we're told that Ukraine will enter NATO and we're going to have a NATO base in Sevastopol we say, no, our constitution gives a guarantee that no foreign military base, either Russian or no other country. This is very important in our constitution. We are often reproached that they can install some nuclear deposits and nuclear weapons over there.

It once again comes back to the history of 1994, when Ukraine did an unprecedented step, when we took away 2,000 warheads unilaterally from our territory. And then in 15 years --- after 15 years we were told that, okay, you guys try to deploy some other military missiles, nuclear missiles. And we gave our international guarantees that Ukraine would not take such steps anymore.

And the same can be said about our territory, which will not be used to threat other countries. The same is about or as high --- we want to find a clear answer, a clear and open security policy for our country and this is where our inspiration is to get integrated into the North Atlantic Treaty Organization.

And lastly, because I can see that the Mr. Chairman already is looking at me that I already used my time limit.

About the political situation in Ukraine -- I will not be picturing it in very much of detail because I'm going to answer questions and a couple of things I'd like to mention.

The first thing that I would like you to know is that the Achilles heel of the Ukrainian domestic policy and the problem with political instability is, in fact, that back in 2004 --- this is not only my opinion but this is the opinion of many politicians in Ukraine and European experts and international experts, ones that are very --- (rushful and vague political ?) that led to the loss of balances and parities that existed in different authorities in Ukraine, I mean, the parliament, the president, and the prime minister, the government.

Unfortunately, the changes to the constitution that took place in 2004 led to the situation that Ukraine transferred from the presidential form to the parliamentary form of governance.

And at the same time, very skilled systemic issues on organizing authorities and put them into order was not organized. I think experts clearly know about that -- that's why I'm speaking about that very synthetically.

So the only --- there is only one way to find those balances and parities, which would be necessary to balance different branches of power. This is the constitutional reform.

And March this year I introduced an updated draft of the constitution to the parliament and I sent it to the Venice Commission and we received their vision from the Venice Commission that means that mentioned that the changes that the president offers are the changes --- the proposals made by the president are key and very important, fundamental.

And the Venice Commission is a very high affiliation to those changes and amendments -- things that Ukraine never changed about the construction of the authorities. And the Venice Commission emphasized that it was the first time when those changes, amendments, they are taken into account.

The self-governance of the two chamber parliament and forming the government from only one source, not from two like it is done today, and that's why this causes troubles. And there are many classical things to the countries of such governance. That's why I hope that national discussions will be finalized in the first of December, that the constitution will bring civil initiatives that will make the parliament come through the range of procedures and then the draft will be sent to the Constitutional Court for final decision making.

This is the only way to settle what's not been settled constitutionally. No other arrangements will solve the problem. That's why we ask many other things but when we speak about that the foundations, why there is the coalition in the parliament and there is no majority in the parliament, why the government is not formed and why not all the ministers are appointed, why the parliament actually stays idle.

I once calculated that they produce from eight to ten laws a month, produced by --- (inaudible). This means that there are fundamental things which are about the governance, so the only way is to introduce changes and then through the parliament, through public discussions to solve those problems for the nation.

And I already addressed to the nation such an initiative saying if we want to see the Ukrainian government and relations between the government, the parliament and the president, in the classical way we need to put classical foundation for forming the national power. And I hope that it will be the basic response to and the remedy to that political instability that we see today in the parliament where we actually have a block situation by two factions. This is either one faction has blocked the parliament or the prime minister's faction starts blocking the --- (inaudible). There's always somebody who tries to block it.

This is abnormal. I don't think there is such a situation anywhere in the world when the prime minister's faction blocks the parliament. I don't think it exists anywhere.

But this is the reality that needs to be answered to. Such challenges can be given in purely constitutional matter and that's what democracy is for. There are mistakes that, not we made, that were made before us, they were about the constitution's body. You cannot give the different answer if it is not regulated by the fundamental law. That's why I'm very optimistic and I'm sure this is democracy that gives the chance to respond to such challenges.

I thank you very much. (Audience applauds.)

ACKERMAN: Mr. President, thank you for those comprehensive remarks. And with your permission, I'd like to go directly to the membership and invite them to ask questions.

After I select you, please wait for a microphone, speak directly into it and stand first and state your name and affiliation. And please limit yourself to one question and keep it as concise as possible to allow as many as possible to speak.

QUESTIONER: Hello. Jonathan Tepperman from Newsweek International. Is Russia acting to destabilize Ukraine at the moment by distributing Russian passports in the Crimea or various other related activities?

PRESIDENT YUSHCHENKO: I would recall several things that I consider as those that destabilize the situation. We think about the State Duma's decision of 1993 that recognized the city of Sevastopol as a Russian city. Obviously that is a destabilizing decision and very few people pay attention to it today because it's been already 16 years after that. Apparently it is illegal but it just only means that in this relation there are things which make somebody's independence subdued and subdues territory integrity and sovereign right.

When we think about those passport issues, several months ago I once again instructed the prosecutor's office to make inspections of those facts. And it seems to be according to the last inspection's results, the citizenships of several hundreds of people were cancelled. Those are the people that started their service at the Black Sea navy counteragent.

It's thinking about the legal scale. The Ukrainian legislation does not allow to have double citizenship. So any combination of --- with any part of the Ukrainian society does not allow legitimate citizenship for the Ukrainian citizens of any other country. So when such take place we try to provide operative reaction to it.

I think today this period is very important when --- (inaudible) -- interference or not interference when there are only several months before the presidential election in January next year in Ukraine. So we'll obviously have to say that the presidential election is a sovereign right of the Ukrainian people that no pressure from international, informational, political, or diplomatic would like to see from nowhere, including Russia.

Obviously there is --- (inaudible). To be more correct I'd say there are politicians who would like to have and who are livened by such pressure, those who would like to have informational, financial, or any other support from Russia. They want to be engaged in economic projects.

And I did not accept it, as a citizen and the president. You know, there still are residues that still remain from those times when Ukraine was colonized and we could only dream about our independence for 350 years. Not all the politicians live with the national idea in their hearts. Not all of them think about the eternal Ukraine.

I think the most, the hardest for the nation, which has the history of 300 years like Ukraine does, apparently the hardest thing is to make a --- to answer to the question how to make a good nation from the nation that never had a state, to create a nation with your own history, language, memory, tradition, culture.

Of course we can accept all the cultures but if we don't have our own culture then there is a natural question -- what is this nation about? Is this a genuine nation or is this just step-children of some others, or foster children?

And these answers not only --- cannot only be made by the Orange Revolution. We need to find four to six million keys to those people's hearts. And we need to wake up something that genetically remains with the people. But in some of the cases, it's already lost. The feeling that you're Ukrainian, you're free of your own country and you are to choose the president of your country, this is your right. And not just to trade your feelings of freedom and will. So this is actually what is called the Orange Revolution, how to bring self-sufficiency to the nation back.

And I'm very optimistic about that in the sense the Ukrainian people from month to month become more Ukrainian. They form their own nation with their values, with their attributes of national life.

Dependency on other infants is kind of name decide where it comes from not to make neighbors embarrassed, just theoretically speaking, that the infants of the neighbors is not because it's getting smaller, not getting smaller because of its strength or weakness. It's getting smaller because people no longer react to it that much. The nation is getting changed.

People start thinking that people understand that at the end of the day this is their sovereign right. And there are more and more people like that every year. That's why I'm very optimistic.

Solving the issue of who will be the president of Ukraine in 2017 will not be out of Ukraine. However, there will be a desire to do that, how to decide those issues somewhere abroad. But the answer will be remarkable and it will be given by the four to six million Ukrainians.

QUESTIONER: Hello. I'm David --- (inaudible) -- with --- (inaudible).

Mr. President, thank you for speaking with us today. I wonder if you could give us your vision of what happened with the currency itself and how that effects the growth and the outlook for Ukraine? Is it an important issue? What other economic issues might be as important? Thank you.

PRESIDENT YUSHCHENKO: Speaking about the economic life and the challenges that are the most sensitive, I'd like to say this is a bad national currency stability, stability of prices, and budget -- three things that I think it's worth paying attention to.

And what are the processes that we should have to work on? If we speak about the problem of price, prices, and inflation problems, exchange rate. Last year, I want to be frank, without any reproaches to populistic policy proposed a very weak budget for the last year.

For instance, in January last year, social expenses increased by 65 percent just in January, 75 percent in one month. It obviously led to certain situations that the government lost control over the prices and the inflation was at annual index of 16.4 percent.

Just the government dispersed the annual inflation within a month. It's not because of a weak budget policy but the cash flow was so much intensive and, as you know, they are not very manageable. That's why it erupted with inflation.

And I think a big problem of the last year for the government and for the central bank was the very big trade deficit that we had. The deficit of trade and of commodities and services and their current account was minus 18 billion (dollars). It was one of the biggest problems that imposed very big pressure on the national currency.

The account of financial operations in the current account look very optimistic. We had 12 billion (dollars) investment over the last year. And therefore, since 2008 we had very weak traces of not successful budget policy and trade policy, while the investments were good, the investment was good. That's how the problem looked like last year and that's how this year's started.

In 2009 we managed to settle and adjust the trade balance. And right now there is no longer a dis-balance of 18 billion (dollars) but we seriously had to sacrifice our national currency. The only step that lead to the stabilization of trade balance was a very deep devaluation of the national currency by 52 percent in 2008.

Today, in the same way we managed to fix our trade balance but because of the global financial crisis this year has around 12 billion U.S. dollars drop in foreign currency inflow.

For that we had to sign the agreement with the IMF to compensate those 12 billion U.S. dollars through deposits paid, through declining investments, to replace those funds with the resources with international monetary funds. You know, we already signed the agreement. We already received three transactions and today the foreign exchange reserve of our country are the same like they were the beginning of the year, around 26 to 28 billion U.S. dollars.

So there is no such a big problem that could be interpreted as --- I mean, at the corporate level, as the problem of the financial operations account and the problem of foreign exchange reserve. We don't have those problems.

There is a third problem, which is very serious, about pricing and exchange policy. This is a very weak budget. I think the budget Ukraine today has and that the government promised to revisit several times and never find time to do that. The budget is probably the weakest link in the financial stability construction.

The budget is approved on the level of the last year's income, whether the last year was very successful, about the influence from the taxes, and the mistake of the government was that the 2009 budget was calculated exactly on the basis of last year.

For instance, according to the IMF's assessments, we foresee the decline of GDP by 13 percent, minus 13, while the --- if considering last year's revenues, the budget is lower by 30 percent, it's 30 percent lower from the actual revenues of the last year, just comparing the revenues of this year and last year.

So this is actually the problem, which is probably the sharpest and it's brought into foreign currency obligations of the government and it is very --- it will be very hard for the government to solve them. And the non-performing sovereign debt the government has, which will also have to be served.

So, this is not a problem of the foreign currency reserves, foreign exchange reserves, but this is a problem of the budget's non-performing obligations, including for public and corporate structures. So I think this is the number one problem. The budget is weak, mellow, and there's nothing about anti-crisis measures. The country that's trying to find the crisis should have much stricter budget and more weighted budget policy.

Sorry for my long answer.

ACKERMAN: Let's try one last question please.

QUESTIONER: Ruthard Murphy, New York Life Investments.

Mr. President, what's you assessment of the Obama administration cancelling plans for the European missile shield? And what impact do you think that'll have on your relationships with Russia?

PRESIDENT YUSHCHENKO: Well I promise not to be telling anything wrong about neighbors and friends. Well I'll try to give a delicate answer to your question. Obviously what is to be deployed in the Polish and Czech areas, is the confidence of the people of Czech Republic and Poland.

Apparently is the interests coincide with the American administration then it would be really good, if we speak about any defense initiative, including when we speak about the European continent and how to strengthen it, how to make it more efficient.

In other words, when we speak about the defense component of the international policy, in my opinion, this is always good. This is my personal conviction, to make defense stronger and make it more efficient is always good. And this gives more benefits than the policy of risk balances, because the risk management and the risk balancement is the policy of not --- is not a stable policy.

But when we try to ensure the concept of --- (inaudible) -- European and Euro-Atlantic security in this situation, including the American component, I think this should be perceived correctly by the parties that are involved or the parties that have to deal with the answer to this.

Once again, to be more precise, I think we have to be more about the initiatives to strengthen our defense and this is probably the way of developing the situation, whether it's about European or non-European territory, at the end of the day this is the right of any nation to have the more sufficient defense --- (inaudible). That's why strengthening the defense component, I think, has to be welcomed and developed.

If you could understand my answer I would be very grateful. (Audience applauds. Audience Laughs.)

ACKERMAN: We've come to the end of the meeting.

Mr. President, I want to thank you very much for being with us, for your useful and interesting remarks and we hope to have you back again soon. Thanks so much. (Audience applauds.)

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PETER ACKERMAN: Good afternoon. Welcome to today's Council on Foreign Relations meeting. I'd like to ask you to turn off -- I mean, completely turn off, and not leave on vibrate, all your phones, Blackberries, all wireless devices, any other electronic gadgetry, so we make sure none of those interfere with the sound system. I would like to remind the members that this meeting is on the record.

My name is Peter Ackerman and I'm a member of the board of the Council on Foreign Relations. And I also have the honor of being executive producer of "Orange Revolution," a documentary that's going to appear on the Public Broadcasting System this fall. From my experience, great documentaries, like great movies, tell compelling stories featuring heroic figures who willingly endure -- willingly endure personal sacrifice for a greater good.

Our speaker, Viktor Yushchenko, a short five years ago risked his life for the principle that his fellow citizens have the right to pick their leaders by free, fair and accurately-counted elections. Today he's considered by many an iconic figure, much admired for the courage and leadership he displayed in the tumultuous Orange Revolution until his election to the office of president of Ukraine in December, 2004.

What may not generally be known is that our guest also had a distinguished career as governor of the National Bank of Ukraine for six years, until becoming prime minister from 1999 to 2001. President Yushchenko is also a well-regarded economist in his country, becoming a member of the National Academy of Economic Science.

President Yushchenko was born in 1954 to two parents who both became teachers. And, in an interesting twist on contemporary gender stereotypes, his father taught English and his mother taught math and physics.

Our speaker is married to Kateryna, who's here today -- - a Chicago native, and has five children and two grandchildren. So, I'd like to ask the president to offer his remarks, which will last about 15 minutes. I'll ask an opening question. Then we'll have the members ask the questions they're interested in.

Mr. President.

PRESIDENT VIKTOR A. YUSHCHENKO: (Through interpreter.)

Dear Mr. Chairman, dear ladies and gentlemen, guests, this is a great honor for me to have this discussion with you today and to express on issues that are of mutual interest for us. We're going to discuss about -- discuss Ukraine. We're going to be speaking to its economic development, political development, and social; what has changed in Ukraine for the last four years and where we are today; what are the challenges that Ukraine is facing. And we will -- we may to consider foreign political issues, bilateral agenda

And let's not waste time. I'll probably start with my introduction. I'll start saying, dear guests, I'm very proud of what's happened in Ukraine in the last four years, and I'm telling you this with absolute confidence. We have lived a very important years for the Ukrainian establishment, and I would like to give several arguments about that.

Let's start with the economy, where that's probably not that many discussions going on. Taking our development for the last three-and-a-half years, it was the first time when we came up with the economic performance, on the annual basis, from 7 to 7.5 percent of GDP growth. There's never been such dynamics in Ukraine in the last 18 years. This is the highest economic development that the independent Ukraine ever witnessed.

If we speak about industrial sectors, the industry grows at 17 percent; shipbuilding, 28 (percent). Speaking of that, the agriculture -- we had two major records in our harvest: 53 million tons, and 45 billion tons of grain. And we came up as the fifth biggest exporter of grain in the world, and it's been already -- in the last three years, in the fourth place on the corn exports; second place on barley export; and the first place on sunflower seeds.

So I should say that this process can be called a "renaissance." We returned what always belonged to Ukraine, if we stick to that agricultural development. It was always a breadbasket and it was a country that was actively operating in external markets. And, in the last three years, Ukraine has proven again that we are in an -- (inaudible) -- phase of developing our economy.

It's obvious that things are going right. In the financial sector, if we speak about the state budget, it's grown in the previous three years. It at least doubled in the previous three years. And if mentioning the foreign direct investment, four years ago we had only 6.8 billion U.S. dollars, while today we have $38 (billion). So, therefore we can confidently say that 90 percent of the total investment was the investment that we received in the last three years.

Apparently, that gave positive impetus on social standards, on employment rate. It's already been three years when we have positive labor migration. More people come into Ukraine than leave it. If we speak about social standards, for instance, I could possibly give you such an example as just one index -- that's pensions. Four years ago, the minimum pension was something like $8, and today it is $100. And similar dynamics there is on salaries and living minimum.

So what actually -- what's happened for the last three years in the economic life was the performance we could only dream about. We managed to form high macroeconomic culture that led to successful economic evolution -- price and money stability, the development of budgeting processes. And undoubtedly -- and I want to say it once again, obviously this is very important to emphasize that we have very good progress in social standards and social development.

I want to say it once again, Ukraine has never witnessed such dynamics. And this would be a great response for what the competitive economies giving what public -- public finances are given within the framework of high macroeconomic culture.

And the third thing I would like to tell you about -- I guess probably I would put it in the first place, those who visit Ukraine in the last years, you know, because we could see a different country. This is a democratic country, first of all. This is probably the biggest accomplishment. That is probably given less value -- like air, when you have it, you don't see it, you don't mention it. But that's probably the biggest thing, and that assured our progress and dynamics that I just mentioned.

You know, I don't have to give any scaled comments, but just say but one great accomplishment: We do have the freedom of speech. We do have free journalists. We have journalists that could be shot four years ago, who could receive news only from one spot -- from the president's cabinet. And that's how the entire country lived and thought. And I'm deeply convinced that free journalists is probably a key to our freedom. This is -- one of our biggest accomplishments is free journalists.

I'm not saying this just to say that it was so much easy, because in this very matter we still have certain problems. We need to make free journalists free from their orders, have to make them free from the clans, and many other challenges that the Ukrainian journalists are still facing.

But on behalf of the state, I'd like -- I want, and I can say this is a genuine and free profession. Whether we speak -- (inaudible) -- we attained, for the last four years, the freedom of choice. The dramatic -- what happened four years ago, that actually brought people to the streets, gave birth to the Orange Revolution, where the facts that teachers were shown who they should vote for, and medical people and soldiers were shown who you should -- who they should have voted for. So it was about students and anybody.

But in the last four years we had two parliamentary -- pre-term parliamentary elections, one preterm and one regular. In both cases, the opposition would win. And that's interesting. The results of both elections were recognized by all the observers -- from Europe, from the States, from East. All recognized that the elections were just, legal -- and truthful, that was the evaluation of those results. And in both cases the opposition would win. Those were honest and just elections.

With this, I'd like to say that one of the most fundamental accomplishments we have is that, through democracy, through the freedom of choice we gave answer to any challenge that Ukraine faced, even if we speak about very baffling processes going on in the Ukraine in parliament and government. If we have enough time I'll tell more details.

So, in summarizing the last year, I think the assessment was -- came from Freedom House, when Ukraine, for the first time in the 18-year history, was -- actually belonged to the group of free countries. And we covered the pace for the 17 years, but the biggest accomplishment is that our country is today a free democracy, and that's the accomplishment of the last three years.

So I thank you very much, Mr. President, that you introduced myself as an economist, as a financist (sic). It's very easy for me to speak about the economy. But, first of all, I'd like to say that the biggest success we had in these years was the political success, because we accepted the values and principles of civil life organization purely on a democratic basis. And there is a lot of optimism, because it is purely on this basis that we can speak about our future, and in this context.

I'd like to comment some very important positions, without which it would be really hard to speak about Ukraine's fate, and the years lived through -- in the last three or four years. Obviously, relations with the United States are strategic for us. These are friendly relations. These are relations between very good friends. This is the country that we communicate freely and openly, and we openly speak about what we need -- that we need a very intensive dialogue, a very close political and -- (inaudible) -- relationships.

That's why, within the framework of the last visit of the U.S. vice president, we agreed about the strategic group. We came up with a road map. We signed strategic agreement -- a strategic agreement in December last year. This means, obviously, that the two countries have very high ranking status of relationships, and they have the action plan that determines the agenda for 2009-2010.

We obviously will be repeating that we are very interested in genuine strategic relationships and very dynamic relationships. That's why this is a particular address to you, your colleagues and your friends: Do not forget Ukraine. Always remember that we are in need for our contacts, because things I'm going to be speaking are only -- not only challenges for the Ukraine, but also for the entire world, and we have to solve those problems together.

I'm very proud that because -- and owing to such dynamic relations with the United States, we managed to solve issues that we couldn't solve three years ago. The Jackson-Vanik Amendment was cancelled and we became the members of WTO. We changed -- we radically changed the intensiveness and results of our relations with the European Union and NATO. And I'd like to touch upon those relations a bit because they are very important to characterize the Ukrainian policy.

Speaking, as of today, where we are in our relations with -- for instance, with the European Union, then I should start speaking about what we are working on today. Those are three reports of completed work on developing the association agreement between Ukraine and the European Union, and I hope that in December this agreement will be signed. We do not see any serious political or applicable problems.

For the first time, the association agreement will be one half a part which fixes the free trade area between Ukraine and the European Union. It was the first time when this agreement will contain security chapter. So we're going to have an agreement which has no analogies, according to seriousness. The third and the fourth wave came through the association agreement -- I mean, those countries that managed to have accession to European Union, but the agreement we have has no analogies whatsoever.

So we signed the protocol and during the Bologna process. It's the first area where Ukraine entered and became the member of the European educational area. So starting from 2010, the Ukrainian diplomats will be fully adapted to the European standards, and the same is related to the scholar grades.

Today we are working on the harmonization of our electricity system. This is applicable integration for us. Today one of the working groups is working on "Common Sky" with the European Union. You probably remember the March declaration signed on the gas transit system with Ukraine -- that we signed with the European Commission. And today we work on Ukraine's joining the European Energy Association.

Several -- three, four months ago we accepted the feasibility study on -- it is called, in Europe is it is called the "Euro-Asian Oil Transport Corridor." This is a project to supply Caspian oil through Caucasus and the Black Sea, through Odessa-Brody pipeline straight to the European Union, the project that was financed -- the feasibility study that was actually financed by the European Commission. And we believe that it's one of the most feasible and successful projects to supply Caspian oil through Ukraine to the European Union. This is the most attractive and the most economically efficient project.

This, and many other projects with the European Union and the EC, were over the last three or four years. And our relationships have become radically different. This is a very thick portfolio of different projects that we consider, and I'm very proud and happy that the dynamic relations we have with the European Commission -- this was never the case in any part of Ukraine's history of relations with the EU.

If we speak about regional issues and regional policy, then it would be probably very important to say about the Ukraine's relations with Russia. They are not the best. They are not like making you proud of, because I'm sure that neighbors need to have better relations, and to be able to solve even inherited challenges.

But with that, I'd like to say that we have very clear agenda of our relations with Russia. Obviously there will be time when the Russians will find guts, and wisdom and possibilities to welcome such relations. Obviously, we have the whole range of challenges we have to solve, and we would be willing to do that but not everything is now within Ukraine's will.

What's the most sensitive for our relations? I would mention probably three, four issues, so it would not be the complete list. But start with the border issue. This year Ukraine celebrated the 18th anniversary of its independence. But, unfortunately, the entire surface border between Ukraine and Russia is not demarked. We don't have any single foot of our border where we would have legitimate and approved line of borderline.

And it's not a political issue that stand in the way to take the problem off. We don't have these problems on the surface border. We had 27 round of negotiations about that. And we finalized them, and have taken away all the problems about the surface border. And we believe that the both side, from the technical standpoint, are for a long time ready to sign the respective agreement and demark the border.

They should clearly state where the land of one country ends -- and where the rules of one constitution ends, and where a different one starts. Unfortunately, that work is not being done, and this is not our fault. However, I always put those things into our agenda. And I recently sent a letter to the Russian president with a proposal to come back to that issue again.

The situation is quite complicated on delimitation of frontiers -- of water frontiers, especially such sensitive points like Tuzla Island, where the territory that belongs to -- and from the administrative standpoint belongs to Ukraine, and on all the administrative maps of the Soviet Union it's always belonged to Ukraine.

And obviously we will never approach this issue with any other conditions, because Tuzla Island would always remain Ukrainian. But, unfortunately, Russians have different thoughts about that, which are not acceptable for us whatsoever. They are not, and will not, be acceptable.

Another serious problem is the presence of the Russian Black Sea navy deployed in the Crimean Peninsula. Ukraine's position is clear. And since that agreement that was signed in 1997 forced over 20 years of Russian Black Sea navy deployment until May 27, 2017, but the Ukrainian side believes that the Ukrainian constitution prohibits any military bases deployed in the Ukrainian territory -- I mean, military bases of foreign states. This is an imperative and direct norm of the constitution.

Obviously, agreements are signed and have to be fulfilled. We hope that the Russian side, and the word that they gave back in 1997 will be kept, and the Russian Black Sea fleet will leave the country before May 27th, 2017. We truly want to cooperate, and we declared that the Ukrainian side will fulfill all the conditions foreseen until the year 2017 on the Russian Black Sea navy deployment.

However, there are many problems. They're starting from the issue of the land lots, and their applications -- the application of real estate, and radio frequencies, coast navigation that fully belongs to the Russian side. However, there's nothing like that in the agreement. And there are many other issues.

So only that we want to have normal political and diplomatic communication about that. We do not try to avoid it. We want to have an open discussion about that. We want the results of those discussions to be delivered to the two nations, to the two countries, so that the communities would be informed how the countries approached those problems.

You know, the fathers of the Ukrainian constitutions -- when they adopted it in 1996, they told us the biggest priority in national interest is the absence of any foreign military bases on Ukrainian territory. And the agreement that was prolonged until 2017 was concluded by the previous administration only because there were no conditions enough to make the fleet leave right away, because this issue -- this matter requires the great deal of preparatory work. You cannot do it in a year or two. And we still hope to find understanding about that. But, in the core, the Ukrainian constitutions will always be.

Obviously, the issue of our integration to NATO adds more complicated things into the Ukrainian-Russian relations. And here I would like to give you two -- several pieces of information as an official Ukrainian position. First of all, when we speak about our NATO integration it's not about how to form new threats or challenges for any other third party. However, that matter is very often speculated in Russian press. This is not our target -- to make it harder for something, but this is the target of giving the answer to the sufficient national security policy.

A little bit of a history. Just within the last four years -- since 1917 we declared our independence six times. And five times we lost it. And there was only one reason behind it -- the international factor. And that's why we need to take out take out lessons, the only way to -- and not only for Ukraine or the European continent -- to have perfect --- (inaudible) -- defense policy to have the status of --- (inaudible) -- European collective security.

There is no other answer to this. We don't want to lose our independence like we did many times in the 20th century. NATO membership and the Ukrainian independence, let's say, are synonymous. That's why we speak about our natural aspiration. When we're told that Ukraine will enter NATO and we're going to have a NATO base in Sevastopol we say, no, our constitution gives a guarantee that no foreign military base, either Russian or no other country. This is very important in our constitution. We are often reproached that they can install some nuclear deposits and nuclear weapons over there.

It once again comes back to the history of 1994, when Ukraine did an unprecedented step, when we took away 2,000 warheads unilaterally from our territory. And then in 15 years --- after 15 years we were told that, okay, you guys try to deploy some other military missiles, nuclear missiles. And we gave our international guarantees that Ukraine would not take such steps anymore.

And the same can be said about our territory, which will not be used to threat other countries. The same is about or as high --- we want to find a clear answer, a clear and open security policy for our country and this is where our inspiration is to get integrated into the North Atlantic Treaty Organization.

And lastly, because I can see that the Mr. Chairman already is looking at me that I already used my time limit.

About the political situation in Ukraine -- I will not be picturing it in very much of detail because I'm going to answer questions and a couple of things I'd like to mention.

The first thing that I would like you to know is that the Achilles heel of the Ukrainian domestic policy and the problem with political instability is, in fact, that back in 2004 --- this is not only my opinion but this is the opinion of many politicians in Ukraine and European experts and international experts, ones that are very --- (rushful and vague political ?) that led to the loss of balances and parities that existed in different authorities in Ukraine, I mean, the parliament, the president, and the prime minister, the government.

Unfortunately, the changes to the constitution that took place in 2004 led to the situation that Ukraine transferred from the presidential form to the parliamentary form of governance.

And at the same time, very skilled systemic issues on organizing authorities and put them into order was not organized. I think experts clearly know about that -- that's why I'm speaking about that very synthetically.

So the only --- there is only one way to find those balances and parities, which would be necessary to balance different branches of power. This is the constitutional reform.

And March this year I introduced an updated draft of the constitution to the parliament and I sent it to the Venice Commission and we received their vision from the Venice Commission that means that mentioned that the changes that the president offers are the changes --- the proposals made by the president are key and very important, fundamental.

And the Venice Commission is a very high affiliation to those changes and amendments -- things that Ukraine never changed about the construction of the authorities. And the Venice Commission emphasized that it was the first time when those changes, amendments, they are taken into account.

The self-governance of the two chamber parliament and forming the government from only one source, not from two like it is done today, and that's why this causes troubles. And there are many classical things to the countries of such governance. That's why I hope that national discussions will be finalized in the first of December, that the constitution will bring civil initiatives that will make the parliament come through the range of procedures and then the draft will be sent to the Constitutional Court for final decision making.

This is the only way to settle what's not been settled constitutionally. No other arrangements will solve the problem. That's why we ask many other things but when we speak about that the foundations, why there is the coalition in the parliament and there is no majority in the parliament, why the government is not formed and why not all the ministers are appointed, why the parliament actually stays idle.

I once calculated that they produce from eight to ten laws a month, produced by --- (inaudible). This means that there are fundamental things which are about the governance, so the only way is to introduce changes and then through the parliament, through public discussions to solve those problems for the nation.

And I already addressed to the nation such an initiative saying if we want to see the Ukrainian government and relations between the government, the parliament and the president, in the classical way we need to put classical foundation for forming the national power. And I hope that it will be the basic response to and the remedy to that political instability that we see today in the parliament where we actually have a block situation by two factions. This is either one faction has blocked the parliament or the prime minister's faction starts blocking the --- (inaudible). There's always somebody who tries to block it.

This is abnormal. I don't think there is such a situation anywhere in the world when the prime minister's faction blocks the parliament. I don't think it exists anywhere.

But this is the reality that needs to be answered to. Such challenges can be given in purely constitutional matter and that's what democracy is for. There are mistakes that, not we made, that were made before us, they were about the constitution's body. You cannot give the different answer if it is not regulated by the fundamental law. That's why I'm very optimistic and I'm sure this is democracy that gives the chance to respond to such challenges.

I thank you very much. (Audience applauds.)

ACKERMAN: Mr. President, thank you for those comprehensive remarks. And with your permission, I'd like to go directly to the membership and invite them to ask questions.

After I select you, please wait for a microphone, speak directly into it and stand first and state your name and affiliation. And please limit yourself to one question and keep it as concise as possible to allow as many as possible to speak.

QUESTIONER: Hello. Jonathan Tepperman from Newsweek International. Is Russia acting to destabilize Ukraine at the moment by distributing Russian passports in the Crimea or various other related activities?

PRESIDENT YUSHCHENKO: I would recall several things that I consider as those that destabilize the situation. We think about the State Duma's decision of 1993 that recognized the city of Sevastopol as a Russian city. Obviously that is a destabilizing decision and very few people pay attention to it today because it's been already 16 years after that. Apparently it is illegal but it just only means that in this relation there are things which make somebody's independence subdued and subdues territory integrity and sovereign right.

When we think about those passport issues, several months ago I once again instructed the prosecutor's office to make inspections of those facts. And it seems to be according to the last inspection's results, the citizenships of several hundreds of people were cancelled. Those are the people that started their service at the Black Sea navy counteragent.

It's thinking about the legal scale. The Ukrainian legislation does not allow to have double citizenship. So any combination of --- with any part of the Ukrainian society does not allow legitimate citizenship for the Ukrainian citizens of any other country. So when such take place we try to provide operative reaction to it.

I think today this period is very important when --- (inaudible) -- interference or not interference when there are only several months before the presidential election in January next year in Ukraine. So we'll obviously have to say that the presidential election is a sovereign right of the Ukrainian people that no pressure from international, informational, political, or diplomatic would like to see from nowhere, including Russia.

Obviously there is --- (inaudible). To be more correct I'd say there are politicians who would like to have and who are livened by such pressure, those who would like to have informational, financial, or any other support from Russia. They want to be engaged in economic projects.

And I did not accept it, as a citizen and the president. You know, there still are residues that still remain from those times when Ukraine was colonized and we could only dream about our independence for 350 years. Not all the politicians live with the national idea in their hearts. Not all of them think about the eternal Ukraine.

I think the most, the hardest for the nation, which has the history of 300 years like Ukraine does, apparently the hardest thing is to make a --- to answer to the question how to make a good nation from the nation that never had a state, to create a nation with your own history, language, memory, tradition, culture.

Of course we can accept all the cultures but if we don't have our own culture then there is a natural question -- what is this nation about? Is this a genuine nation or is this just step-children of some others, or foster children?

And these answers not only --- cannot only be made by the Orange Revolution. We need to find four to six million keys to those people's hearts. And we need to wake up something that genetically remains with the people. But in some of the cases, it's already lost. The feeling that you're Ukrainian, you're free of your own country and you are to choose the president of your country, this is your right. And not just to trade your feelings of freedom and will. So this is actually what is called the Orange Revolution, how to bring self-sufficiency to the nation back.

And I'm very optimistic about that in the sense the Ukrainian people from month to month become more Ukrainian. They form their own nation with their values, with their attributes of national life.

Dependency on other infants is kind of name decide where it comes from not to make neighbors embarrassed, just theoretically speaking, that the infants of the neighbors is not because it's getting smaller, not getting smaller because of its strength or weakness. It's getting smaller because people no longer react to it that much. The nation is getting changed.

People start thinking that people understand that at the end of the day this is their sovereign right. And there are more and more people like that every year. That's why I'm very optimistic.

Solving the issue of who will be the president of Ukraine in 2017 will not be out of Ukraine. However, there will be a desire to do that, how to decide those issues somewhere abroad. But the answer will be remarkable and it will be given by the four to six million Ukrainians.

QUESTIONER: Hello. I'm David --- (inaudible) -- with --- (inaudible).

Mr. President, thank you for speaking with us today. I wonder if you could give us your vision of what happened with the currency itself and how that effects the growth and the outlook for Ukraine? Is it an important issue? What other economic issues might be as important? Thank you.

PRESIDENT YUSHCHENKO: Speaking about the economic life and the challenges that are the most sensitive, I'd like to say this is a bad national currency stability, stability of prices, and budget -- three things that I think it's worth paying attention to.

And what are the processes that we should have to work on? If we speak about the problem of price, prices, and inflation problems, exchange rate. Last year, I want to be frank, without any reproaches to populistic policy proposed a very weak budget for the last year.

For instance, in January last year, social expenses increased by 65 percent just in January, 75 percent in one month. It obviously led to certain situations that the government lost control over the prices and the inflation was at annual index of 16.4 percent.

Just the government dispersed the annual inflation within a month. It's not because of a weak budget policy but the cash flow was so much intensive and, as you know, they are not very manageable. That's why it erupted with inflation.

And I think a big problem of the last year for the government and for the central bank was the very big trade deficit that we had. The deficit of trade and of commodities and services and their current account was minus 18 billion (dollars). It was one of the biggest problems that imposed very big pressure on the national currency.

The account of financial operations in the current account look very optimistic. We had 12 billion (dollars) investment over the last year. And therefore, since 2008 we had very weak traces of not successful budget policy and trade policy, while the investments were good, the investment was good. That's how the problem looked like last year and that's how this year's started.

In 2009 we managed to settle and adjust the trade balance. And right now there is no longer a dis-balance of 18 billion (dollars) but we seriously had to sacrifice our national currency. The only step that lead to the stabilization of trade balance was a very deep devaluation of the national currency by 52 percent in 2008.

Today, in the same way we managed to fix our trade balance but because of the global financial crisis this year has around 12 billion U.S. dollars drop in foreign currency inflow.

For that we had to sign the agreement with the IMF to compensate those 12 billion U.S. dollars through deposits paid, through declining investments, to replace those funds with the resources with international monetary funds. You know, we already signed the agreement. We already received three transactions and today the foreign exchange reserve of our country are the same like they were the beginning of the year, around 26 to 28 billion U.S. dollars.

So there is no such a big problem that could be interpreted as --- I mean, at the corporate level, as the problem of the financial operations account and the problem of foreign exchange reserve. We don't have those problems.

There is a third problem, which is very serious, about pricing and exchange policy. This is a very weak budget. I think the budget Ukraine today has and that the government promised to revisit several times and never find time to do that. The budget is probably the weakest link in the financial stability construction.

The budget is approved on the level of the last year's income, whether the last year was very successful, about the influence from the taxes, and the mistake of the government was that the 2009 budget was calculated exactly on the basis of last year.

For instance, according to the IMF's assessments, we foresee the decline of GDP by 13 percent, minus 13, while the --- if considering last year's revenues, the budget is lower by 30 percent, it's 30 percent lower from the actual revenues of the last year, just comparing the revenues of this year and last year.

So this is actually the problem, which is probably the sharpest and it's brought into foreign currency obligations of the government and it is very --- it will be very hard for the government to solve them. And the non-performing sovereign debt the government has, which will also have to be served.

So, this is not a problem of the foreign currency reserves, foreign exchange reserves, but this is a problem of the budget's non-performing obligations, including for public and corporate structures. So I think this is the number one problem. The budget is weak, mellow, and there's nothing about anti-crisis measures. The country that's trying to find the crisis should have much stricter budget and more weighted budget policy.

Sorry for my long answer.

ACKERMAN: Let's try one last question please.

QUESTIONER: Ruthard Murphy, New York Life Investments.

Mr. President, what's you assessment of the Obama administration cancelling plans for the European missile shield? And what impact do you think that'll have on your relationships with Russia?

PRESIDENT YUSHCHENKO: Well I promise not to be telling anything wrong about neighbors and friends. Well I'll try to give a delicate answer to your question. Obviously what is to be deployed in the Polish and Czech areas, is the confidence of the people of Czech Republic and Poland.

Apparently is the interests coincide with the American administration then it would be really good, if we speak about any defense initiative, including when we speak about the European continent and how to strengthen it, how to make it more efficient.

In other words, when we speak about the defense component of the international policy, in my opinion, this is always good. This is my personal conviction, to make defense stronger and make it more efficient is always good. And this gives more benefits than the policy of risk balances, because the risk management and the risk balancement is the policy of not --- is not a stable policy.

But when we try to ensure the concept of --- (inaudible) -- European and Euro-Atlantic security in this situation, including the American component, I think this should be perceived correctly by the parties that are involved or the parties that have to deal with the answer to this.

Once again, to be more precise, I think we have to be more about the initiatives to strengthen our defense and this is probably the way of developing the situation, whether it's about European or non-European territory, at the end of the day this is the right of any nation to have the more sufficient defense --- (inaudible). That's why strengthening the defense component, I think, has to be welcomed and developed.

If you could understand my answer I would be very grateful. (Audience applauds. Audience Laughs.)

ACKERMAN: We've come to the end of the meeting.

Mr. President, I want to thank you very much for being with us, for your useful and interesting remarks and we hope to have you back again soon. Thanks so much. (Audience applauds.)

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