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April 11, 2006

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Reference ID Created Released Classification Origin
06KIEV1445 2006-04-11 15:30 2011-08-30 01:44 CONFIDENTIAL Embassy Kyiv
DE RUEHKV #1445/01 1011530
P 111530Z APR 06


C O N F I D E N T I A L SECTION 01 OF 02 KIEV 001445 



E.O. 12958: DECL: 04/11/2016 

Classified By: Ambassador for reasons 1.4 (b,d). 

1. (C) Summary:  In an April 11 meeting, National Security 
and Defense Council (NSDC) Secretary Anatoliy Kinakh told 
Ambassador that a stable majority coalition in Parliament 
(Rada) and the formation of a new government had to happen 
quickly in order to address critical economic issues.  In 
order to avoid further aggravating divisions within Ukraine, 
Kinakh opined, neither Party of Regions leader Viktor 
Yanukovych nor Tymoshenko bloc leader Yuliya Tymoshenko 
should become prime minister.  An important task in building 
a Rada majority coalition would be the establishment of an 
agreement that deputies would sign, in accordance with 
constitutional reforms.  Such an agreement would set forth 
the ruling coalition's priorities and program of work; the 
coalition and its deputies would be required to implement the 
agreement.  One of the new Rada's first tasks would be to 
adopt the outlines of the 2007 budget, which needs to be done 
by the end of June.  End summary. 

Coalition Tasks: Reunify Ukraine, Reinvigorate Economy 
--------------------------------------------- --------- 

2. (C) NSDC Secretary Kinakh said negotiations on the 
formation of a ruling coalition in Parliament (Rada) 
continued, but were contentious.  The timely formation of a 
coalition was an important task not just on political grounds 
but also due to the numerous socio-economic problems 
confronting the nation, Kinakh declared.  The electoral 
campaign had artificially aggravated divisions in the 
country, especially the east-west divide, a situation that 
had been evident during the 2004 presidential election.  By 
bringing in the right partners, a Rada coalition and a new 
government could work to heal this rift.  In addition, a 
coalition needed to address Ukraine's serious economic 
stagnation.  In Kinakh's view, in order to avoid further 
aggravating divisions within Ukraine, a new government with 
Party of Regions should not have party leader Viktor 
Yanukovych as prime minister, and one with the Yuliya 
Tymoshenko Bloc (BYuT) should not have Tymoshenko as prime 

3. (C) Kinakh said a coalition had to be formed on the basis 
of principles that would address fundamental issues such as 
Ukraine's official language and whether Ukraine should have a 
federal structure.  Kinakh noted that the constitutional 
amendments that took effect January 1, and which enhanced the 
Rada's power, required deputies in a majority coalition to 
sign a coalition agreement.  The agreement would detail the 
coalition's "parameters, principles, and priorities" and set 
forth its program of work.  Kinakh's Party of Industrialists 
and Entrepreneurs (a member of the Our Ukraine electoral 
bloc) wanted the coalition agreement to declare a halt to 
reprivatizations and include goals such as entry into WTO and 
movement toward NATO membership.  Once the agreement were 
signed, the coalition would be required to implement its 
terms.  A Rada coalition should also stay in place at least 
until the next presidential election (2009) and not just 
survive for 5-6 months, if it was to be successful in moving 
Ukraine out its economic doldrums. 

4. (C) Kinakh said President Yushchenko had not yet 
considered the possibility of using his power to dissolve 
Rada if a majority coalition were not established within 30 
days of the convening of the first session of the 
newly-elected Rada.  Such a step would heighten economic 
uncertainty and aggravate the already poor economy.  The 
government needed to deal with pressing economic policy 
issues, such as establishment of an energy security policy 
that would incorporate structural reforms and market-based 
energy prices.  Political parties involved in negotiations on 
formation of a coalition needed to avoid taking extreme 
positions.  In particular, Party of Regions, which included 
numerous businessmen in its ranks, had to agree to regulation 
of business practices and movement toward a European-style 
market economy.  In response to Ambassador's question, Kinakh 
said Regions financier Rinat Akhmetov and parliamentarian 
Andriy Klyuyev were closer to this view than to the offical 
position of the party. 

Passing the Budget 

5. (C) As another reason speedy action on a coalition was 
necessary, Kinakh noted that the Cabinet had to submit its 
draft 2007 budget policy to the Rada by May 15, and Rada had 
until the end of June to approve it.  If a coalition were not 
formed until the (potential and soft -- see septel) deadline 
of June 15, the Rada would have very little time to take the 
necessary action, although it could be done.  Kinakh was 
vague on what exactly would happen if the budget were not 

KIEV 00001445  002 OF 002 

passed.  (Comment: The consequences of tardiness are not 
likely to be dire, as this is only the first step in the 
budget process, in which the government sets out broad 
parameters such as projected total spending and revenues as 
well as economic assumptions about growth and inflation.  The 
eadline for submitting the actual draft budget with detailed 
expenditures and receipts is September 15.  Typically, the 
final budget is not passed until December.  Though Kinakh did 
not mention it, of far more consequence is whether the Rada 
will be able to pass revisions to the 2006 budget to prevent 
a fiscal crisis this year.  End Comment.)  He again stressed 
the important economic tasks that a new government needed to 
address, including implementation of a 25-percent increase in 
electricity and natural gas prices for domestic consumers. 
He noted that the economy would suffer greatly if inaction on 
a Rada coalition meant that 2006 was a lost year. 

6. (U) Visit Embassy Kiev's classified website: 



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