08KYIV34, UKRAINE: TYMOSHENKO HITS THE GROUND RUNNING
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Reference ID | Created | Released | Classification | Origin |
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08KYIV34 | 2008-01-11 12:06 | 2011-08-30 01:44 | CONFIDENTIAL | Embassy Kyiv |
VZCZCXRO9920 PP RUEHLMC DE RUEHKV #0034/01 0111206 ZNY CCCCC ZZH P 111206Z JAN 08 FM AMEMBASSY KYIV TO RUEHC/SECSTATE WASHDC PRIORITY 4682 INFO RUEHZG/NATO EU COLLECTIVE RUCNCIS/CIS COLLECTIVE RUEHLMC/MILLENNIUM CHALLENGE CORP WASHDC
C O N F I D E N T I A L SECTION 01 OF 04 KYIV 000034 SIPDIS SIPDIS E.O. 12958: DECL: 01/11/2017 TAGS: PGOV PREL ECON PINR UP SUBJECT: UKRAINE: TYMOSHENKO HITS THE GROUND RUNNING REF: A. KYIV 03058 ¶B. KYIV 3071 ¶C. KYIV 03154 Classified By: Ambassador for reasons 1.4(b,d). ¶1. (C) Summary. At a time when most of Kyiv slows down for the holidays, Prime Minister Tymoshenko has pushed full-steam ahead in her first month in office to get Ukraine's financial house in order, fulfill key election promises, and get her team on the ground and working. Tymoshenko was confirmed by the Rada December 18, and got a budget pushed through its final reading within 10 days. She has moved quickly to finish drafting her government program, fill key positions in the executive branch, investigate problems in the gas and coal sectors, and make progress on her pledge to repay lost savings from the Soviet Sberbank. In contrast to her previous tenure in the PM's office, she has been more cautious and conciliatory toward President Yushchenko, probably in recognition of the thin three-vote majority she controls. In addition, she has made smart tactical moves to cooperate with the Lytvyn Bloc and the Communists to get the budget done, and reached out to Yanukovych in a bid to get Regions to be a constructive opposition. ¶2. (C) Comment. It is too early to comment on the quality of Tymoshenko's policies, but she is wasting no time in trying to be seen as effective. As she told the Ambassador on December 20, the presidential campaign will begin in six months. Given this timeframe, it is to her benefit to move quickly and to try to keep the peace with Yushchenko and Yanukovych. End summary and comment. Budget Is First Victory ----------------------- ¶3. (C) On December 20, Tymoshenko told the Ambassador that she would have a budget to the Rada within 2 working days. The budget was then worked through the committee, with negotiations ongoing between Rada and Cabinet, and put up for a vote on December 28 -- the last working day before the end of the year deadline of December 31 -- where it passed with 235 votes. Tymoshenko demonstrated her political pragmatism in cutting a deal with the Lytvyn Bloc, which chairs the Budget Committee, to allow language continuing the land moratorium until other needed legislation is passed on the land market and on a land registrar. Lytvyn had asked for a 2-year extension of the moratorium, but Tymoshenko's compromise in effect keeps the moratorium in place, which is what he wanted. She also made an agreement that this was an interim budget, which will be amended in the next Rada session, which is probably what avoided most of the fighting over budget allocations and got her eight Communist votes. Getting Down to Work -------------------- ¶4. (C) Tymoshenko has wasted no time in pursuing key goals, focusing especially on righting social issues and uncovering corruption. Tymoshenko and Yushchenko both have moved quickly to order an audit of state gas and oil company NaftoHaz Ukrainy, reportedly revealing an enterprise on the verge of bankruptcy (ref A). She obtained Rada approval for a guarantee to cover NaftoHaz's debts with $2.4 billion in budget money if necessary, a move demanded by NaftoHaz's Eurobond creditors. In the press, Tymoshenko has described NaftoHaz's current financial crisis as a mechanism for other interested parties to potentially gain control of Ukraine's valuable gas transit system. Newly-appointed NaftoHaz CEO Oleh Dubyna stated the company had lost $1 billion in 2007. ¶5. (C) Tymoshenko has also moved quickly in response to the November tragedy at Zasyadko coal mine that left over 100 miners dead (ref B). Tymoshenko has said that the current lease of the mine to Regions MP Yukhim Zvyahilskiy should be canceled, and that mine management should provide additional compensation to families of the deceased and injured. Tymoshenko has also demanded that, within a week, the wage system at Zasyadko be changed so that miners are paid by the hour rather than by the amount of coal mined. (Note: Labor safety experts believe that the current system promotes unsafe work conditions, as miners are given an incentive to ignore safety rules. End Note.) Tymoshenko said her government would then introduce legislation to extend this reform, if proven successful, to all Ukrainian coal mines. Tymoshenko also announced her government would audit the coal mining sector, which she accused of rampant money-laundering. (Note. Incidentally, this also gives her an opportunity to investigate other members of Regions, including Rinat Akhmetov, who control the coal industry. End Note.) In a similar vein, Tymoshenko ordered the Justice Ministry to KYIV 00000034 002 OF 004 review all CabMin resolutions issued by the Yanukovych government to check for corruption. ¶6. (C) Although many thought Tymoshenko's promise to repay all lost savings in the Soviet-era Sberbank, which collapsed in 1992, was impractical, she has moved resolutely to implement the restitution. (Note: Ukrainians' accounts at Sberbank were effectively frozen in 1992 when the central savings bank in Moscow did not repatriate funds withdrawn from republican banks at the end of 1991. When the accounts were re-opened in the mid-1990s, their value had been completely eroded by hyperinflation. End note.) The GOU has offered 1000 UAH ($200) to each depositor in cash once they register their deposits and plans to allow depositors to use additional amounts from their lost savings to offset debts in utilities payments and for education. An estimated 10 million Ukrainians may be eligible for restitution, and the registering of claims will take some time. On January 9, long-lines of often elderly depositors formed at branches of Oshchadbank (Sberbank's successor) across the country, surprising many Oshchadbank branches. Tymoshenko immediately got on national television to reassure depositors they need not hurry to register, adding, "We pay your money back -- period." Tymoshenko has at the same time talked tough about reining in inflation, perhaps a signal that she understands this policy will be inflationary. ¶7. (C) There is also seemingly a general change in work ethic. Several new ministers made jokes in the press the day after the new Cabinet was confirmed about who got to work when because Tymoshenko had announced her day would begin at 6:30 am. (Embassy note. This is nearly revolutionary in a country where work routinely begins after 9 or even at 10 am. Meetings before 10 am are still uncommon. End note.) According to the U.S. Treasury Department adviser in Kyiv (protect), there is a noticeably different vibe in the economic ministries -- her new contacts are working until midnight and on weekends and are much more receptive to and interested in western advice. Tymoshenko told the Ambassador that her other key priorities included foreign investment -- doubling FDI and making someone in the Cabinet responsible for relations with foreign investors -- energy diversification, and softening the impact of increasing gas prices on household consumers. Government Program ------------------ ¶8. (C) Deputy PM Nemyria told the Ambassador December 20 that Tymoshenko gave Finance Minister Pynzenyk the task of writing the government program within a week. Although he did not quite meet the deadline, the program was approved by the Cabinet on January 9 and is supposed to go to the Rada soon for a vote. The constitution states that if the Rada approves the program, then it cannot consider a no-confidence vote in the Cabinet for a year. Given that the President no longer has the power to dismiss the PM and he cannot dissolve the Rada until a year after the previous pre-term elections, the Tymoshenko government should be safe until at least October 2008 unless she should choose to resign or the coalition collapses entirely. The program is based on the campaign platforms of the two coalition parties -- thus its name is Ukrainian Breakthrough for the People not Politicians, the combined names of the BYuT and OU-PSD platforms -- as well as on the coalition agreement and another presidential program called "10 steps toward the people". Trying to Play Nice with Yushchenko ----------------------------------- ¶9. (C) Perhaps having learned a lesson from the collapse of her last government in 2005, Tymoshenko has refrained for the most part from publicly challenging Yushchenko. With the exception of giving a New Year's address that competed with the President's, she has not pushed back on some of his announcements that seemed designed to irritate her or to exert control over her. For example, she has not responded at all for his demands that her government program take into account the policy priorities he will lay out in his annual address to the Rada, which is likely to take place in early February. Nor did she comment publicly on the suggestion by Foreign Minister Ohryzko, a presidential appointee, to Yushchenko that ministries' and executive bodies' international activities be governed by presidential directive. Her comments on the appointment of Regions leader Raisa Bohatyreva as Secretary of the National Security and Defense Council were very neutral, in spite of rumors that she had not known about the appointment in advance and despite press speculation that Bohatyreva was put there in KYIV 00000034 003 OF 004 part to counterbalance Tymoshenko. In addition, Tymoshenko, Yushchenko, and Rada Speaker Yatsenyuk have established weekly meetings to set goals and discuss priorities, potentially increasing cooperation between the government and parliament. ¶10. (C) Comment. Tymoshenko's new found caution in this regard may be acknowledgment of how narrow the coalition is; with just two votes to spare, she needs Yushchenko's blessing for everything. She delayed her PM vote for several days while she waited for Yushchenko and OU-PSD to approve final Cabinet appointments, to ensure she had enough votes for her own confirmation. In addition, if Tymoshenko is still trying to decide whether she wants to run for President or back Yushchenko, it is to her benefit to retain cordial relations with the President, even if she decides to run since she might then need to convince him to back her in the potential scenario of a run-off between herself and a candidate from Regions. How long she can hold her tongue, however, remains to be seen -- if Yushchenko pushes his advantage too strongly, given her competitive nature, she may feel compelled to respond. End comment. Reaching Out to Yanukovych -------------------------- ¶11. (SBU) Tymoshenko has also made an effort to reach out to opposition leader Yanukovych. The two met December 25 in a well publicized meeting and discussed ways to strengthen the opposition and to cooperate (ref C). They agreed to form a working group to improve the law on opposition. Tymoshenko also offered to let the opposition decide the Rada's agenda once a month and to give it the right to report jointly with the government on important issues such as the budget -- both ideas are also in the January 2007 draft opposition law. Tymoshenko also suggested that they adopt a law on temporary investigative commissions and amend the law on the Accounting Chamber (which controls privatization revenues and reports to the Rada on management of budget funds) to allow the opposition to run it and to empower the Chamber with the right to take violating officials to court rather than simply presenting information to the Rada; both proposals would be mechanisms for the opposition to exert oversight. There is little information on how many of Tymoshenko's offers Yanukovych agreed to, although Regions declined her offer to let Regions have deputy ministers in all ministries with responsibility for oversight. Loyalists Put into Key Appointments ----------------------------------- ¶12. (C) Tymoshenko has been quick to get her people into other executive branch positions, especially ones that deal with money. She has BYuT financial backer and well-known banker Serhiy Buryak, one of the richest members of her Rada faction, running the State Tax Administration, and loyal BYuT MP Mykola Syvulskiy in charge of the Control and Audit Directorate, which is like the U.S. GAO. She named former Economy Minister Valeriy Khoroshkovskiy to head the Customs Service -- he has a decent reputation, an independently wealthy businessman with substantial media holdings, who served as deputy secretary of the NSDC in 2006-2007, but quit just after then Secretary Vitaliy Haiduk's resignation amid accusations that the Presidential Secretariat was trying to politicize the NSDC. He similarly resigned his position as Minister of Economy in 2004 in protest of Deputy PM Azarov's anti-WTO views. Tymoshenko named as head of NaftoHaz Ukrainy Oleh Dubyna, who also has ties to Haiduk from his years as a manager of several key Industrial Union Donbas metallurgical enterprises. News website Ukrainska Pravda reported rumors on December 11 that Tymoshenko had invited Haiduk himself to come back to the government as Deputy Prime Minister for energy issues. (Note. Haiduk and his Industrial Union Donbas partner Serhiy Taruta have been strong backers of Tymoshenko since early 2007. End note.) ¶13. (C) Comment. Although we are pleased to see the high level of enthusiasm and activity in the Cabinet and PM's office, we will watch their progress cautiously. Some of Tymoshenko's plans, especially the Sberbank repayment program and pension and wage increases, could increase inflation. Moreover, although there should be investigations of some in the Yanukovych administration who did engage in shady practices, Tymoshenko's fixation on proving their corruption writ large, such as by going through every resolution issued by Yanukovych's Cabinet, and her focus on Akhmetov -- directly on his questionable purchase of Dniproenergo and indirectly on his interests in the coal sector -- could distract her government from more pressing matters and could backfire if not handled carefully. Similar fierce corruption investigations of those tied to Yanukovych in 2005 turned up KYIV 00000034 004 OF 004 few convictions but deepened tensions between political forces. At a time when all political forces are calculating alliances for the presidential election in 2009/2010, aggressive attacks against Regions and Akhmetov could lead Akhmetov's team to increase efforts to woo Yushchenko into an alliance. ¶14. (U) Visit Embassy Kyiv's classified website: www.state.sgov.gov/p/eur/kiev. Taylor
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