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08KYIV334, UKRAINE: DEFENSE MINISTER YEKHANUROV PICKS UP THE

February 13, 2008

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08KYIV334 2008-02-13 10:47 2011-08-30 01:44 CONFIDENTIAL Embassy Kyiv

VZCZCXYZ0000
PP RUEHWEB

DE RUEHKV #0334/01 0441047
ZNY CCCCC ZZH
P 131047Z FEB 08
FM AMEMBASSY KYIV
TO RUEHC/SECSTATE WASHDC PRIORITY 4943
INFO RUCNCIS/CIS COLLECTIVE
RUEHZG/NATO EU COLLECTIVE
RUEKJCS/SECDEF WASHDC
RUEKJCS/JOINT STAFF WASHINGTON DC
RHMFISS/HQ USEUCOM VAIHINGEN GE
RUEKDIA/DIA WASHDC

C O N F I D E N T I A L KYIV 000334 
 
SIPDIS 
 
SIPDIS 
 
DEPT ALSO FOR EUR/UMB AND EUR/PRA 
 
E.O. 12958: DECL: 02/08/2018 
TAGS: MCAP MARR PREL MOPS NATO KPKO PINR UP
SUBJECT: UKRAINE: DEFENSE MINISTER YEKHANUROV PICKS UP THE 
CHALLENGE OF MILITARY REFORM 
 
REF: A. KYIV 220 
     B. 05 KIEV 3568 
 
Classified By: Ambassador for reasons 1.4(b,d) 
 
1. (C - REL NATO) Summary: New Defense Minister, and former 
Prime Minister, Yuriy Yekhanurov is an experienced 
bureaucratic insider with close ties to President Yushchenko 
who will be an ardent supporter of Ukraine's request for a 
NATO MAP and movement toward European standards and 
interoperability with NATO, even though he has no particular 
experience in the defense and national security arena.  As he 
seeks to continue and fully implement the defense reforms put 
in place by his predecessor, Anatoliy Hrytsenko, he will have 
Yushchenko's unqualified support.  However, he will also need 
to convince Prime Minister Yuliya Tymoshenko and the Cabinet 
of Ministers to approve increases in defense spending to fund 
the higher salaries and benefits needed to attract recruits 
to a contract military and to modernize the Ukrainian Armed 
Forces' (UAF) armaments and equipment in line with Ukraine's 
European and NATO aspirations.  Hrytsenko did what he could 
under conditions of political turmoil and within the limits 
of MoD authority, but Yekhanurov's challenge will be to use 
his time in office to attract and maintain broad government 
support to advance the UAF further to the standards required 
to make genuine progress toward Euro-Atlantic integration. 
 
2. (C - REL NATO) Comment: Just as Hrytsenko was the right 
person at the right time to launch defense reform after the 
Orange Revolution, Yekhanurov could bring exactly the 
experience and background required to deepen and broaden the 
effort and move Ukraine's military decisively toward Europe. 
He is likely to rely on career civil servants to provide the 
expertise with regard to broader defense reform policy. 
However, his economic background orients him to focus 
personally on budgeting and procurement while his 
bureaucratic background will serve him well in policy and 
program management, areas where the Ministry of Defense must 
still make substantial progress.  It is also expected that 
Yekhanurov will attempt to grapple with the Defense 
Ministry's huge portfolio of real estate and commercial 
holdings, and sell off some of the Ministry's non-military 
holdings.  In fact, in a conversation with the Ambassador 
within days of his appointment, Yekhanurov concentrated his 
comments on exactly these areas.  End summary/comment. 
 
Yekhanurov's Qualifications 
--------------------------- 
 
3. (SBU) Yushchenko's nomination of Yekhanurov to be Defense 
Minister was unexpected, since leaders within the 
pro-presidential Our Ukraine-People's Self Defense (OU-PSD) 
bloc and the public generally assumed Yushchenko would keep 
the well-regarded Hrytsenko in his job.  Some media reports 
suggested that neither Hrytsenko nor Yekhanurov were aware of 
the President's decision until shortly before the 
announcement.  In the aftermath, Hrytsenko confirmed on a 
television show that Yushchenko made the decision without 
consultation with him or with the OU-PSD leadership and that 
it had been a surprise to all.  Most analysts assumed 
Yushchenko wanted Yekhanurov, who had initially opposed 
Yuliya Tymoshenko's selection as the orange coalition's prime 
minister, in the cabinet to help keep Tymoshenko in check. 
Despite the fuss, Yushchenko defended his choice of 
Yekhanurov, saying that he had not taken the decision against 
Hrytsenko but in order to have a fresh set of eyes look at 
the issue of defense reform. 
 
4. (SBU) What is certain is Yekhanurov's personal loyalty to 
President Yushchenko.  When Yushchenko was prime minister 
under former President Kuchma, Yekhanurov was his first 
deputy prime minister (from December 1999 to May 2001), while 
Tymoshenko was a deputy prime minister.  Although Kuchma kept 
Yekhanurov on as first deputy head of the Presidential 
Administration when the Yushchenko cabinet was dismissed in 
May 2001, Yekhanurov left in November 2001 to become deputy 
chief of the election headquarters of Yushchenko's newly 
formed Our Ukraine opposition bloc.  Yekhanurov was elected 
to parliament in March 2002 from Our Ukraine's list.  Then, 
in the 2004 presidential race, Yekhanurov was deputy chief of 
Yushchenko's election headquarters.  After Yushchenko 
dismissed Tymoshenko as prime minister, he plucked Yekhanurov 
from the position of Dnipropetrovsk governor to become prime 
minister in September 2005, a position Yekhanurov held until 
 
August 2006 when Viktor Yanukovych returned to power at the 
head of a new coalition. 
 
5. (U) Yekhanurov has a wealth of experience as a technocrat 
and economist, but he has no specific experience in the 
defense and national security arena,
 evidently not even 
military service in the Soviet Armed Forces.  He was a deputy 
minister of economy from 1993-1994, acting chairman and 
chairman of the State Property Fund from 1994-1997, and 
minister of economy from February to July, 1997. 
 
Yekhanurov's Team 
----------------- 
 
6. (C - REL NATO) Thus far, Yekhanurov has generally 
preferred to bring in deputies whom he knows well rather than 
defense experts who might compensate for his own lack of 
experience.  Although he asked Leonid Polyakov, Hrytsenko's 
first deputy defense minister, to stay on, Polyakov (who is 
close personally and professionally to Hrytsenko) demurred 
and resigned.  Rumor has it, however, that Yekhanurov plans 
to replace Polyakov by moving up Deputy Defense Minister 
Valerii Ivashchenko, a career MoD civil servant who was also 
one of Hrytsenko's deputies, having been appointed in October 
2007.  The Amcit head of the NATO Liaison Office (NLO) in 
Ukraine welcomed the possibility in comments to us.  As of 
this writing, another Hrytsenko hold-over, Mykola Neschadyn, 
was also continuing as another deputy defense minister. 
 
7. (U) Nadiya Deevaya, Yekhanurov's first pick to a deputy 
defense minister position and the first woman in the senior 
MOD ranks, worked for Yekhanurov as Dnipropetrovsk deputy 
governor, then replaced him as governor in November 2005. 
Like Yekhanurov, Deevaya has a background primarily in 
finance and economics.  Bogdan Butsa, appointed deputy 
defense minister on January 23, 2008, also has personal ties 
to Yekhanurov.  Butsa was deputy chairman of the State 
Property Fund from 1995-1997 when Yekhanurov was chairman, 
and Minister of the Cabinet of Ministers from 2005-2006 when 
Yekhanurov was Prime Minister.  Butsa could be a key 
interlocutor for us, since he is rumored to be taking over 
responsibility for munitions destruction and so will have 
responsibility for decisions affecting the implementation of 
the U.S.-led NATO PfP Trust Fund destruction project. 
 
8. (C - REL NATO) The NLO Chief argued to us that 
Yekhanurov's lack of specific defense experience could 
actually deepen the reforms that Hyrtsenko had instituted. 
More than Hrytsenko, Yekhanurov would rely on key career MoD 
civil servants, like Planning and Policy Department Director 
Viktor Korendovych, to execute his programs.  Korendovych and 
various colleagues in MOD and the military general staff 
understand the rationale and philosophy that formed the basis 
of defense reform.  Continuity of effort at the office 
director level would ensure continued progress.  Indeed, the 
MoD and General Staff's ability to successfully transition to 
the new, entirely civilian leadership demonstrated that a new 
approach and thinking was taking root and could not be 
reversed easily. 
 
Yekhanurov's Programs 
--------------------- 
 
9. (SBU) In a conversation with Ambassador within days of his 
appointment, Yekhanurov affirmed his intention to continue 
the reforms that Hrytsenko had initiated.  He would not 
interfere with the work of the General Staff and would push 
the military to continue with reforms.  Yekhanurov commented 
that, while he planned to bring in young deputy ministers, he 
was concerned about the MoD and the UAF's deep conservatism. 
In addition, however, he planned to concentrate early on the 
development of a professional military and the ending of 
conscription into the Armed Forces.  The other main initial 
focus would be on the budget.  President Yushchenko had 
criticized the Ministry of Defense on this score, justifiably 
according to Yekhanurov, since one third of the budget was 
dedicated to maintenance of structures that were not 
supporting MoD and UAF operations.  The budget supported 
commercial enterprises and land assets, so budget reform and 
improvements in the budgeting process would be one of 
Yekhanurov's most important tasks.  He was considering 
assigning budget issues specifically to a deputy minister. 
(Embassy note:  The selling off of MOD assets is likely to 
involve huge sums of money and will bear watching to see 
 
whether individuals or the state benefit from the proceeds. 
End Note.) 
 
10. (SBU) In his first few days in the office, however, 
Yekhanurov was dismayed and frustrated by the MoD and General 
Staff's cumbersome procedures.  The General Staff still does 
everything on paper, causing excessive work for the MoD staff 
and rendering Yekhanurov's personal laptop computer useless. 
Yekhanurov stressed his desire to streamline paperflow within 
the ministry.  Yekhanurov also questioned the system of 
accounting used in the Armed Forces.  Although his staff told 
him there was a shortage of 52,000 living quarters, all 
accounting was done at the unit level with no centralization 
of data.  Yekhanurov suspected that reporting standards 
varied from unit to unit, making data suspect and with 
possibly only a tenuous relationship to actual reality. 
 
11. (C - REL NATO) Comment: Yekhanurov's experience in 
various economic policy positions could very well have 
exposed him to a more progressive approach with which he 
could infect the Ministry of Defense and Ukrainian Armed 
Forces.  In order to promote a culture of risk-taking and 
empowerment to lower levels, however, he will need time to 
structure and maintain the right system of rewards and 
opportunities to change deeply ingrained mindsets.  He 
assured the Ambassador that he intended to remain in the 
Minister of Defense position for two years; he will need this 
time in office if he is to succeed in tranforming the 
Ministry and the military.  End comment. 
 
Priority Task I: The All-Volunteer Force 
---------------------------------------- 
 
12. (SBU) Expanding on his primary goal of moving away from a 
conscript force, Yekhanurov told the Ambassador that, to do 
so, the incentives for military service had to improve, 
beginning with housing.  Yekhanurov had learned that a total 
of 52,000 personnel entitled to receive housing had not, 
including 12,500 retired service members and 8,000 who had 
been promised housing as a condition for being dismissed. 
Acting director of the military analytical think-tank 
Razumkov Center Mykola Sungurovsky emphasized the importance 
of military pay issues to us, listing it as one of three 
primary requirements to transition to a contract military 
along with improvements in housing conditions and training. 
Prime Minister Tymoshenko and the Cabinet had promised to 
raise military salaries to the $600-$800 range, and then 
increase it further to $1,000, but current salaries were the 
same figures in hryvnia, about a fifth of the dollar amount. 
Center for Army, Conversion, and Defense Studies Director 
Valentyn Badrak said military recruiting would fail under 
present conditions since military pay was below average 
civilian pay in many areas where military units were located. 
 
13. (U) The media later reported that Yekhanurov signed, on 
February 5, a plan covering 2008-2010, with a proposed budget 
of 49.6 billion hryvnia (just under U.S. $10 billion) for the 
three years, aimed at completing the transition to a contract 
military.  Yekhanurov told journalists that "we should 
realize that a contract military is costly."  Media reports 
said expenditures would be 11 billion hryvnia in 2008, 18 
billion in 2009, and 20.6 billion in 2010.  Some 45.2 percent 
of the budgeted funds would go for salaries, 20.1 percent for 
procurement and maintenance of equipment, 13.2 percent for 
training, 12 percent on housing construction, and 8.4 percent 
guard services and upkeep of military bases.  To implement 
the program, MoD was proposing a 2008 defense budget of 22.3 
billion hryvnia, or 2.5 percent of GDP.  The current budget 
proposal, however, incorporates only 9.9 billion hryvnia. 
Under the new program, in 2008, 1.9 billion hryvnia (almost 
U.S. $400 million) would be allocated to build 8,000 units of 
officer housing, while average monthly pay for contract 
military would rise to 2,000 hryvnia per month ($400). 
(Embassy note.  The Government is planning to amend the 2008 
budget in March so it is possible that the Defense Ministry 
will see an increase.  End note.) 
 
14. (SBU) Sungurovsky noted to us that lack of financing was 
the main obstacle holding back defense reform.  Badrak agreed 
that the ideal budget figure would be the 22 billion hryvnia 
for 2008 in the MoD program, but argued that a politically 
realistic expectation would be 16 billion, or approximately 2 
percent of GDP.  Pessimistic observers, however, predicted 
that the current budget figures would be revised upward only 
 
to 12 billion hryvnia.  Badrak's Center had developed its own 
budget plan, with 15 billion hryvnia in 2008, 17.5 billion in 
2009 and 19 billion in 2010.  He asserted that such a 
trajectory would allow transition to a contract military by 
late 2010 or the beginning of 2011 without negatively 
affecting other MoD priorities such as equipment 
modernization.  In comments to journalists, former Defense 
Minister Hrytsenko, now chairman of the Parliament's National 
Security and Defense Committee, essentially agreed with 
Badrak's assessment, saying MoD would get much less than its 
request and that two percent of GDP in 2008 and three percent 
in 2009 and 2010 were sufficient to transition to the 
contract military. 
 
15. (C - REL NATO) Comment: While sharp improvements in pay 
and benefits are a necessary first step, a wide-ranging set 
of structural adjustments must also be made to make an 
all-volunteer force viable.  For example, MoD must develop a 
marketing campaign and national network of recruiting 
offices.  For the moment, contract military are drawn from 
conscripts who have opted for the more attractive conditions 
of service associated with the longer terms under contract. 
In addition, legislative changes are necessary to provide the 
foundation for a contract military.  One obvious weakness is 
that the UAF currently cannot penalize volunteers who break 
their contracts and leave the military early.  Yekhanurov 
asked the Ambassador for material on the U.S. experience in 
transitioning to an all-volunteer force, which we are 
providing.  Nevertheless, MoD is not making sufficient 
progress on the structural reforms necessary.  The NLO Chief 
suggested that the MoD and UAF would not be ready by the 2010 
target date actually to transition to a contract military, 
but that a delay would be politically unfeasible.  He 
suggested that conscription would end, but UAF readiness 
would suffer a sharp drop during a transitional period.  We 
agree with this assessment.  End comment. 
 
Priority Task II: Equipment Modernization 
----------------------------------------- 
 
16. (SBU) Political analysts with whom we spoke also 
highlighted the need to modernize the Ukrainian military's 
arms and equipment.  Sungurovsky noted the UAF was surviving 
off its inheritance from the Soviet period, with the majority 
of military equipment bought before 1991 and long past their 
service lives.  MoD and the Ministry of Industrial Policy had 
submitted several draft laws to improve the situation, 
including a law on military-technical cooperation providing 
for novel financing approaches, such as the use of offsets 
and another draft law to privatize some state-owned military 
industrial enterprises.  Like defense reform efforts, 
however, military modernization was also being held back by 
financing problems. 
 
17. (SBU) Badrak said his Center planned to hold a roundtable 
to consider options to replace the Ukrainian Air Force 
primary jet, the MiG-29.  He noted that UAF claimed to be 
able to keep the MiG-29 in service until 2020, but argued 
that, in fact, it would probably need to develop a program 
for its replacement by 2011 and the MiG-29's operational 
service life could only be extended by another 6-7 years.  He 
implied that the replacement program should include some 
joint production possibilities, noting that there were more 
than 50 Ukrainian factories capable of producing parts.  In a 
February 1 Defense Express article, however, Badrak noted 
that there had been some positive movement on military 
modernization, with programs to upgrade the Mi-24 helicopter 
and the MiG-29 jet and development of a new corvette-class 
ship in the last half of 2007. 
 
The Political Upsides and Downsides 
----------------------------------- 
 
18. (SBU) Regardless of his professionalism and technocrat 
credentials, Yekhanurov is also a politician.  Center for 
Peace, Conversion, and Foreign Policy Director Olexander 
Sushko characterized him as a "bureaucrat-politician." 
Yekhanurov told the Ambassador that Yushchenko expected him 
to exert a leadership role in the Cabinet of Ministers, and 
therefore, he had been involved in the process of selecting 
deputy ministers for a range of ministries besides Defense. 
It is unclear whether this political role might distract him 
from his responsibilities as Defense Minister.  In addition, 
it runs the risk of alienating Prime Minister Tymoshenko, 
 
with whom he has already crossed swords, leading to an 
earlier vow not to serve in the same government with her.  So 
far, however, Tymoshenko has been cooperative and, indeed, 
anxious not be viewed as causing Yekhanurov's failure. 
 
19. (C - REL NATO) Yekhanurov is also more subject to 
Presidential direction than was Hrytsenko.  He demonstrated 
this in his conversation with the Ambassador by highlighting 
the need to eliminate the MoD's non-core activities.  (Note: 
On February 6, Yushchenko signed a decree requiring a 
commission to be established to review by March 20 the MoD's 
use of budget funds, military property, and real estate.) 
Yekhanurov said he would work with the State Property Fund 
and Ministry of Finance to determine what property and assets 
should be transferred to other ministries and tha
t he was 
concerned about generals selling property.  (Note: Hrytsenko 
started reforming this area.  He told the Ambassador that he 
took away the generals' authority to sell property by 
transferring it from the General Staff to the civilian MoD 
staff.)  Yekhanurov said he had invalidated 48 suspicious 
directives in his first week of which Hrytsenko was not 
aware.  Sushko suggested that Hrytsenko had been Yushchenko's 
primary defense adviser and, with Hrytsenko's departure from 
office, it was unclear who would be qualified to fill the 
role.  He also repeated a rumor that one reason for 
Hrytsenko's departure was his refusal to transfer a prime 
piece of MoD real estate gratis to a developer, but rather to 
insist on selling it at commercial rates in a transparent way. 
 
20. (C - REL NATO) Yekhanurov might also be pressured by 
Yushchenko and the Presidential Secretariat in more insidious 
ways, particularly regarding who benefits from sales and 
transfers of military assets.  We have heard that 
Presidential Chief of Staff Viktor Baloha was pushing 
Ivashchenko to become First Deputy Defense Minister and that 
Ivashchenko is loyal first to Baloha.  There are also 
allegations that Yushchenko himself hopes to profit from 
sales of military real estate to finance his presidential 
campaign.  Although Yekhanurov has a relatively good 
reputation for honesty, such maneuvering would not have been 
possible at all with Hrytsenko as Minister of Defense. 
 
21. (SBU) The final factor potentially complicating 
Yekhanurov's life will be his relationship to Hrytsenko, who, 
as chairman of Parliament's National Security and Defense 
Committee, exercises an oversight role over MoD budget and 
activity.  Hrytsenko, who should be basically supportive, has 
not been reticent about expressing his critical views. 
 
22. (U) Visit Embassy Kyiv's classified website: 
www.state.sgov.gov/p/eur/kiev. 
Taylor

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