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November 20, 2008

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Reference ID Created Released Classification Origin
08KYIV2289 2008-11-20 17:05 2011-08-30 01:44 UNCLASSIFIED//FOR OFFICIAL USE ONLY Embassy Kyiv

DE RUEHKV #2289/01 3251705
P 201705Z NOV 08

E.O. 12958: N/A 
1. (SBU) Your November 22-23 visit to Kyiv will be an 
important sign of continuing USG support for international 
recognition of the Holodomor, the Great Famine of 1932-1933, 
which has been a top priority for President Yushchenko.  Your 
visit will come at a time of an unfolding economic crisis and 
an ongoing struggle between President Yushchenko and Prime 
Minister Tymoshenko over whether to hold snap parliamentary 
elections.  Political wrangling over election funding and 
other related legislation has delayed any election date until 
2009, if early elections are held at all.  Tymoshenko has 
rejected the necessity for new elections, citing the economic 
crisis.  In early November the IMF approved a $16.4 billion 
IMF package for Ukraine -- one of the largest in IMF history. 
 A first tranche of $4.5 billion was disbursed immediately 
after approval.  At the time of this writing, the Rada is 
debating a second round of legislation aimed at meeting IMF 
2. (SBU) Ukraine's relationship with Russia has remained 
tense following the Russia-Georgia conflict.  President 
Yushchenko strongly supported President Saakashvili and 
issued decrees that seek to more closely regulate Russia's 
Crimea-based Black Sea Fleet (BSF).  Yushchenko continues to 
push hard for NATO MAP.  Senior officials have recently 
stated, however, that the main goal for the December NATO 
Ministerial will be signals (via MAP or other vehicles) that 
Ukraine is moving toward membership.  End Summary. 
Major Themes and Talking Points 
3. (SBU) Your visit provides an opportunity to engage with 
key decision makers and underline our bilateral policy 
objectives.  We suggest the following main themes: 
- Holodomor: The  U.S. strongly supports Ukraine's 
recognition of the tragedy of Holodomor.  Both President Bush 
and Vice President Cheney paid homage at the Holodomor 
monument in Kyiv with Yushchenko this year. 
- Financial: The President, Prime Minister, and Rada need to 
unite to deal with Ukraine's financial crisis.  Providing 
examples of bipartisan approaches to the economic crisis in 
the U.S. could help underline this point. 
- Energy: Ukraine needs to increase transparency in the 
energy sector, increasing competition, removing unnecessary 
middle-men (such as RosUkrEnergo), and establishing an open 
contracting system. 
- NATO: At the NATO Summit in Bucharest in April, the 
Alliance committed to eventually extending membership to 
Ukraine.   Ukraine must move forward on defense reform, 
economic reform and rule of law.  We look forward to 
deepening our bilateral engagement with Ukraine to help 
advance its progress in these areas.  There is no one set 
path to NATO membership. 
President Yushchenko Pushes Recognition of the Holodomor 
--------------------------------------------- ----------- 
4.  (SBU) The "Holodomor," which means "death by hunger," is 
what Ukrainians call the 1932-33 Great Famine instigated by 
Stalin.  President Yushchenko has taken a great personal 
interest in promoting commemoration of Holodomor and hopes 
that increased awareness of the famine will become an 
enduring part of his legacy.  Ukrainian nationalists consider 
Holodomor a defining moment in Ukraine's history.   The 
famine struck most heavily in what is now eastern Ukraine; it 
also struck parts of Russia and Kazakhstan.  The famine was 
created after Ukrainian farmers resisted Soviet attempts to 
force peasants into collective farms.  Soviet authorities 
confiscated the bulk of the food in the Ukrainian Socialist 
Soviet Republic to force the issue.  Many scholars believe 
that 4-7 million deaths resulted from the famine; some 
Ukrainian politicians claim even greater losses. 
5.  (SBU) Ukraine is officially marking the Holodomor,s 75th 
anniversary in 2008 with domestic and international events 
and is looking for as much outside recognition as possible. 
Ukraine passed a law in November 2006 declaring the Holodomor 
genocide against the Ukrainian people.  The Government has 
sought recognition of the Holodomor as genocide in 
international fora.  Russia is bitterly opposed to calling 
the Holodomor genocide.  President Medvedev turned down an 
official invitation to attend the 75th anniversary events 
citing differences over the term genocide.  The US has 
co-sponsored resolutions that do not include the genocide 
KYIV 00002289  002 OF 004 
designation at UNESCO in October 2007, at the UNGA in 2003, 
and an OSCE statement in December 2007.  The European 
Parliament passed a resolution recognizing the Holodomor as a 
crime against the Ukrainian people and humanity without 
referencing genocide in October 2008.  The U.S. has told 
Ukraine that we are unable to support resolutions that call 
the Holodomor genocide.  The United States supported the 
inclusion of an agenda item at the 63rd UNGA this year 
commemorating the 75th anniversary. 
Orange Coalition Falters 
6. (SBU) Orange Revolution allies Viktor Yushchenko and 
Yuliya Tymoshenko united forces following an unexpectedly 
strong showing by Tymoshenko's political bloc in the 
September 2007 pre-term parliamentary elections.  They formed 
a coalition and established a government in late 2007 with 
Tymoshenko as Prime Minister, recreating their post-Orange 
Revolution alliance.  Many hoped that they would work 
together better than they did in 2005, when Yushchenko 
dismissed Tymoshenko after seven months of infighting. 
Following an initial phase of cooperation, we again witnessed 
a string of mutual recriminations. 
Two Headstrong Leaders 
7.  (SBU) President Yushchenko has a reputation as a 
visionary but critics say that his differences with 
Tymoshenko have prevented him from fulfilling the high 
expectations when he entered office in 2005.  However, even 
his critics concede that his commitment to seeing Ukraine 
join NATO and the European Union is sincere.  He has been 
relentless in pushing for Ukraine's request for a MAP.  To 
Yushchenko, NATO membership is the only thing that can 
guarantee Ukrainian sovereignty and territorial integrity. 
He has stated that events in Georgia reinforce the need for 
collective security arrangements for Ukraine.  Yushchenko has 
a close relationship with Georgian President Saakashvili, and 
is the godfather to Saakashvili's son.  Significantly 
recovered from his 2004 dioxin poisoning, Yushchenko's 
scarred face continues to clear up. 
8. (SBU) Returning to political center stage after two years 
in opposition with her trademark braided hairstyle intact, PM 
Tymoshenko hit the ground running after her December 2007 
confirmation as Prime Minister in a restored Orange 
coalition.  She got a budget passed in eight days, completed 
her government program for the upcoming year, and made some 
progress in fulfilling campaign promises, such as to return 
lost savings from the defunct Soviet-era state savings bank. 
Tymoshenko joined Yushchenko and then Rada Speaker Yatsenyuk 
in signing a letter requesting a NATO Membership Action Plan 
(MAP) and spoke in favor of MAP during private meetings with 
the NATO SYG and North Atlantic Council during their June 
visit to Kyiv.  Reflecting the public's ambivalence about 
NATO membership for Ukraine, Tymoshenko has avoided taking a 
public stance. 
Elections Called, Date Uncertain 
9. (SBU) On October 8, Yushchenko announced a decree 
disbanding the Rada and calling for pre-term parliamentary 
elections.  In his address, Yushchenko once again blamed the 
Tymoshenko Bloc (BYuT) for the collapse of the coalition, 
pointing to BYuT's votes with Regions in the current Rada 
session.  Without naming her, Yushchenko cast the blame on 
Tymoshenko, saying that he was "absolutely certain" that the 
democratic coalition was destroyed because of the "personal 
ambition of one person." 
10. (SBU) PM Tymoshenko opposed the decision to call pre-term 
elections, citing the unfolding domestic economic crisis as 
requiring political continuity and stability.  The call for 
elections, which require passage of laws both on 
administering and funding the vote, has thus far failed to 
find majority support in the Rada.  There is still 
uncertainty on the date of the elections, or if they will be 
held at all. 
Economic Challenges 
11. (SBU) Ukraine's current financial crisis stems from a 
sharp decrease in international credit due to the global 
financial crisis and Ukraine's precarious balance of payments 
situation.  Ukraine will have to finance $50 to $60 billion 
in foreign commitments due in 2009.  Ukraine's banking 
sector, which grew rapidly in recent years thanks to 
KYIV 00002289  003 OF 004 
aggressive foreign borrowing, is of chief concern.  The main 
issue is the ability of banks to roll over short term 
external debt (currently totaling  approximately $13 billion) 
which will come due in the next few months.  The current 
account deficit has ballooned in recent years and will total 
about $13 billion this year.   It will need to drop 
substantially next year if Ukraine is to meet its external 
commitments.  Ukraine's foreign exchange reserves have 
dropped by 20% since the crisis began and totaled about $31 
billion in early November.  The reserves will not cover all 
of the country's expected financing needs.  Despite currency 
controls imposed by the National Bank, the hryvnia continues 
to show volatility. 
Challenges to the Real Economy 
12. (SBU) A downturn in global demand for steel and chemicals 
(Ukraine's chief exports), along with rising prices expected 
for gas imports and a downturn in credit conditions has led 
analysts to revise downward growth forecasts radically, with 
most now expecting zero or even negative real GDP growth in 
2009, after about 7.4% growth in 2007 and about 4.5% this 
year.  In addition to an unstable banking sector and an 
apparent contraction in the steel industry, we expect sharp 
corrections in Ukraine's overheated construction and real 
estate sectors, an overall decline in investment, increased 
capital flight and rising energy prices. 
Policy Responses to Financial Crisis 
13. (SBU) The National Bank of Ukraine (NBU), pressed to stop 
a run on deposits in commercial banks, has sharply tightened 
capital controls in Ukraine's banking system, which has 
relied heavily on foreign borrowing to fuel its breakneck 
growth in recent years.  The action comes after an estimated 
$3 billion, or 4 percent of total deposits, were withdrawn 
from the banking system in mid to late October.  Both the 
President and Prime Minister supported the IMF package that 
called for recapitalizing the banking sector and introducing 
stricter fiscal discipline, particularly as liberal public 
spending and public sector salary and pension policies have 
been a main cause of Ukraine's galloping inflation. 
Ukraine and Energy 
14. (SBU) The geopolitics and economics of energy continue to 
play a central role in Ukraine.  Energy consumption per 
capita remains the highest in the world, and the energy 
infrastructure is decaying.  Ukraine remains heavily 
dependent on gas and oil imports from Russia and Central 
Asia, and is the main transit country for Russian gas 
shipments to central and western Europe.  Most Ukrainian 
policy-makers agree that Ukraine must diversify its sources 
of energy and move towards a market-based energy relationship 
with Russia, but Kyiv has yet to develop a long-term strategy 
to achieve these goals. 
15. (SBU) The USG has encouraged Ukraine to open its ener
market to more foreign investment. Few Ukrainian energy 
companies have the technical and financial resources to bring 
domestic production up to potential. Recent moves by the GOU 
to undercut its first-ever Production Sharing Agreement 
(PSA), signed with the U.S. company Vanco in 2007, are 
raising doubts about the GOU's sincerity in attracting 
foreign investment to develop domestic energy resources. 
There are some bright spots, however.  Within the framework 
of the USG-supported Nuclear Fuels Qualification Project, 
Westinghouse has signed a contract to initially supply three 
Ukrainian reactors with fuel starting in 2011.  This will 
help Ukraine diversify its sources of fuel for its nuclear 
power plants, all of which currently get their fuel from 
Russia.  Russia also currently takes back spent nuclear fuel, 
but New Jersey-based Holtec has a contract to build a 
facility to store spent fuel within the country. 
16.  (SBU)  The NATO Bucharest Summit did not grant a 
Membership Action Plan (MAP) to Ukraine.   However, the 
Alliance declared that it sees Ukraine as a member in the 
future, urged intensified dialogue, and set a December 2008 
date for an initial re-evaluation by Foreign Ministers.  The 
Ukrainian government recently launched a NATO Public 
Information Campaign. Public opinion remains highly skeptical 
of the prospect of NATO membership, with less than 25 percent 
in favor and more than 50 percent opposed. 
KYIV 00002289  004 OF 004 
17.  (SBU) Following Russia's actions in Georgia, Ukraine 
requested emergency consultations with NATO allies to discuss 
threats to Ukraine's national security arising from that 
crisis.  FM Ohryzko stated that events in Georgia argue 
strongly for even closer integration of Ukraine into the 
Euroatlantic community and for NATO membership.  Yushchenko 
made a high-profile visit to Tbilisi on August 12 and, on the 
same day, signed two decrees meant to 1) regulate border 
crossing for Russia's Black Sea Fleet (BSF) personnel, ships, 
and planes, and 2) require GOU permission for future BSF 
deployments.  Yushchenko's move triggered a sharp exchange 
between Kyiv and Moscow.  The MFA recently reconfirmed 
Ukraine's intention to hold Russia to the 2017 BSF withdrawal 
date agreed to in the 1997 basing agreement.  The basing 
agreement requires either signatory to inform the other at 
least one year prior to the 2017 withdrawal deadline of its 
intention to enforce the agreement -- otherwise an automatic 
5-year extension applies. 
18.  (SBU) Leading politicians from other parties have spoken 
of taking a less confrontational approach to the situation in 
Georgia.  PM Tymoshenko has spoken of supporting the 
territorial integrity of Georgia, but warned of exacerbating 
regional tensions.  She opposed Yushchenko's decrees to 
regulate the Black Sea Fleet as unenforceable and liable to 
further increase tensions with Russia.  The Lytvyn Bloc, 
which advocates Ukrainian neutrality, released a statement 
urging Ukraine to give up its intentions to join NATO any 
time soon.  The Party of Regions, headed by former PM 
Yanukovych, was critical of Yushchenko's support for 
Saakashvili and Ukraine's provision of arms to Georgia. 
Yanukovych spoke in favor of recognizing the "independence" 
of South Ossetia and Abkhazia. 


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