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November 24, 2008

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Reference ID Created Released Classification Origin
08KYIV2304 2008-11-24 14:28 2011-08-30 01:44 UNCLASSIFIED//FOR OFFICIAL USE ONLY Embassy Kyiv


DE RUEHKV #2304/01 3291428
P 241428Z NOV 08

E.O. 12958:  N/A 
1.  (SBU) Senator Bob Corker (R-TN) visited Kyiv November 8-10; and 
met with Foreign Minister Ohryzko, Deputy Ministers of Energy 
Pavlush, Deputy Minister of Economy Boitsun, and Rada Committee 
Chair for Taxation and Customs Teriokhin.   Discussions focused on 
Ukraine's NATO aspirations, domestic and international economic 
developments, and energy production and security.  The Boitsun and 
Teriokhin meetings, detailed below, provided insights into Ukraine's 
unfolding economic crisis.    End Summary. 
Teriokhin on Trade and Taxes 
2. (SBU) Serhiy Teriokhin, the Chairman of the Rada's Tax and 
Customs Committee, told Senator Corker that Ukraine's metals and 
chemical industries are responsible for "sixty percent of the trade 
balance" and that lower global demand in these sectors had created 
problems, including an expected USD 24 billion balance of payments 
gap next year and what Teriokhin called the possibility of 
"technical default" in mid-2009.  Teriokhin claimed Ukraine had seen 
the loss of 25,000 jobs in the last week alone, but he discounted 
direct subsidies to hurting industries.  He expects his committee 
instead to pass a law to allow accelerated depreciation for select 
capital expenditures, including for waste utilization, coal mine 
methane gas capture, alternative energy, and the nuclear industry. 
3.  (SBU) Teriokhin stated there are no government funds to cover 
financial losses sustained by Ukrainians in pension funds, 
investment companies, and Ukraine's stock market, but an increase in 
the bank deposit insurance limit to 150,000 UAH (about USD 25,000) 
means 94 percent of depositors would be covered in the event of bank 
failures.  Teriokhin also expressed concern about the insurance 
industry, with some "50 billion UAH in the sector," and that 
insurance companies will be required to provide additional reserves 
to cover "theoretical losses." 
4.  (SBU) Warning that economic populism was at present 
inappropriate, Teriokhin said a provision he had supported in a 
recent anti-crisis package to freeze social expenditures was 
extremely unpopular.  Teriokhin claimed that everyone except PM 
Yuliya Tymoshenko's bloc (BYuT) wants to increase social 
expenditures, a situation Teriokhin found ironic since BYuT is often 
charged with populist tendencies.  He also noted he hoped that "cash 
payments" to the unemployed would be decreased, and that savings 
would be used instead to finance a program of public works, 
including Euro 2012 soccer infrastructure construction.  Teriokhin 
also hopes to see enactment of legislation based upon a French law 
that would reduce taxes or even provide benefits to employers who do 
not layoff workers. 
5. (SBU) Teriokhin noted that the anti-crisis package had passed 
despite the absence of a formal coalition.  Teriokhin opined that 
fifty members of his erstwhile Our Ukraine coalition partners 
believed the best way forward was new elections, making re-formation 
of the former coalition in the near-term unlikely.  Moreover, given 
that President Yushchenko "does not want to change anything," 
Teriokhin theoretically sees April or May elections ahead, even 
though early elections hold no advantage for the President. 
6. (SBU) Teriokhin added that while he believes a formal coalition 
with the Party of Regions would be difficult, there has been talk of 
a "technical coalition" under which only legislation mutually 
agreeable to BYuT and Regions would be considered in the Rada, with 
other legislation put aside and revisited in a year.  Teriokhin 
believed Regions would enter into a "technical coalition" only if 
Prime Minister Tymoshenko agreed to step aside. 
Boitsun on IMF Loan, US Antidumping 
--------------------------------------------- --- 
7. (SBU) Senator Corker met also with Natalia Boitsun, Deputy 
Minister of Economy.  Boitsun told Corker that the global financial 
crisis had caught the Ukrainian leadership by surprise, but that 
they believed they had now stabilized Ukraine's financial system. 
Boytsun described the agreement for a $16.5 billion loan from the 
IMF as an important step that would help to sure up public 
confidence.  She said that achieving currency stability was now the 
GOU's biggest concern. 
8. (SBU) Boitsun pointed to Ukraine's negative trade balance, which 
had grown rapidly in recent years, as being particularly problematic 
and said the GOU believed a trade deficit greater than 5% of GDP was 
"unsustainable."  (Note: The trade deficit was over 10% of GDP for 
January-August.  End Note.)  She noted that there were many calls, 
both from domestic producers and from within the government, to 
impose import restrictions in order to address balance of payments 
problems.  The GOU was resisting these calls, said Boitsun, and was 
instead trying to bolster exports.  The recent devaluation of the 
hryvnia should help, she noted. 
9. (SBU) Boitsun raised concerns regarding long-standing U.S. &#x000
A;anti-dumping orders on some Ukrainian exports, particularly steel 
products and fertilizers, in place since before Ukraine achieved 
market economy status.  Corker responded that he would inquire in 
Washington about the status of those anti-dumping orders.  Boitsun 
lamented the low level of bilateral investment, especially Ukrainian 
investment in the United States, and called for more robust 
bilateral economic ties. 
10. (SBU) The Deputy Minister also noted that natural gas prices for 
2009 remained a big uncertainty.  Some projections showed that 
significantly higher gas prices, combined with a global economic 
slowdown, could cause Ukraine's GDP to shrink by 3% in 2009. 
11. (SBU) Senator Corker also received briefings regarding 
Millennium Challenge Corporation developments, USAID Economic 
Development projects, and Peace Corps activities in Ukraine. 


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