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09KYIV344, DEFENSE MINISTER ASSAILS “BUDGET OF RUIN”

February 20, 2009

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Reference ID Created Released Classification Origin
09KYIV344 2009-02-20 14:46 2011-08-30 01:44 CONFIDENTIAL Embassy Kyiv

VZCZCXRO8155
PP RUEHDBU
DE RUEHKV #0344/01 0511446
ZNY CCCCC ZZH
P 201446Z FEB 09
FM AMEMBASSY KYIV
TO RUEHC/SECSTATE WASHDC PRIORITY 7324
INFO RUEHZG/NATO EU COLLECTIVE
RUCNCIS/CIS COLLECTIVE

C O N F I D E N T I A L SECTION 01 OF 02 KYIV 000344 
 
SIPDIS 
 
E.O. 12958: DECL: 02/18/2019 
TAGS: MARR MCAP PGOV UP
SUBJECT: DEFENSE MINISTER ASSAILS "BUDGET OF RUIN" 
 
Classified By: Ambassador William Taylor for reasons 1.4 (b,d). 
 
Summary 
------- 
 
1.  (C) Defense Minister Yekhanurov has publicly called the 
2009 defense budget "a budget of ruin" and demanded a 
revision.  Yekhanurov had earlier told the Ambassador that he 
had held "very unpleasant conversations" with PM Tymoshenko 
about defense spending and warned the government "not to play 
with the armed forces."   Yekhanurov said low levels of 
defense spending -- 0.85% of GDP -- put continued Ukrainian 
participation in Kosovo and Liberia peacekeeping operations 
at risk.  In statements to the press, Tymoshenko rejected 
Yekhanurov's claims.  Budget woes have already caused 
President Yushchenko to announce postponement of the 
transition to a professional army for five years.  End 
Summary. 
 
"Budget of Ruin" 
---------------- 
 
2. (U) Defense Minister Yuriy Yekhanurov on February 17 
publicly termed the 2009 defense budget "a budget of ruin." 
He derided defense spending -- at 0.85% of GDP -- as being on 
par with that of Moldova or Luxembourg.  Yekhanurov said that 
without a revision upward, Ukraine would have to scale back 
its participation in peacekeeping operations in Kosovo or 
Liberia.  He said Ukraine had only four months worth of 
funding for PKOs in the budget. 
 
"All Life is Struggle" 
---------------------- 
 
3. (C) Yekhanurov told the Ambassador recently that he had 
held "very unpleasant talks" with Prime Minister Tymoshenko 
on the defense budget and warned the government "not to play 
with the armed forces."   Yekhanurov noted that while he had 
secured additional funding for military pay, the government 
had in turn sent "a huge auditing group" to monitor spending. 
 Yekhanurov underlined that getting a new defense budget was 
his "primary task."   With the budget crisis in mind, he 
recalled to the Ambassador a saying from the Soviet era: "all 
life is struggle." 
 
PM Rejects Yekhanurov's Claims 
------------------------------ 
 
4.  (U) PM Tymoshenko rejected Yekhanurov's calls for 
increased military spending in comments to the press on 
February 18.  She insisted that there had been no delays in 
financing the military and countered that the MOD had misused 
funds by overpaying "monopolist entities."  She cited an 
instance of the MOD disbursing 500,000 hryvnia in separation 
pay to a retiring serviceman as evidence of waste and abuse. 
On February 19, Yekhanurov disputed Tymoshenko's claim 
telling reporters that the separation pay in question had 
been disbursed to a retired general of the Ministry of 
Justice who had no connection with the MOD. 
 
President Calls for Increase 
---------------------------- 
 
5.  (U) During a visit to a military unit on February 19, 
President Yushchenko characterized the current military 
budget as "insignificant."  He reiterated the call for the 
GOU to increase defense spending when amending the 2009 
budget.  He expressed concern over the absence of funds to 
develop the armed forces, although he expressed satisfaction 
with the progress of defense reform in recent years. 
 
 
2009 Budget: Half of MOD Request 
-------------------------------- 
 
6.  (SBU) After four attempts, the Rada passed a 2009 budget 
bill on the narrowest of margins in December.  President 
Yushchenko signed the budget into law on December 29, but 
only after extracting a promise from PM Tymoshenko that the 
Rada would later amend the budget.  Upon its passage, 
Yekhanurov characterized the 2009 defense budget as 
"destructive" to the armed forces. 
 
7. (U) Yekhanurov said that although the Rada approved 11.65 
billion hryvnia ($1.45 billion) for defense expenditures, the 
MOD would actually receive only 8.6 billion hryvnia ($1.07 
billion) because of expected shortfalls coming from the 
so-called "special fund."  The special fund, which is 
generated by sales of MOD equipment and property, has not met 
projected levels in previous years. 
 
8. (U) On February 19 the MOD stated that 7.4 billion hryvnia 
 
KYIV 00000344  002 OF 002 
 
 
($925 million) of the 2009 budget would come from the general 
fund (regular budget) while 4.2 billion ($525 million) was 
supposed to come from the special fund.  To meet its needs, 
the MOD stated that a budget of 32.4 billion hryvnia ($4.05 
billion) for 2009 would have been optimal.  Instead, the MOD 
had settled on a request of 17.5 billion hryvnia ($2.19 
billion) for 2009.  The MOD statement concluded that the 
budget - as passed - could lead to reduced unit readiness and 
manning, mass resignations, and an end to armaments upgrades. 
 
 
President Postpones Shift to Professional Military 
--------------------------------------------- ----- 
 
9.  (SBU)  On January 10, Yushchenko signed a decree 
postponing transition to a professional military for an 
additional five years.  The Ukrainian MOD currently consists 
of an estimated 148,000-150,00 uniformed and 43,000-50,000 &#x000
A;civilian personnel.  Officers make up approximately half of 
the active armed forces.  The MOD's 2007 "White Book" 
envisioned a force of 51,000 contract professionals and 
44,000 conscript soldiers by the end of 2008.   The current 
term of service for conscripts is 12 months.  Most 
professional soldiers sign an initial contract of three years. 
 
10.  (SBU) Yushchenko attributed the need to postpone 
transition to a professional army to budget shortfalls.  The 
chairman of the Parliamentary Committee on National Security 
and Defense (and former Defense Minister), Anatoliy 
Hrytsenko, criticized the decree, charging that Yushchenko 
broke his promise of securing a fully professional military 
by 2010.  Meeting with the Ambassador in January, Hrytsenko 
agreed that the 2009 budget covered less than half of the 
military's needs. 
 
Far short of 2-3% of GDP envisioned in State Program 
--------------------------------------------- ------- 
 
11.  (U) Yekhanurov has underlined that the 2008 defense 
budget was insufficient to meet defense reform goals outlined 
in the State Program for Development of the Ukrainian Armed 
Forces 2006-2011.  The State Program, approved in 2005, 
called for transition to a fully professional force by the 
end of 2010, among other reform goals.  The Program called 
for a defense budget of two percent of GDP 2006-2007, three 
percent of GDP 2008-2010, and a return to two percent in the 
following years. 
 
Experts Agree Low Budget Harms Reform 
-------------------------------------------- 
 
12.  (SBU) The Razumkov Center, a think tank that has been 
working on defense issues since 2000, agreed in a recent 
report that the GoU underfunds the military.  Defense experts 
Mykola Sungurovskiy and Oleksiy Melnyk of the Center told 
Poloff that the 2008 budget was 50 percent below target for 
training and 30-40 percent below target for equipment 
procurement and upgrades. 
 
13. (SBU) Analyst Viktor Chumak of the International Center 
for Policy Studies (ICPS) said that military reform had 
stalled in the past two years because of the insufficient 
budgets.  Underfunding, which he attributed to GOU leaders' 
lack of strategic vision, had slowed improvements to training 
and equipment.  He estimated that the armed forces need 15-20 
billion hryvnia ($1.8 - 2.3 billion) in the coming year to 
meet reform goals.  He estimated MOD would need up to 50 
billion hryvnia ($5.9 billion) in the next three years to 
achieve a professional military 
 
Comment 
------- 
 
14. (C) MOD is not immune to the budget pressure stemming 
from Ukraine's overall economic crisis.  Thus far MOD appears 
to be meeting its most essential commitments.  As the Defense 
Minister has indicated, however, it remains to be seen how 
long this can go on.  With the defense budget at one half (or 
less) of the level the State Program called for, the 
shortfall is impacting the tempo of Ukraine's defense reform 
-- such as the move to a professional military -- and 
Ukraine's ability to deepen interoperability with NATO. 
TAYLOR

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