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March 31, 2009

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Reference ID Created Released Classification Origin
09KYIV576 2009-03-31 15:03 2011-08-30 01:44 CONFIDENTIAL Embassy Kyiv

DE RUEHKV #0576/01 0901503
P 311503Z MAR 09

C O N F I D E N T I A L SECTION 01 OF 02 KYIV 000576 
E.O. 12958: DECL: 03/31/2019 
REF: KYIV 518 
Classified By: A/DCM Edward Kaska for reasons 1.4(b,d) 
1. (C) On March 31, the Rada failed to include on its agenda 
three anti-crisis measures deemed essential by the IMF. 
Although PM Tymoshenko delivered unanimous support for the 
bills from her bloc, President Yushchenko's allies in the 
Rada did not support inclusion of the measures on the agenda. 
 The Rada passed two other required anti-crisis measures with 
support from both BYuT and the pro-coalition and 
pro-presidential wings of Our Ukraine-People's Self-Defense 
(OU-PSD).  Failure to pass the five measures, a minimal 
package of pared-down IMF requirements, further postpones the 
IMF team's return to Kyiv.  Tymoshenko pledged to work with 
the President and Rada to obtain passage of the three 
remaining measures as early as April 1.  End Summary. 
Rada Fails to Meet IMF Pared-Down Expectations 
--------------------------------------------- - 
2. (SBU) On March 31, the Rada passed two of five bills in a 
package of anti-crisis legislation submitted by PM 
Tymoshenko's government.  The bills were considered the bare 
minimum needed to get the IMF back to Ukraine for further 
negotiations on the second tranche of the Stand-By 
Arrangement.  The IMF had pared down its expectations of the 
GOU, essentially endorsing what amounted to a check list of 
fiscal measures to be taken by the Rada as a precondition for 
bringing the Fund's mission team back to Ukraine. 
3. (C) On March 24, IMF resident representative Max Alier 
suggested to G7 ambassadors that it would consider 
"satisfactory" PM Tymoshenko's promise to deliver two excise 
bills (one on tobacco and the other on alcohol, cars, and 
gasoline), a modest pension reform plan, revisions to the 
2009 budget to offset state-owned gas company Naftohaz's 
payments, and public procurement reforms.  Tymoshenko told 
the IMF that all needed anti-crisis legislation would pass on 
March 31.  Yushchenko also had guaranteed the bills' passage 
by March 31, even telling an audience in Prague on March 25 
that the IMF would return the week of March 30 after the 
requisite legislation was in place (Ref A). 
4. (SBU) However, two bills related to pension reform and a 
bill on Naftohaz payments failed to garner enough votes to be 
put on the agenda for consideration.  Because the bills 
themselves were not yet considered and voted on in the Rada, 
they can be reintroduced to the Rada agenda at a later date. 
The pension reform bills received 206 and 210 votes 
respectively, and the Naftohaz budget legislation received 
209 votes.  226 votes are required to put an item on the 
5.  (SBU) By approving only the excise taxes on tobacco and 
alcohol, the Rada has not met IMF requirements for the 
anti-crisis legislation package.  While we were unable to 
reach the IMF for their immediate reaction, the World Bank's 
Kyiv-based senior economist Ruslan Piontkivsky told us on 
March 31 that the Rada's revenue-generating legislation had 
been watered down from what the PM had told the IMF, since it 
had not included provisions for cars or gasoline.  While the 
World Bank had not read the full text of the two excise taxes 
and could not comment on the amount of revenue they would 
raise, Piontkivsky suggested that the laws have fallen far 
short of meeting the 2 percent of GDP fiscal gap targets 
required by the IMF.  Official estimates suggest that the 
tobacco excise tax will generate UAH 3.7 billion ($480 
million) during the final nine months of 2009, while the tax 
on alcoholic beverages should bring UAH 1.3 billion ($170 
million) for the balance of the year. 
Yushchenko Doesn't Deliver... 
6. (SBU) In his State of the Union Address to the Rada, 
Yushchenko called for political unity in the face of the 
ongoing economic crisis.  Although he called for support of 
the pension reform legislation in his address, Yushchenko 
failed to deliver the votes of his remaining allies in 
OU-PSD.  Neither Presidential Secretariat head Baloha's 
United Center (UC) MPs nor former Speaker Vyacheslav 
Kyrylenko's "For Ukraine" group voted to include the 
legislation on the agenda.  (Note: We estimate that "For 
Ukraine" and UC make up at least 27 members of the OU-PSD 
faction.)  Yushchenko was more critical of the Naftohaz 
budget legislation in his address, arguing that the 
"so-called balanced budget of Naftohaz" needs to be reviewed. 
KYIV 00000576  002 OF 002 
7. (C) BYuT MP Kostyantin Bondareev told us that Yushchenko's 
call to unity was "meaningless" without action from his 
allies in the Rada.  He said that Yushchenko always talks 
about unity on one hand, while "bringing up treason charges" 
against Tymoshenko and devising plans to dissolve the Rada on 
the other.  Pro-coalition OU-PSD MP Vladislav Kaskiv told us 
that a cal
l for unity by the president "does not equal 
unity."  Kaskiv said he did not expect "For Ukraine" or UC to 
support anything positive, as they preferred to focus on 
destroying the coalition. 
...But Tymoshenko Does 
8. (SBU) Tymoshenko's BYuT faction gave unanimous support for 
the three unsuccessful bills.  She said that the Rada's 
failure on March 31 threatened the IMF program, and she 
announced plans to consult with the President and Rada 
factions to get the measures on the agenda April 1. 
9. (C) BYuT contacts tell us that the anti-crisis package is 
politically difficult, as Tymoshenko tries to maintain her 
rating in the run-up to presidential elections while trimming 
the 2009 budget to decrease the deficit.  Tymoshenko has 
announced that BYuT would not support any pension reform 
legislation that included raising the retirement age.  BYuT 
MP Mikhaylo Volynets told us that Tymoshenko was worried that 
any increase in the retirement age would be "political death" 
for BYuT and her presidential aspirations. 
10. (C) Tymoshenko delivered her votes on legislation 
required by IMF.  Yushchenko failed to deliver, after 
numerous pledges to support the measures.  While his allies 
in the Rada are dwindling, their votes would have been 
sufficient to gain a majority in favor of the measures. 
While the legislation can be resubmitted to the agenda at any 
time, the vote represented a failed opportunity for Ukraine's 
political leadership to work together to meet IMF 
requirements, and will invariably delay the IMF mission 
team's return. 




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