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09KYIV1511, WORLD BANK ON IFI ENGAGEMENT IN UKRAINE

September 4, 2009

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Reference ID Created Released Classification Origin
09KYIV1511 2009-09-04 10:59 2011-08-30 01:44 CONFIDENTIAL Embassy Kyiv

VZCZCXRO8801
RR RUEHDBU RUEHSL
DE RUEHKV #1511/01 2471059
ZNY CCCCC ZZH
R 041059Z SEP 09
FM AMEMBASSY KYIV
TO RUEHC/SECSTATE WASHDC 8355
INFO RUCNCIS/CIS COLLECTIVE
RUEHZG/NATO EU COLLECTIVE
RHMFISS/DEPT OF ENERGY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC

C O N F I D E N T I A L SECTION 01 OF 02 KYIV 001511 
 
SENSITIVE 
SIPDIS 
 
DEPT FOR EUR, EUR/UMB, EEB/OMA 
 
E.O. 12958: DECL: 09/03/2019 
TAGS: EFIN EREL ETRD PGOV PREL UP XH
SUBJECT: WORLD BANK ON IFI ENGAGEMENT IN UKRAINE 
 
Classified By: Economic Counselor Edward Kaska for Reasons 1.4 (b) and 
(d) 
 
1.  (C)  Summary.  The World Bank's Kyiv-based country 
director urged the international community to engage Ukraine 
during its pre-presidential election period, suggesting that 
a high-level E.U. and U.S. delegation could push authorities 
to abide by their commitments.  He said that the opposition 
Party of Regions had been angered by what it perceived as the 
IMF's favoritism toward Prime Minister Tymoshenko, 
particularly the Fund's apparent willingness to relax 
expectations of GOU adherence to conditionalities before 
January 2010.  The IMF had been fortunate with the high rate 
of rollovers for short-term corporate loans, the World Bank 
said, which had allowed the Fund to alter its strategy and 
disburse monies for budget assistance.  Rollovers would need 
to continue into 2010, or else the Fund will be forced to 
drastically expand its program.  Concerned about the 2010 
budget, the World Bank hopes to prevent a spendthrift GOU 
from developing what it called an "illusory" fiscal target. 
End summary. 
 
Engagement on Reform Needed 
--------------------------- 
 
2.  (C) Martin Raiser, the World Bank country director for 
Ukraine, Belarus, and Moldova, worried openly about a 
political environment in Kyiv that was "highly unfavorable" 
for IFI-supported reforms, but did not anticipate that the 
post-election period would provide any improvement.  In a 
private meeting with Econoffs on August 27, Raiser urged 
joint action among bilateral diplomatic missions, saying "we 
need to engage more seriously."  Raiser recommended a 
senior-level E.U. and U.S. official visit to "up the ante," 
though he expressed concern that the Germans would continue 
to view Ukraine through what he called a "pro-Russian" lens, 
especially on energy issues.  Raiser pointed to Russian 
President Medvedev's "stage-managed" public criticism of 
Ukrainian President Yushchenko during a press conference in 
Germany with German Chancellor Merkel.  In Raiser's view, 
Merkel simply stood by, looking like "Russia's best friend." 
 
3.  (C) Raiser noted that World Bank President Zoellick has 
been following the "Ukraine dynamic" closely, and was 
reportedly wary of offering more financial carrots before 
Ukraine adheres to its promises.  Raiser similarly noted that 
he could not justify spending the World Bank's limited global 
reserve funds for a country that would not carry out its 
international commitments.  He said that former Minister of 
Finance and Party of Regions MP Mykola Azarov had been 
angered by what he termed "the IMF's support of Tymoshenko's 
election campaign."  Azarov reportedly told Raiser that the 
IFIs "should not give money on promises."  Raiser commented 
that he had kept up a "balancing act" among the competing 
interests of Ukraine's political forces, suggesting that the 
IMF had not done the same.  "I understand the IMF's 
constraints, but at some point you have to get real," he 
said, referring to the need to also work with President 
Yushchenko and the Party of Regions.  Raiser told us that he 
had sent a letter expressing his concerns to IMF envoy Ceyla 
Pazarbasioglu but had not yet received a response. 
 
Rollovers Saving IMF Program 
---------------------------- 
 
4.  (C) The IMF's program in Ukraine (and Ukraine, itself) 
would have been in a worse position, suggested Raiser, had it 
not been for the "good fortune" of private sector firms 
successfully rolling over corporate debt.  High roll over 
rates had allowed the IMF to allocate loan disbursements to 
Ukraine's 2009 budget, where a deficit of at least 6 percent 
of GDP remains, rather than to NBU reserves to cover external 
commitments.  Raiser said that the corporate rollovers needed 
to continue into 2010, or the Fund would need to expand its 
program funds to provide the balance-of-payments support that 
was initially envisioned in the November 2008 Stand-By 
Arrangement.  According to the NBU, non-bank related 
corporate rollovers had been completed at a rate of roughly 
99 percent thus far in 2009, a figure that had "surprised" 
even Raiser. 
 
2010 Budget 
----------- 
 
5.  (C) The government needed to clarify that it would let 
the Ministry of Finance formulate a draft budget without 
 
KYIV 00001511  002 OF 002 
 
 
political interference from the Cabinet and Rada, said 
Raiser.  He expressed concern that the Ministry would instead 
be forced to propose something "illusory" before the 
presidential election.  Complimenting the Ministry of 
Finance's budget team for their technical expertise, Raiser 
said the World Bank would be closely involved in drafting the 
2010 budget to give the Ministry political cover so that they 
will "not be accused of unprofessional" actions. 
 &#x0
00A;Comment 
------- 
 
6.  (C) Raiser's criticisms are the strongest we have heard 
from the World Bank regarding the IMF's need to get tougher 
with Ukraine.  The Bank's country director appeared concerned 
that the Fund's flexibility could undermine what the World 
Bank views as its own even-handed approach to pre-election 
politics.  While tacitly seeking U.S. support for a firmer 
line, Raiser seemed to acknowledge that the IFIs needed to 
hear from capitals that they would support a tougher line and 
that, on their own, they may be quickly losing leverage with 
the GOU. 
 
PETTIT

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