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Cablegate: Ukraine President and Pm Appeal to Imf

VZCZCXRO7825
PP RUEHIK RUEHLN RUEHPOD RUEHSK RUEHVK RUEHYG
DE RUEHKV #2538 3661048
ZNR UUUUU ZZH
P 311048Z DEC 08
FM AMEMBASSY KYIV
TO RUEHC/SECSTATE WASHDC PRIORITY 6987
INFO RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUCNCIS/CIS COLLECTIVE
RUEHZG/NATO EU COLLECTIVE

UNCLAS KYIV 002538

SENSITIVE
SIPDIS

DEPT FOR EUR/UMB, EEB/OMA
TREASURY PASS TO TTORGERSON

E.O. 12958: N/A
TAGS: EFIN EREL ECON ETRD PGOV PREL XH UP
SUBJECT: UKRAINE PRESIDENT AND PM APPEAL TO IMF

REF: KYIV 2532

SENSITIVE BUT UNCLASSIFIED, NOT FOR INTERNET DISTRIBUTION

1. (SBU) Summary. In an unusual display of cooperation, Ukrainian
President Viktor Yushchenko and Prime Minister Yulia Tymoshenko sent
a joint letter (full text below) to IMF Managing Director Dominique
Strauss-Kahn on December 30, confirming their intention to adhere to
IMF conditionalities. Specifically, they pledged to take "decisive
steps" to correct allotments for public pensions and wages that had
been included in the recently approved 2009 budget. This joint
letter is striking for two main reasons: 1) it indicates the
President and Prime Minister's awareness of the budget's many flaws
(reftel), and 2) it suggests that the pair may be willing to work in
tandem to head off IMF censure during its first formal oversight
visit in January 2009. End summary.

2. (SBU) The public release of a joint letter from President
Yushchenko and PM Tymoshenko to the IMF's Strauss-Kahn is an
indicator that the erstwhile Orange Coalition partners may have
found common cause in their alarm over the 2009 budget. With the
IMF linking a second disbursement of its $16.4 billion Stand-By
Arrangement (SBA) to Ukraine's implementation of a balance budget
requirement, Yushchenko and Tymoshenko recognize that further
allotments may be in jeopardy due to the flawed 2009 budget that was
signed into law on December 29 (reftel). The IMF told us on
December 30 that it had sent a strong message about Ukraine's
"negative" and "unrealistic" 2009 budget to the GOU, and that the
January visit of the IMF mission head would focus special attention
on the budget's projected 2.97 percent deficit.

3. (SBU) Ukrainian law requires national budgets to be passed
before the close of the previous calendar year. It has become
tradition to pass what Yushchenko deemed "a bad budget" before the
New Year, only then to further debate and amend the budget in the
first quarter. The mention of pension and public wage reform
suggests the President and PM are listening to the IMF and are
sensitive to its concerns, since the IMF has been critical of the
status of planned pension and wage outlays. At the same time, they
may also be indicating that the budget process is fluid and not yet
finalized, and that Rada amendments in 2009 will bring the budget
into compliance with IMF conditionalities.

4. (SBU) Comment. The President and PM have spent recent months
blaming each other for Ukraine's political and economic problems.
Much maligned for their lack of joint leadership in response to the
brewing crisis, their letter is a noteworthy step in the right
direction, reflecting a need for the IMF to continue providing
guidance and "coordinated measures" on next steps. End comment.

5. (U) The full text of President Yushchenko and PM Tymoshenko's
letter to IMF Managing Director Strauss-Kahn is as follows:

6. (U) "Please accept our compliments as well as greetings and best
wishes on the occasion of the 2009 New Year. We would like to
inform you that situation in Ukraine remains difficult, but the
President of Ukraine and the National Bank are making all possible
efforts to stabilize it. At the same time, on December 26, 2008,
the Verhovna Rada passed the 2009 State Budget, a law that did not
fully reflect some of the economic program indicators supported by
the IMF. Please be assured of our commitment to take decisive steps
to ensure implementation of the program, including correction of
budget figures, specifically those pertaining to pension reform and
public income policy. We count on fruitful joint work with the IMF
mission during its visit to Ukraine in January 2009 to develop
coordinated measures to stabilize the situation."

TAYLOR

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