Cablegate: Visit of Senator Corker to Kyiv

Published: Mon 24 Nov 2008 02:28 PM
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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.
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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