Cablegate: "Urgent" Worries From Ukraine Finance Ministry

VZCZCXRO3592
OO RUEHDBU RUEHSL
DE RUEHKV #2130 3451052
ZNY CCCCC ZZH
O 111052Z DEC 09
FM AMEMBASSY KYIV
TO RUEHC/SECSTATE WASHDC IMMEDIATE 8961
INFO RHMFISS/DEPT OF ENERGY WASHINGTON DC IMMEDIATE
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC IMMEDIATE
RUEATRS/DEPT OF TREASURY WASHINGTON DC IMMEDIATE
RUCNCIS/CIS COLLECTIVE
RUEHZG/NATO EU COLLECTIVE

C O N F I D E N T I A L KYIV 002130

SENSITIVE
SIPDIS

DEPT FOR EUR, EUR/UMB, EEB/OMA

E.O. 12958: DECL: 12/10/2019
TAGS: EFIN EREL ETRD PGOV PINR UP XH
SUBJECT: "URGENT" WORRIES FROM UKRAINE FINANCE MINISTRY

REF: KYIV 2102

Classified By: Economic Counselor Edward Kaska for Reasons 1.4 (b) and
(d)

1. (C) Ukrainian Deputy Minister of Finance Andriy Kravets
notified the embassy on December 11 that Foreign Minister
Poroshenko was planning today to ask IMF first deputy
managing director John Lipsky to consider including Ukraine
on the agenda of the next IMF board meeting. Poroshenko had
received direct instructions from Prime Minister Tymoshenko,
after acting Minister of Finance Umanskiy briefed her on
Deputy Prime Minister Nemyria's December 6 meetings in
Washington (reftel). Kravets characterized Poroshenko's
message as "extremely urgent" and expressed hope that Ukraine
"still had a chance" to get an IMF disbursement before the
end of 2009.

2. (C) Kravets stated that the Ministry of Finance had
already begun to roll out Plan B: a three-part auction of
domestic treasury bills. The Deputy Finance Minister said
auctions would take place on December 15, 22, and 29. The
first auction would be the bellwether for market interest on
the Ministry of Finance's initial offer of 12-month t-bills
at a rate of 20-25%. Higher yield debt issuances, such as in
the "extremely difficult" month of October (when the GOU sold
UAH 4.3 billion or $540 million in t-bills for near 30%) were
"unacceptable" and would "destroy" the domestic market.

3. (C) The likely purchasers of GOU debt were banks with
foreign capital. Kravets listed Raiffeisen-Aval, Erste,
Ukrsotsbank (UniCredit), ING, Ukrsibbank (BNP Paribas), and
Citi as interested parties. The Ministry of Finance was
readying a scheme to name primary dealers that would be
launched after the December auctions.

4. (C) Kravets expressed concern that, if Ukraine did not
access IMF financing or successfully auction domestic
t-bills, Ukraine's budget situation would be "disastrous".
The Ministry of Finance also needed to roll over UAH 2
billion ($250 million) in internal debt. Failure to do so
could "provoke" an external default, according to Kravets,
who did not elaborate on how this would occur.

COMMENT
-------

5. (C) Deputy Minister Kravets was harried and anxious when
explaining the GOU's predicament to Econoff. He did not ask
for specific USG intervention with the IMF, but mentioned
that the Prime Minister had been "grateful" for recent
meetings between Poroshenko, Nemyria and USG officials in
Washington. Kravets' mention of a possible external default
scenario, which would be triggered by a default on domestic
debt, was the first the embassy had heard of such grave and
immediate GOU concerns.
TEFFT

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