Identifier
Created
Classification
Origin
06KIEV3755
2006-09-28 14:18:00
CONFIDENTIAL
Embassy Kyiv
Cable title:  

UKRAINE: ENGAGING THE NEW UKRAINIAN REALITY AFTER

Tags:  PREL PGOV PARM ETRD KDEM UP 
pdf how-to read a cable
VZCZCXRO3479
PP RUEHDBU
DE RUEHKV #3755/01 2711418
ZNY CCCCC ZZH
P 281418Z SEP 06
FM AMEMBASSY KIEV
TO RUEHC/SECSTATE WASHDC PRIORITY 1719
INFO RUCNCIS/CIS COLLECTIVE
RUEHZG/NATO EU COLLECTIVE
C O N F I D E N T I A L SECTION 01 OF 03 KIEV 003755 

SIPDIS

SIPDIS

E.O. 12958: DECL: 09/26/2016
TAGS: PREL PGOV PARM ETRD KDEM UP
SUBJECT: UKRAINE: ENGAGING THE NEW UKRAINIAN REALITY AFTER
50 DAYS OF PM YANUKOVYCH

REF: A. KIEV 3554


B. KIEV 3570

Classified By: Ambassador, reason 1.4 (b,d)

C O N F I D E N T I A L SECTION 01 OF 03 KIEV 003755

SIPDIS

SIPDIS

E.O. 12958: DECL: 09/26/2016
TAGS: PREL PGOV PARM ETRD KDEM UP
SUBJECT: UKRAINE: ENGAGING THE NEW UKRAINIAN REALITY AFTER
50 DAYS OF PM YANUKOVYCH

REF: A. KIEV 3554


B. KIEV 3570

Classified By: Ambassador, reason 1.4 (b,d)


1. (SBU) Note: In preparation for senior-level consideration
of our Ukraine policy, this cable assesses the political and
economic developments under the new government.


2. (C) Summary. 50 days after Viktor Yanukovych returned to
the premiership he vacated in December 2004 in the wake of
the Orange Revolution, the basic dynamics of the new
Ukrainian reality are becoming clear. PM Yanukovych is
positioning himself to be the most powerful political figure
in the country, taking advantage of the new rules of the game
under constitutional reform which enhanced the power of the
premier and parliamentary majority at the expense of the
President. Regions and the Donetsk clan in particular have
put their stamp on economic and personnel decisions. The
tentative "two Viktors" partnership between President and PM
has been beset by policy tussles and blue team encroachments
on Presidential authority, though Yushchenko has begun
meeting regularly with Yanukovych in an effort to iron out
differences and improve coordination. Yushchenko belatedly
has assembled a stronger team around him in the Presidential
Secretariat and will likely seek to strengthen the role of

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the National Security and Defense Council (NSDC). Our
Ukraine (OU) remains torn between a desire to retain
influence by working within a Regions-dominated coalition and
going into opposition. Yuliya Tymoshenko has laid claim to
be the leader of the opposition, but her strategy will depend
on OU's choice, a possible reconciliation with Yushchenko,
and a possible Constitutional Court gambit. Winter looms -
and with it the difficulty of dealing with Russia and energy
supplies.


3. (C) Comment: Ukraine remains as important to U.S.
strategic interests in the region as it was in the euphoric
afterglow of the Orange Revolution. It is unclear whether
initiative will pass firmly into the hands of one political

camp only, a healthy system of checks and balances will
emerge, or cohabitation gridlock will result. We should push
both sides to work together. If they do, Ukraine will be
stronger internationally and more united domestically.


4. (C) As we engage the new Ukrainian reality, with a
political elite struggling to reconcile the realities of "two
Viktors," competing Presidential-Prime Ministerial camps, and
unchartered legal territory, we need to ensure that the new
PM knows that the door to the West is open, and that we do
not push him towards Moscow. The direction Ukraine takes,
not the speed it moves, is now most important. While keeping
in mind who Yanukovych is and what he has done in the past,
we need to focus on what he can do in taking the country
forward and how we can clearly convey our expectations. He
was clearly affected by Secretary Rice's call to him
immediately after he was confirmed. An S visit to Kyiv this
fall would be very constructive. A Yanukovych visit to
Washington by the end of the year could help establish him on
a westward track. End Summary and Comment.

Yanukovych - currently the key, quickly asserted himself
-------------- --------------


5. (C) 50 days have passed since Yanukovych and his cabinet
have settled into office and Ukraine's political reality
shifted dramatically (ref A). While much of the country
including Yushchenko went on vacation in August, Yanukovych
worked to reestablish himself in power, assembling a large
team in the PM and Cabinet of Ministers' offices to project
himself across a broad range of policy and government
functions, including those constitutionally in the
President's domain (foreign and security policy). In
addition, Donetsk denizens filled an estimated 40 out of 55
positions at the deputy minister or above equivalents in
state agencies and enterprises; the shakeup was especially
deep at state oil and gas company NaftoHaz Ukrainy. Early
Cabinet decisions -- such as abolishing the Euro-Atlantic
subcommittee previously headed by FM Tarasyuk in favor of a
wider-ranging subcommittee chaired by Yanukovych himself --
were intended to demonstrate who was in charge.


6. (C) While it is still early in Yanukovych's tenure, there
are some worrisome early signs. Economic policy moves across
the board, from distorted VAT returns favoring Donetsk and
contradictory signals on WTO, to rumors of threats to VANCO's
contract to drill in the Black Sea and efforts to strong-arm
grain traders to sell to the state grain reserve at below
market prices, have not been encouraging (septel). Business
contacts interpret the blue team's moves as an attempt to
fully restore pre-Orange Revolution practices and controls.

KIEV 00003755 002 OF 003


On a more positive note, Yanukovych's September 14 speech at
NATO endorsed closer cooperation and an enhanced public
education campaign in a positive atmosphere. Domestic
reaction, however, focused on his disavowal of Yushchenko's
stated priority of a Membership Action Plan (ref B).
Yanukovych's uncoordinated move and subsequent comments once
back in Ukraine seemingly laid claim to primacy in areas of
policy formulation constitutionally in the purview of the
President.

Two Viktors = Uneasy Cohabitation, dithering Our Ukraine
-------------- --------------


7. (C) Early hopes coming out of the Universal National
Unity Agreement process in early August that a positive "two
Viktors, one Ukraine" dynamic might develop are fading amidst
constant, robust institutional jostling between the Cabinet
and the Presidential Secretariat, as well as an ongoing lack
of clarity in Constitutional and legal arrangements governing
Presidential-PM interaction. The PM's office is trying to
use a new dual signature requirement in the revised
constitution on some Presidential decrees to interject the PM
substantively into Presidential decisions; some experts
suggest Yushchenko should use his powers under the
constitution (Art. 106, point 15) to start suspending Cabinet
acts and resolutions deemed inconsistent with the
constitution, referring them to the Constitutional Court for
review. Either Yushchenko and Yanukovych's teams will find a
way to work together for the good of the country, or they
will frustrate each other, stall important decisions, and end
up in the constitutional court (as well as the court of
public opinion). In an attempt to achieve the former,
Yushchenko and Yanukovych are meeting regularly, at least
once weekly, something Yushchenko failed to do when
Tymoshenko was PM in 2005.


8. (C) With his Presidential authority under challenge,
Yushchenko finally reacted in mid-September with the second
major shake-up of his largely ineffective Secretariat since
he became President in January 2005, bringing in figures with
stronger reputations for management, policy skills, and
producing results. They include: the new Head of the
Secretariat, Viktor Baloha; a second First Deputy Head for

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economic and legal issues, Arseniy Yatsenyuk; a Deputy Head
for regional, personnel, and law enforcement issues, Viktor
Bondar; and a Deputy Head for foreign policy issues,
Oleksandr Chaly (known until recently to discount the
possibility of membership in either NATO or the EU).


9. (C) Yushchenko and his team have also signaled their
intent to make greater use of the NSDC mechanism, a
constitutionally-mandated body headed by the President which
retained tasking authority to the government and ministers
even after the constitutional changes which transferred other
Presidential authorities to the Premier and the Rada
majority. Yushchenko's Chief of Staff Baloha told Ambassador
September 26 that they planned to use the NSDC to work out
Presidential-PM policy differences.


10. (C) While Yushchenko has long been called the Hamlet of
Ukrainian politics for his chronic inability to make quick
decisions, his political force Our Ukraine (OU) is, if
anything, more internally conflicted, disorganized, and
self-defeating, rarely able to deliver unified votes in the
Rada even on crucial initiatives, or to make timely choices
on coalition partners and policies. Nearly two months after
Yanukovych became PM, OU remains torn between joining a
Regions-dominated parliamentary majority on Regions' terms or
joining Tymoshenko in opposition. It is unlikely all 80 OU
MPs will go one way or another, but the choice of the OU
majority will affect the policy dynamics within the Cabinet
of Ministers and the parliamentary majority on the one hand
and the development of majority-opposition relations on the
other.

Tymoshenko in opposition for now, NSDC and Court wildcards
-------------- --------------


11. (C) Tymoshenko announced the creation of an interparty
opposition September 22 which included BYuT plus two renegade
Socialist MPs, leaving the door open for an OU influx of
uncertain size once OU makes a decision. Her emerging
strategy seems to be focused on regularizing the status of
the opposition while cementing her role as leader,
highlighting the negative social impact of Yanukovych
government decisions (rise in utilities; a freeze in
wages/pensions contrasting with a resumption of Special
Economic Zone tax breaks and special investment initiative
boondoggles),attacking the legitimacy of the Yanukovych
government, and eventually pushing for early elections.


KIEV 00003755 003 OF 003



12. (C) Tymoshenko also has two stealth wild cards in play:
reconciliation with Yushchenko, and a Constitutional Court
gambit. She told a visiting EU official September 27 that
she had met Yushchenko several times over the past week and
that Yushchenko might offer the NSDC Secretary job to her,
which would set the stage for a repeat of the
counterbalancing situation prevalent in early 2005 when
Yushchenko named her archrival Petro Poroshenko as NSDC
Secretary with a specific mandate and enhanced authority to

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counter Tymoshenko as PM (that decision ended in disaster,
with a bickering orange team and ultimately the dismissal of
Tymoshenko's government in September 2005). Comments from OU
and BYuT insiders starting in mid-July indicate that
Yushchenko has been mulling such a move on and off for months.


13. (C) Tymoshenko and others have privately suggested in
recent days that she may serve as Yushchenko's stalking horse
to petition the Constitutional Court, now that it has a
quorum, to overturn the December 8, 2004 constitutional
changes. Yushchenko himself has made no move to petition the
court to review the changes, and the Rada passed a
perfunctory bill in early August attempting to block the
Court's right to review the changes. However, 45 MPs have
the right to petition the court to review the issue;
Tymoshenko, who voted against the December 8 compromise,
warning Maidan ally Yushchenko that he would soon rue the day
he agreed to it, may well initiate the court gambit. One
author of the December 8 legislation (Nestor Shufrych) and
experts with contacts within the court separately have told
us that the December 8 changes in fact violated established
procedures for amending the constitution and that the court
would likely overturn the changes if formally asked to review
the matter -- presuming a majority of judges were not
"bought" by Regions in the interim to rule otherwise.


14. (U) Visit Embassy Kiev's classified website at:
www.state.sgov.gov/p/eur/kiev.
Taylor