UKRAINE: EUR A/S FRIED HEARS ABOUT FRAGILE

C O N F I D E N T I A L SECTION 01 OF 03 KYIV 000200

SIPDIS

SIPDIS

E.O. 12958: DECL: 01/31/2018
TAGS: PGOV PREL PINR UP
SUBJECT: UKRAINE: EUR A/S FRIED HEARS ABOUT FRAGILE
POLITICAL SITUATION

Classified By: Ambassador for reasons 1.4(b,d).


1. (C) Summary. In A/S Fried's meetings with top Ukrainian
leaders, all dominated by discussions about Ukraine's pending
request for a NATO MAP (septel),the internal political
subtext was fragility, distrust, and creeping dissatisfaction
from all parties about the current government and its
possibly short future. Prime Minister Tymoshenko said that
the orange coalition was working and she was trying to unite
the country, but accused the President of continually cutting
her down and negotiating a possible broad coalition with
Party of Regions leader Yanukovych. Presidential Chief of
Staff Baloha also acknowledged (with ill-concealed
satisfaction) that the coalition was unstable and he could
not predict how long it would last. Rada Speaker Yatsenyuk
also mentioned the fragility of the coalition and complained
that he was trying to keep the majority intact and move
forward, and to engage the opposition constructively, but it
was difficult going. Opposition leader Yanukovych took the
opportunity to argue that politics had been more stable and
the economy stronger under his tenure and promised that he
would be back sooner or later. Leading journalist Mostova
confirmed to Fried that she understood Yushchenko and
Yanukovych were talking about a possible future government.


2. (C) Comment. A/S Fried made the point in every meeting
that a major test of the Ukrainian government's seriousness
about NATO would be its ability to produce results
domestically. His interlocutors all acknowledged the hard
road ahead and all said they sought cooperation, but it is
not clear they took the message of the importance of
political stability and good governance. On the orange side,
all acknowledged that it was important for the partners to
get along and not repeat the mistakes of 2005, but it is
clear that the Presidential Secretariat is keeping its
options open if the coalition fails. End summary and comment.

Tymoshenko: Limited Time and Freedom to Work
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3. (C) Prime Minister Tymoshenko expressed a commitment to
make the orange team work and pledged not to repeat the
mistakes (her mistakes) of 2005 that had resulted in her
dismissal by the President. Nonetheless, she offered a
somewhat bleak assessment of the level of cooperation in the
orange ranks. In her view, it was no secret that even though
the democratic coalition had been formed, it was still
unstable and it was uncertain whether the President would be
re-elected. Tymoshenko said that she was forced today to
balance both separate parts of Ukraine without losing sight
of her own goals for her government. She needed to unify
east and west and she was trying to do that using social
programs - "not because I like them, but because they are the
only secure way to unify the situation in Ukraine."


4. (C) She recalled that after the Orange Revolution, for
about six months, there had been a unique time when the
nation was unified, expectations were high and social
programs could have been implemented. However, "one person"
(presumably Yushchenko) had destroyed this - and now they
were starting again, not from zero, but from minus 100.
(Comment: perhaps, but she as well as Yushchenko did not use
the political Capital of the Orange Revolution during those
early months.) In the PM's view, the government needed to
create circumstances to give the population unity and some
hope, particularly by helping Ukraine's poor - "I know how to
do this, I understand Ukrainian society and there are the
same processes in place that were taking place in 2005."
Taking a jab at Yushchenko, the PM said that "every step I
take it, he criticizes me in order to ruin our unified team,
and it is more and more difficult to do anything." She said
that the President had a rating of 10-11% and that it was
difficult to maintain a majority with the democratic
coalition; however, "if we do not remain one team, then our
hopes will remain dreams."


5. (C) She noted that the Speaker "was on the verge of
resigning," the Parliament had been blocked in its work, and
the Party of Regions and the Communists had been resurrected
from the ashes like phoenixes - all because of the release of
the letter signed by the President, PM and Speaker requesting
MAP. In the mass media, opposition to the letter was running
at 70%. And now she understood that the Presidential
Secretariat had agreed to work with Regions to re-form a

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coalition. Exasperated, Tymoshenko asked a series of
unanswerable questions: "in a situation like this, how can I
reaffirm the democratic team? Support the re-election of the
President? Push democratic reform?"


6. (C) Note. Tymoshenko's comments echoed something that

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highly respected Dzerkalo Tizhnya deputy editor Yuliya
Mostova told A/S Fried later the same day. Mostova said that
she had heard there was a meeting on January 23 between
Yushchenko and Yanukovych during which they discussed a
possible plan in which Yanukovych would agree to become Prime
Minister with limited powers under a new CabMin law. Under
this scenario, Lytvyn would become Speaker in a coalition
between half of OU-PSD, Lytvyn Bloc, and Regions. Yushchenko
would then be free to jettison Tymoshenko; in exchange,
Yanukovych would agree not to run for President in 2009/2010.
End note.

Baloha: Stability Will Take Time
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7. (C) In contrast to Tymoshenko's frustration, a confident
Presidential Secretariat Head Baloha said the President had
come back from Christmas vacation determined -- Secretary
Rice had witnessed this determination in Davos, he said.
Yushchenko was in good physical shape and was proud that he
has started powerful and important work. In fact, Baloha
admitted that although he was a workaholic, January had been
very hard for him because the President had issued so many
strategic objectives, it was hard to keep up. (Embassy Note:
Over the past few months, we have noticed that Yushchenko
appears to be physically much stronger than the past few
years, with more energy and focus; even the scars on his face
are less noticeable and in general, his face is less bloated.
End note.)


8. (C) In answer to A/S Fried's question about how effective
the government will be, Baloha said that he would not be
saying anything new if he said it would not work smoothly.
He expected they will go though "another round of events."
There was a lot of distrust within the coalition, with
everyone trying to deceive everyone else. Tymoshenko had
already started her presidential campaign. Regions was
counting on new Rada elections in the fall. The President,
Baloha said, was working to get all sides to sit at one
table. They would have to see if they could work together
for the next two months, but he couldn't give a guarantee
right now that everything would be okay.


9. (C) Baloha said he was just calling it as he saw it. The
goal now was compromise, adjustment, and understanding; the
alternative was to return to last year. What society wants
is stability -- that depends on two people (i.e. Yushchenko
and Tymoshenko) and their ability to make concessions. Once
this happens, we'll have a team, but so far he had not seen
this harmony. Baloha added that it would be wrong to say
that they don't want to cooperate; it was just that everyone
had their own vision of truth.


10. (C) Later in the meeting, Baloha's evenhandedness slipped
and he implied that Tymoshenko was not running the policy
process as they had agreed she would. The coalition
agreement, according to Baloha, says that the Cabinet will
work via government committees that would involve all parts
of the government on all policies, but Tymoshenko does not
like committees and prefers to adopt all decisions herself.
So far, not one government committee has met. To be blunt,
Baloha said, there are people with no right to draft Cabinet
documents who are doing so behind closed doors. (Note. He
did not offer any details. End note.) Tymoshenko and
Yushchenko both have enough patience to prevent conflicts,
but it is important to ensure that the principles of the
coalition are fulfilled. Otherwise, it will lead to war.

Yatsenyuk: Doing the Best They Can With What They Have
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11. (C) Rada Speaker Yatsenyuk also told A/S Fried that the
coalition was fragile. A/S Fried said that there have been
plenty of fragile coalitions in Europe that have still
managed to accomplish quite a bit. He added that the best
defense of Ukraine's sovereignty (i.e., from Russia) would be
an honest banking sector, rule of law, and a good energy
policy. In response to the question whether the government
will be effective, Yatsenyuk replied that it mostly depends
on Tymoshenko. He had told the PM that she needs to do a
better job now than she did in 2005 - avoid reprivatizations
and price controls. Yatsenyuk said he had also sharply
criticized her for focusing on repaying investors from the
former Soviet savings bank (Oshchadbank) -- the PM should be
focused on broader, more important issues, like curbing
inflation, energy policy, and a privatization plan. Instead,
the PM sounded like she was still campaigning.


12. (C) Yatsenyuk believed the Rada will probably pass the
government program -- he was trying to find 226 votes, just

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like they did for the budget -- to show that the coalition is
backing the government. Yatsenyuk tried to avoid answering
Fried's question whether the government program was a good
one -- when pressed, the Speaker finally said it was not
good, but neither was the budget. The point was that they
were providing Tymoshenko with something substantive to work
from.


13. (C) In the Rada, Yatsenyuk said, he was trying to
cooperate with the opposition and bring the two sides
together. Sometimes it was very difficult, but that's how
business goes in the parliament. Interestingly, on the way
into the meeting, Fried said "congratulations on your new
position. Or maybe it should be condolences," to which
Yatsenyuk replied "definitely more condolences."


14. (C) Fried asked Yatsenyuk what he thought the
government's top priorities should be. In the economic
sphere, Yatsenyuk said: curbing inflation, stabilizing the
financial sector because of international turbulence,
simplifying the tax code, demonopolizing the Ukrainian
economy, and dealing with an energy policy and prices. In
the social sphere, Yatsenyuk believed that there were far too
many exemptions and privileges given to different groups of
people. For example, the pension fund is insolvent and
heavily subsidized by the government; it needs to go away,
but it is politically unpopular to say so, so no one does it.
Yatsenyuk thought the key priorities for the security sector
were NATO and real defense sector reform. He said that
Ukraine should have a powerful defense industrial sector, but
lacked money and political will to reform it.

Yanukovych: You Need Regions to Have Stability
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15. (C) Opposition leader Yanukovych began the meeting citing
the achievements of the government under his leadership in
2006-07. Despite the political crisis, the economy had
continued to grow in a stable fashion. Regions, with the
help of international advisors, had developed a program of
economic reform that was now on the back burner. Yanukovych,
who earlier had intoned that there were no final victories
and no final defeats in politics, said he hoped to restart
the program when he returned to power. Unfortunately, the
new government appeared to have settled on a program very
similar to the program in 2005, which had been criticized
both domestically and internationally.


16. (C) Yanukovych said the current political situation was
complex, with the coalition ruling with a razor-thin
majority. Such a situation made it difficult to implement
reforms. He noted that had Regions been part of a coalition,
the problem would not have existed. Now, the main problem
would be continuous instability, or, as he put it, a "stable
instability." The key would be whether the new government
would try to work constructively with all political forces,
but he opined that there would be an increase in
dissatisfaction at all levels of society. Toward the end of
the meeting, Yanukovych affirmed that Regions would not
become a radical political force, but instead would always
try to improve Ukraine's future -- Ukraine needed stability.


17. (U) Assistant Secretary Fried cleared this cable.


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