VISIT OF SENATOR CORKER TO KYIV

UNCLAS KYIV 002304 SENSITIVE SIPDIS E.O. 12958: N/A TAGS: OVIP PREL ETRD ECON UP SUBJECT: VISIT OF SENATOR CORKER TO KYIV Summary -------------- ¶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. TAYLOR