UKRAINE PRESIDENT AND PM APPEAL TO IMF

UNCLAS KYIV 002538 SENSITIVE SIPDIS DEPT FOR EUR/UMB, EEB/OMA TREASURY PASS TO TTORGERSON E.O. 12958: N/A TAGS: EFIN EREL ECON ETRD PGOV PREL XH UP SUBJECT: UKRAINE PRESIDENT AND PM APPEAL TO IMF REF: KYIV 2532 SENSITIVE BUT UNCLASSIFIED, NOT FOR INTERNET DISTRIBUTION ¶1. (SBU) Summary. In an unusual display of cooperation, Ukrainian President Viktor Yushchenko and Prime Minister Yulia Tymoshenko sent a joint letter (full text below) to IMF Managing Director Dominique Strauss-Kahn on December 30, confirming their intention to adhere to IMF conditionalities. Specifically, they pledged to take "decisive steps" to correct allotments for public pensions and wages that had been included in the recently approved 2009 budget. This joint letter is striking for two main reasons: 1) it indicates the President and Prime Minister's awareness of the budget's many flaws (reftel),and 2) it suggests that the pair may be willing to work in tandem to head off IMF censure during its first formal oversight visit in January 2009. End summary. ¶2. (SBU) The public release of a joint letter from President Yushchenko and PM Tymoshenko to the IMF's Strauss-Kahn is an indicator that the erstwhile Orange Coalition partners may have found common cause in their alarm over the 2009 budget. With the IMF linking a second disbursement of its $16.4 billion Stand-By Arrangement (SBA) to Ukraine's implementation of a balance budget requirement, Yushchenko and Tymoshenko recognize that further allotments may be in jeopardy due to the flawed 2009 budget that was signed into law on December 29 (reftel). The IMF told us on December 30 that it had sent a strong message about Ukraine's "negative" and "unrealistic" 2009 budget to the GOU, and that the January visit of the IMF mission head would focus special attention on the budget's projected 2.97 percent deficit. ¶3. (SBU) Ukrainian law requires national budgets to be passed before the close of the previous calendar year. It has become tradition to pass what Yushchenko deemed "a bad budget" before the New Year, only then to further debate and amend the budget in the first quarter. The mention of pension and public wage reform suggests the President and PM are listening to the IMF and are sensitive to its concerns, since the IMF has been critical of the status of planned pension and wage outlays. At the same time, they may also be indicating that the budget process is fluid and not yet finalized, and that Rada amendments in 2009 will bring the budget into compliance with IMF conditionalities. ¶4. (SBU) Comment. The President and PM have spent recent months blaming each other for Ukraine's political and economic problems. Much maligned for their lack of joint leadership in response to the brewing crisis, their letter is a noteworthy step in the right direction, reflecting a need for the IMF to continue providing guidance and "coordinated measures" on next steps. End comment. ¶5. (U) The full text of President Yushchenko and PM Tymoshenko's letter to IMF Managing Director Strauss-Kahn is as follows: ¶6. (U) "Please accept our compliments as well as greetings and best wishes on the occasion of the 2009 New Year. We would like to inform you that situation in Ukraine remains difficult, but the President of Ukraine and the National Bank are making all possible efforts to stabilize it. At the same time, on December 26, 2008, the Verhovna Rada passed the 2009 State Budget, a law that did not fully reflect some of the economic program indicators supported by the IMF. Please be assured of our commitment to take decisive steps to ensure implementation of the program, including correction of budget figures, specifically those pertaining to pension reform and public income policy. We count on fruitful joint work with the IMF mission during its visit to Ukraine in January 2009 to develop coordinated measures to stabilize the situation." TAYLOR