UKRAINE: STAYING FOCUSED ON THE LONG-TERM

C O N F I D E N T I A L SECTION 01 OF 02 KYIV 000922 SIPDIS FOR EUR A/S FRIED FROM AMBASSADOR TAYLOR E.O. 12958: DECL: 05/16/2018 TAGS: PREL PGOV PHUM UP SUBJECT: UKRAINE: STAYING FOCUSED ON THE LONG-TERM REF: A. KYIV 902 ¶B. KYIV 903 ¶C. KYIV 915 Classified By: Ambassador for reasons 1.4(a,b,d). ¶1. (C) Summary: Official Kyiv appears determined to sink into another round of political turmoil and infighting (reftels) that could last for months. It will make our work here more difficult and could damage some of our short-term goals. However, it is critical that we not lose sight of our longer-term goals of solidifying democracy, hastening Ukraine's integration into European economic structures, promoting continued military and security structure reform, and supporting Ukraine's Euro-Atlantic aspirations and request for a NATO MAP. Ukraine is an island of tolerance in an increasingly authoritarian neighborhood with a real chance to succeed in its ultimate ambition to join Europe. If it fails, it is likely to be to Russia's advantage. The Kremlin has made no secret of its opposition to Ukraine's westward path and of its tacit approval of continued political chaos and uncertainty. We believe that U.S. policy is best-served by rolling with the short-term punches without taking our eye off the long-term prize of a Ukraine fully integrated into Europe. End Summary. ¶2. (C) Agreement on a new government and coalition, a more mature approach to governance by populist Prime Minister Tymoshenko, and a surprise request for a NATO Map at Bucharest led to cautious optimism that Ukraine was righting itself after a year of political turmoil and focusing again on long-term interests. Although there were strains in the coalition from the start, both President Yushchenko and PM Tymoshenko seemed initially prepared to put the past behind them and again put Ukraine on a fast track to Europe. In spite of public statements of commitment to the coalition, both sides now seem resigned to the fact that the coalition will not last. ¶3. (C) Ukraine's successful accession to WTO on May 16 may be the first short-term goal to be complicated by this latest round of political squabbling (Ref C). Five more pieces of WTO-related legislation remain to be passed by the Parliament. This legislation was expected to be considered right after the May holidays by the Rada, which has been able to do little more than open and close each day without any legislative work done, although work continued again on May 16, with the first of these five bills passed in a first reading. As a result, Ukraine acceded to the WTO without fulfilling its commitments to pass this legislation, making its start as a WTO member rockier than it might and should have been. The GOU has attempted a band-aid by ordering Customs to implement tariff levels in the WTO protocol, but this is a stop-gap measure of dubious legality and sure to cause confusion at the borders. ¶4. (C) Squabbling over the leadership of the State Property Fund and the privatization of the Odesa portside chemical plant, along with the Government's unfortunate and indefensible decision to halt Vanco's exploratory drilling in the Black Sea (and possibly to reopen the Production Sharing Agreement) inevitably will have a chilling effect on foreign investment. One U.S. law firm assisting a potential investor in the Odesa portside plant said that its clients and other investors are walking away in disgust from the process. Neither side appears willing to budge on resolving this issue, leaving Ukraine looking unstable to foreign investors and cutting the Tymoshenko Government off from potential revenues realized from privatization sales. ¶5. (C) The push for a positive response in December to Ukraine's request for a MAP could also be jeopardized by this latest upheaval. Euro-skeptics within NATO would like nothing better than to be able to use continued political turmoil in Kyiv to refuse Ukraine's request. Although military reform would likely continue and Ukraine's newly-energized information campaign might still proceed, Kyiv's effort to convince some Europeans that they are ready for MAP is much less convincing against a background of talk about new coalitions, new constitutions, and another round of new elections. Continued political turmoil could also hamper Ukraine's efforts to ramp up its preparations for the Euro-2012 soccer championship, possibly even leading to the selection of a new host. It is generally agreed that the Ukrainians and their Polish co-hosts are well behind schedule already. ¶6. (C) In spite of the political challenges to our short-term goals, it is the longer-term view of Ukraine that KYIV 00000922 002 OF 002 is important. With continued USG and European support, we can easily see Ukraine in 3-5 years as a full-fledged active member of WTO observing the rules, a NATO MAP country working toward full membership with a professional army rapidly closing in on NATO standards, a special partner of the European Union (enjoying the benefits of a Free Trade Agreement),and a safer and more attractive place for U.S. and other foreign investors. ¶7. (C) There is hope that short-term political instability will not damage these long-term goals. Interestingly enough, in spite of the day-to-day political struggles and clashes of personal ambitions, all the major players continue to espouse a western future for Ukraine, a future that also includes good relations with Russia. Ukraine continues to be a haven for Russian-speaking dissidents from neighboring Russia and Belarus; the number of foreigners registered here has doubled to 200,000 since 2003 -- and most from the CIS are not registered at all. Many are coming here to take advantage of Ukraine's tolerant democracy, free press, and open society in order to pursue their professional careers. Given Ukraine's past track record, even if new pre-term elections are called again, there is every reason to expect that the checks and balances in the system that prevented widespread fraud in September 2007, will again ensure that future elections are open and competitive. ¶8. (C) Our best approach is to keep pushing Ukraine and its difficult leaders in the right direction -- toward Europe, democracy, and free markets -- while accepting that progress will be uneven. The alternative is to leave Ukraine to its own devices and watch it slide back into Moscow's orbit, remaining an unstable buffer area between Europe and Russia that is completely dependent on Moscow. In the near-term, Russia will continue to increase its power, wealth and ability to influence events in its far-weaker neighbors. Ukraine is in play; the question of whether it will move east or west has not yet been answered. However, without USG help and support, it is likely that Ukraine's movement toward Europe will slow and even stop as it returns to Russia's zone of control. It is in our interest and far better for our national security for Ukraine to succeed. ¶9. (U) Visit Embassy Kyiv's classified website: www.state.sgov.gov/p/eur/kiev. Taylor