Identifier
Created
Classification
Origin
09KYIV1511
2009-09-04 10:59:00
CONFIDENTIAL
Embassy Kyiv
Cable title:  

WORLD BANK ON IFI ENGAGEMENT IN UKRAINE

Tags:  EFIN EREL ETRD PGOV PREL UP XH 
pdf how-to read a cable
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RR RUEHDBU RUEHSL
DE RUEHKV #1511/01 2471059
ZNY CCCCC ZZH
R 041059Z SEP 09
FM AMEMBASSY KYIV
TO RUEHC/SECSTATE WASHDC 8355
INFO RUCNCIS/CIS COLLECTIVE
RUEHZG/NATO EU COLLECTIVE
RHMFISS/DEPT OF ENERGY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
C O N F I D E N T I A L SECTION 01 OF 02 KYIV 001511 

SENSITIVE
SIPDIS

DEPT FOR EUR, EUR/UMB, EEB/OMA

E.O. 12958: DECL: 09/03/2019
TAGS: EFIN EREL ETRD PGOV PREL UP XH
SUBJECT: WORLD BANK ON IFI ENGAGEMENT IN UKRAINE

Classified By: Economic Counselor Edward Kaska for Reasons 1.4 (b) and
(d)

C O N F I D E N T I A L SECTION 01 OF 02 KYIV 001511

SENSITIVE
SIPDIS

DEPT FOR EUR, EUR/UMB, EEB/OMA

E.O. 12958: DECL: 09/03/2019
TAGS: EFIN EREL ETRD PGOV PREL UP XH
SUBJECT: WORLD BANK ON IFI ENGAGEMENT IN UKRAINE

Classified By: Economic Counselor Edward Kaska for Reasons 1.4 (b) and
(d)


1. (C) Summary. The World Bank's Kyiv-based country
director urged the international community to engage Ukraine
during its pre-presidential election period, suggesting that
a high-level E.U. and U.S. delegation could push authorities
to abide by their commitments. He said that the opposition
Party of Regions had been angered by what it perceived as the
IMF's favoritism toward Prime Minister Tymoshenko,
particularly the Fund's apparent willingness to relax
expectations of GOU adherence to conditionalities before
January 2010. The IMF had been fortunate with the high rate
of rollovers for short-term corporate loans, the World Bank
said, which had allowed the Fund to alter its strategy and
disburse monies for budget assistance. Rollovers would need
to continue into 2010, or else the Fund will be forced to
drastically expand its program. Concerned about the 2010
budget, the World Bank hopes to prevent a spendthrift GOU
from developing what it called an "illusory" fiscal target.
End summary.

Engagement on Reform Needed
--------------


2. (C) Martin Raiser, the World Bank country director for
Ukraine, Belarus, and Moldova, worried openly about a
political environment in Kyiv that was "highly unfavorable"
for IFI-supported reforms, but did not anticipate that the
post-election period would provide any improvement. In a
private meeting with Econoffs on August 27, Raiser urged
joint action among bilateral diplomatic missions, saying "we
need to engage more seriously." Raiser recommended a
senior-level E.U. and U.S. official visit to "up the ante,"
though he expressed concern that the Germans would continue
to view Ukraine through what he called a "pro-Russian" lens,
especially on energy issues. Raiser pointed to Russian
President Medvedev's "stage-managed" public criticism of
Ukrainian President Yushchenko during a press conference in
Germany with German Chancellor Merkel. In Raiser's view,
Merkel simply stood by, looking like "Russia's best friend."



3. (C) Raiser noted that World Bank President Zoellick has
been following the "Ukraine dynamic" closely, and was
reportedly wary of offering more financial carrots before
Ukraine adheres to its promises. Raiser similarly noted that
he could not justify spending the World Bank's limited global
reserve funds for a country that would not carry out its
international commitments. He said that former Minister of
Finance and Party of Regions MP Mykola Azarov had been
angered by what he termed "the IMF's support of Tymoshenko's
election campaign." Azarov reportedly told Raiser that the
IFIs "should not give money on promises." Raiser commented
that he had kept up a "balancing act" among the competing
interests of Ukraine's political forces, suggesting that the
IMF had not done the same. "I understand the IMF's
constraints, but at some point you have to get real," he
said, referring to the need to also work with President
Yushchenko and the Party of Regions. Raiser told us that he
had sent a letter expressing his concerns to IMF envoy Ceyla
Pazarbasioglu but had not yet received a response.

Rollovers Saving IMF Program
--------------


4. (C) The IMF's program in Ukraine (and Ukraine, itself)
would have been in a worse position, suggested Raiser, had it
not been for the "good fortune" of private sector firms
successfully rolling over corporate debt. High roll over
rates had allowed the IMF to allocate loan disbursements to
Ukraine's 2009 budget, where a deficit of at least 6 percent
of GDP remains, rather than to NBU reserves to cover external
commitments. Raiser said that the corporate rollovers needed
to continue into 2010, or the Fund would need to expand its
program funds to provide the balance-of-payments support that
was initially envisioned in the November 2008 Stand-By
Arrangement. According to the NBU, non-bank related
corporate rollovers had been completed at a rate of roughly
99 percent thus far in 2009, a figure that had "surprised"
even Raiser.

2010 Budget
--------------


5. (C) The government needed to clarify that it would let
the Ministry of Finance formulate a draft budget without

KYIV 00001511 002 OF 002


political interference from the Cabinet and Rada, said
Raiser. He expressed concern that the Ministry would instead
be forced to propose something "illusory" before the
presidential election. Complimenting the Ministry of
Finance's budget team for their technical expertise, Raiser
said the World Bank would be closely involved in drafting the
2010 budget to give the Ministry political cover so that they
will "not be accused of unprofessional" actions.

Comment
--------------


6. (C) Raiser's criticisms are the strongest we have heard
from the World Bank regarding the IMF's need to get tougher
with Ukraine. The Bank's country director appeared concerned
that the Fund's flexibility could undermine what the World
Bank views as its own even-handed approach to pre-election
politics. While tacitly seeking U.S. support for a firmer
line, Raiser seemed to acknowledge that the IFIs needed to
hear from capitals that they would support a tougher line and
that, on their own, they may be quickly losing leverage with
the GOU.

PETTIT