"URGENT" WORRIES FROM UKRAINE FINANCE MINISTRY

C O N F I D E N T I A L KYIV 002130 SENSITIVE SIPDIS DEPT FOR EUR, EUR/UMB, EEB/OMA E.O. 12958: DECL: 12/10/2019 TAGS: EFIN EREL ETRD PGOV PINR UP XH SUBJECT: "URGENT" WORRIES FROM UKRAINE FINANCE MINISTRY REF: KYIV 2102 Classified By: Economic Counselor Edward Kaska for Reasons 1.4 (b) and (d) ¶1. (C) Ukrainian Deputy Minister of Finance Andriy Kravets notified the embassy on December 11 that Foreign Minister Poroshenko was planning today to ask IMF first deputy managing director John Lipsky to consider including Ukraine on the agenda of the next IMF board meeting. Poroshenko had received direct instructions from Prime Minister Tymoshenko, after acting Minister of Finance Umanskiy briefed her on Deputy Prime Minister Nemyria's December 6 meetings in Washington (reftel). Kravets characterized Poroshenko's message as "extremely urgent" and expressed hope that Ukraine "still had a chance" to get an IMF disbursement before the end of 2009. ¶2. (C) Kravets stated that the Ministry of Finance had already begun to roll out Plan B: a three-part auction of domestic treasury bills. The Deputy Finance Minister said auctions would take place on December 15, 22, and 29. The first auction would be the bellwether for market interest on the Ministry of Finance's initial offer of 12-month t-bills at a rate of 20-25%. Higher yield debt issuances, such as in the "extremely difficult" month of October (when the GOU sold UAH 4.3 billion or $540 million in t-bills for near 30%) were "unacceptable" and would "destroy" the domestic market. ¶3. (C) The likely purchasers of GOU debt were banks with foreign capital. Kravets listed Raiffeisen-Aval, Erste, Ukrsotsbank (UniCredit),ING, Ukrsibbank (BNP Paribas),and Citi as interested parties. The Ministry of Finance was readying a scheme to name primary dealers that would be launched after the December auctions. ¶4. (C) Kravets expressed concern that, if Ukraine did not access IMF financing or successfully auction domestic t-bills, Ukraine's budget situation would be "disastrous". The Ministry of Finance also needed to roll over UAH 2 billion ($250 million) in internal debt. Failure to do so could "provoke" an external default, according to Kravets, who did not elaborate on how this would occur. COMMENT -------------- ¶5. (C) Deputy Minister Kravets was harried and anxious when explaining the GOU's predicament to Econoff. He did not ask for specific USG intervention with the IMF, but mentioned that the Prime Minister had been "grateful" for recent meetings between Poroshenko, Nemyria and USG officials in Washington. Kravets' mention of a possible external default scenario, which would be triggered by a default on domestic debt, was the first the embassy had heard of such grave and immediate GOU concerns. TEFFT