DEFENSE MINISTER ASSAILS "BUDGET OF RUIN"

C O N F I D E N T I A L SECTION 01 OF 02 KYIV 000344

SIPDIS

E.O. 12958: DECL: 02/18/2019
TAGS: MARR MCAP PGOV UP
SUBJECT: DEFENSE MINISTER ASSAILS "BUDGET OF RUIN"

Classified By: Ambassador William Taylor for reasons 1.4 (b,d).

Summary
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1. (C) Defense Minister Yekhanurov has publicly called the
2009 defense budget "a budget of ruin" and demanded a
revision. Yekhanurov had earlier told the Ambassador that he
had held "very unpleasant conversations" with PM Tymoshenko
about defense spending and warned the government "not to play
with the armed forces." Yekhanurov said low levels of
defense spending -- 0.85% of GDP -- put continued Ukrainian
participation in Kosovo and Liberia peacekeeping operations
at risk. In statements to the press, Tymoshenko rejected
Yekhanurov's claims. Budget woes have already caused
President Yushchenko to announce postponement of the
transition to a professional army for five years. End
Summary.

"Budget of Ruin"
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2. (U) Defense Minister Yuriy Yekhanurov on February 17
publicly termed the 2009 defense budget "a budget of ruin."
He derided defense spending -- at 0.85% of GDP -- as being on
par with that of Moldova or Luxembourg. Yekhanurov said that
without a revision upward, Ukraine would have to scale back
its participation in peacekeeping operations in Kosovo or
Liberia. He said Ukraine had only four months worth of
funding for PKOs in the budget.

"All Life is Struggle"
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3. (C) Yekhanurov told the Ambassador recently that he had
held "very unpleasant talks" with Prime Minister Tymoshenko
on the defense budget and warned the government "not to play
with the armed forces." Yekhanurov noted that while he had
secured additional funding for military pay, the government
had in turn sent "a huge auditing group" to monitor spending.
Yekhanurov underlined that getting a new defense budget was
his "primary task." With the budget crisis in mind, he
recalled to the Ambassador a saying from the Soviet era: "all
life is struggle."

PM Rejects Yekhanurov's Claims
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4. (U) PM Tymoshenko rejected Yekhanurov's calls for
increased military spending in comments to the press on
February 18. She insisted that there had been no delays in
financing the military and countered that the MOD had misused
funds by overpaying "monopolist entities." She cited an
instance of the MOD disbursing 500,000 hryvnia in separation
pay to a retiring serviceman as evidence of waste and abuse.
On February 19, Yekhanurov disputed Tymoshenko's claim
telling reporters that the separation pay in question had
been disbursed to a retired general of the Ministry of
Justice who had no connection with the MOD.

President Calls for Increase
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5. (U) During a visit to a military unit on February 19,
President Yushchenko characterized the current military
budget as "insignificant." He reiterated the call for the
GOU to increase defense spending when amending the 2009
budget. He expressed concern over the absence of funds to
develop the armed forces, although he expressed satisfaction
with the progress of defense reform in recent years.


2009 Budget: Half of MOD Request
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6. (SBU) After four attempts, the Rada passed a 2009 budget
bill on the narrowest of margins in December. President
Yushchenko signed the budget into law on December 29, but
only after extracting a promise from PM Tymoshenko that the
Rada would later amend the budget. Upon its passage,
Yekhanurov characterized the 2009 defense budget as
"destructive" to the armed forces.


7. (U) Yekhanurov said that although the Rada approved 11.65
billion hryvnia ($1.45 billion) for defense expenditures, the
MOD would actually receive only 8.6 billion hryvnia ($1.07
billion) because of expected shortfalls coming from the
so-called "special fund." The special fund, which is
generated by sales of MOD equipment and property, has not met
projected levels in previous years.


8. (U) On February 19 the MOD stated that 7.4 billion hryvnia

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($925 million) of the 2009 budget would come from the general
fund (regular budget) while 4.2 billion ($525 million) was
supposed to come from the special fund. To meet its needs,
the MOD stated that a budget of 32.4 billion hryvnia ($4.05
billion) for 2009 would have been optimal. Instead, the MOD
had settled on a request of 17.5 billion hryvnia ($2.19
billion) for 2009. The MOD statement concluded that the
budget - as passed - could lead to reduced unit readiness and
manning, mass resignations, and an end to armaments upgrades.


President Postpones Shift to Professional Military
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9. (SBU) On January 10, Yushchenko signed a decree
postponing transition to a professional military for an
additional five years. The Ukrainian MOD currently consists
of an estimated 148,000-150,00 uniformed and 43,000-50,000
civilian personnel. Officers make up approximately half of
the active armed forces. The MOD's 2007 "White Book"
envisioned a force of 51,000 contract professionals and
44,000 conscript soldiers by the end of 2008. The current
term of service for conscripts is 12 months. Most
professional soldiers sign an initial contract of three years.


10. (SBU) Yushchenko attributed the need to postpone
transition to a professional army to budget shortfalls. The
chairman of the Parliamentary Committee on National Security
and Defense (and former Defense Minister),Anatoliy
Hrytsenko, criticized the decree, charging that Yushchenko
broke his promise of securing a fully professional military
by 2010. Meeting with the Ambassador in January, Hrytsenko
agreed that the 2009 budget covered less than half of the
military's needs.

Far short of 2-3% of GDP envisioned in State Program
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11. (U) Yekhanurov has underlined that the 2008 defense
budget was insufficient to meet defense reform goals outlined
in the State Program for Development of the Ukrainian Armed
Forces 2006-2011. The State Program, approved in 2005,
called for transition to a fully professional force by the
end of 2010, among other reform goals. The Program called
for a defense budget of two percent of GDP 2006-2007, three
percent of GDP 2008-2010, and a return to two percent in the
following years.

Experts Agree Low Budget Harms Reform
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12. (SBU) The Razumkov Center, a think tank that has been
working on defense issues since 2000, agreed in a recent
report that the GoU underfunds the military. Defense experts
Mykola Sungurovskiy and Oleksiy Melnyk of the Center told
Poloff that the 2008 budget was 50 percent below target for
training and 30-40 percent below target for equipment
procurement and upgrades.


13. (SBU) Analyst Viktor Chumak of the International Center
for Policy Studies (ICPS) said that military reform had
stalled in the past two years because of the insufficient
budgets. Underfunding, which he attributed to GOU leaders'
lack of strategic vision, had slowed improvements to training
and equipment. He estimated that the armed forces need 15-20
billion hryvnia ($1.8 - 2.3 billion) in the coming year to
meet reform goals. He estimated MOD would need up to 50
billion hryvnia ($5.9 billion) in the next three years to
achieve a professional military

Comment
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14. (C) MOD is not immune to the budget pressure stemming
from Ukraine's overall economic crisis. Thus far MOD appears
to be meeting its most essential commitments. As the Defense
Minister has indicated, however, it remains to be seen how
long this can go on. With the defense budget at one half (or
less) of the level the State Program called for, the
shortfall is impacting the tempo of Ukraine's defense reform
-- such as the move to a professional military -- and
Ukraine's ability to deepen interoperability with NATO.
TAYLOR