RADA/YUSHCHENKO FALTER ON LEGISLATION REQUIRED BY

C O N F I D E N T I A L SECTION 01 OF 02 KYIV 000576

SIPDIS

E.O. 12958: DECL: 03/31/2019
TAGS: PGOV ECON EFIN EREL PREL ETRD UP
SUBJECT: RADA/YUSHCHENKO FALTER ON LEGISLATION REQUIRED BY
IMF

REF: KYIV 518

Classified By: A/DCM Edward Kaska for reasons 1.4(b,d)

Summary
--------------


1. (C) On March 31, the Rada failed to include on its agenda
three anti-crisis measures deemed essential by the IMF.
Although PM Tymoshenko delivered unanimous support for the
bills from her bloc, President Yushchenko's allies in the
Rada did not support inclusion of the measures on the agenda.
The Rada passed two other required anti-crisis measures with
support from both BYuT and the pro-coalition and
pro-presidential wings of Our Ukraine-People's Self-Defense
(OU-PSD). Failure to pass the five measures, a minimal
package of pared-down IMF requirements, further postpones the
IMF team's return to Kyiv. Tymoshenko pledged to work with
the President and Rada to obtain passage of the three
remaining measures as early as April 1. End Summary.

Rada Fails to Meet IMF Pared-Down Expectations
-------------- -


2. (SBU) On March 31, the Rada passed two of five bills in a
package of anti-crisis legislation submitted by PM
Tymoshenko's government. The bills were considered the bare
minimum needed to get the IMF back to Ukraine for further
negotiations on the second tranche of the Stand-By
Arrangement. The IMF had pared down its expectations of the
GOU, essentially endorsing what amounted to a check list of
fiscal measures to be taken by the Rada as a precondition for
bringing the Fund's mission team back to Ukraine.


3. (C) On March 24, IMF resident representative Max Alier
suggested to G7 ambassadors that it would consider
"satisfactory" PM Tymoshenko's promise to deliver two excise
bills (one on tobacco and the other on alcohol, cars, and
gasoline),a modest pension reform plan, revisions to the
2009 budget to offset state-owned gas company Naftohaz's
payments, and public procurement reforms. Tymoshenko told
the IMF that all needed anti-crisis legislation would pass on
March 31. Yushchenko also had guaranteed the bills' passage
by March 31, even telling an audience in Prague on March 25
that the IMF would return the week of March 30 after the
requisite legislation was in place (Ref A).


4. (SBU) However, two bills related to pension reform and a
bill on Naftohaz payments failed to garner enough votes to be
put on the agenda for consideration. Because the bills
themselves were not yet considered and voted on in the Rada,
they can be reintroduced to the Rada agenda at a later date.
The pension reform bills received 206 and 210 votes
respectively, and the Naftohaz budget legislation received
209 votes. 226 votes are required to put an item on the
agenda.


5. (SBU) By approving only the excise taxes on tobacco and
alcohol, the Rada has not met IMF requirements for the
anti-crisis legislation package. While we were unable to
reach the IMF for their immediate reaction, the World Bank's
Kyiv-based senior economist Ruslan Piontkivsky told us on
March 31 that the Rada's revenue-generating legislation had
been watered down from what the PM had told the IMF, since it
had not included provisions for cars or gasoline. While the
World Bank had not read the full text of the two excise taxes
and could not comment on the amount of revenue they would
raise, Piontkivsky suggested that the laws have fallen far
short of meeting the 2 percent of GDP fiscal gap targets
required by the IMF. Official estimates suggest that the
tobacco excise tax will generate UAH 3.7 billion ($480
million) during the final nine months of 2009, while the tax
on alcoholic beverages should bring UAH 1.3 billion ($170
million) for the balance of the year.

Yushchenko Doesn't Deliver...
--------------


6. (SBU) In his State of the Union Address to the Rada,
Yushchenko called for political unity in the face of the
ongoing economic crisis. Although he called for support of
the pension reform legislation in his address, Yushchenko
failed to deliver the votes of his remaining allies in
OU-PSD. Neither Presidential Secretariat head Baloha's
United Center (UC) MPs nor former Speaker Vyacheslav
Kyrylenko's "For Ukraine" group voted to include the
legislation on the agenda. (Note: We estimate that "For
Ukraine" and UC make up at least 27 members of the OU-PSD
faction.) Yushchenko was more critical of the Naftohaz
budget legislation in his address, arguing that the
"so-called balanced budget of Naftohaz" needs to be reviewed.

KYIV 00000576 002 OF 002




7. (C) BYuT MP Kostyantin Bondareev told us that Yushchenko's
call to unity was "meaningless" without action from his
allies in the Rada. He said that Yushchenko always talks
about unity on one hand, while "bringing up treason charges"
against Tymoshenko and devising plans to dissolve the Rada on
the other. Pro-coalition OU-PSD MP Vladislav Kaskiv told us
that a call for unity by the president "does not equal
unity." Kaskiv said he did not expect "For Ukraine" or UC to
support anything positive, as they preferred to focus on
destroying the coalition.

...But Tymoshenko Does
--------------


8. (SBU) Tymoshenko's BYuT faction gave unanimous support for
the three unsuccessful bills. She said that the Rada's
failure on March 31 threatened the IMF program, and she
announced plans to consult with the President and Rada
factions to get the measures on the agenda April 1.


9. (C) BYuT contacts tell us that the anti-crisis package is
politically difficult, as Tymoshenko tries to maintain her
rating in the run-up to presidential elections while trimming
the 2009 budget to decrease the deficit. Tymoshenko has
announced that BYuT would not support any pension reform
legislation that included raising the retirement age. BYuT
MP Mikhaylo Volynets told us that Tymoshenko was worried that
any increase in the retirement age would be "political death"
for BYuT and her presidential aspirations.

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


10. (C) Tymoshenko delivered her votes on legislation
required by IMF. Yushchenko failed to deliver, after
numerous pledges to support the measures. While his allies
in the Rada are dwindling, their votes would have been
sufficient to gain a majority in favor of the measures.
While the legislation can be resubmitted to the agenda at any
time, the vote represented a failed opportunity for Ukraine's
political leadership to work together to meet IMF
requirements, and will invariably delay the IMF mission
team's return.
TAYLOR