MFA ON UKRAINE AND BELARUS

C O N F I D E N T I A L SECTION 01 OF 02 MOSCOW 000465 SIPDIS E.O. 12958: DECL: 02/24/2019 TAGS: PREL MARR ECON BO UP EU RS SUBJECT: MFA ON UKRAINE AND BELARUS Classified By: Classified by Alice G. Wells for reasons 1.4 (b) and (d) . Summary -------------- ¶1. (C) In a February 17 meeting, MFA Director for Belarus, Moldova, and Ukraine Sorokin told us Russia remained prepared to continue discussions on a USD 5 billion loan to Ukraine, which he said had stalled due to Ukrainian internal divisions. He said that Ukraine's Soviet-era external debt could complicate the talks, but denied any political conditionality. Sorokin said the GOR would soon release the last tranche of its USD 2 billion loan to Belarus and would consider additional financial assistance. The Air Defense Union with Belarus, a result of five years of negotiations, was not in response to missile defense. Little progress had been made on a Union State constitutional act, but Sorokin was optimistic on the adoption of a common currency. Despite Russia's own financial troubles, the GOR continues to place a high priority in assisting CIS countries, a reflection of their priority in Russia's external affairs. End summary. Ukraine: GOR Ready to Assist -------------- ¶2. (C) In a February 17 meeting, MFA Director for 2nd CIS (Belarus, Moldova, and Ukraine) Viktor Sorokin, speaking before Russian Ambassador Chernomyrdin was convoked in Kiev for comments viewed as meddling in Ukrainian internal affairs, assessed that relations between Russia and Ukraine had improved after the gas crisis -- noting that PMs Putin and Tymoshenko had held thirty-one phone conversations since the beginning of the year. Describing the political situation in the last six months as "deteriorating," he said that at times it was difficult to understand who spoke for Ukraine, Tymoshenko or Yushchenko. ¶3. (C) Sorokin acknowledged that Russia had responded to Ukraine's request to the international community for financial assistance and expressed regret that negotiations over the emergency assistance had stalled. Sorokin maintained that Russia was motivated by pragmatic concerns over the Ukrainian economic fallout on Russia, given how close the Ukrainian and Russian economies were interlinked. He harkened to the ruble devaluation of 1998, when "Ukraine crashed harder than Russia." He blamed Ukrainian domestic political divisions on the break-off in negotiations, which had been conducted at the level of Deputy Finance Minister, and said it was a "sad state of affairs" when any loan from Russia was viewed through the worst possible political prism, no matter how dire the Ukrainian economic crisis. Sorokin told us that Russia had offered generous ten year terms, with no payments for the first two years, but that now the ball was in Ukraine's court to renew talks. He noted that Ukraine's failure to settle unpaid Soviet-era external debts (estimated at USD 18 billion) could complicate negotiations, but denied that there were any political conditions attached to the loan. Sorokin noted that this was not the first time that Russia had offered to lend Ukraine money, with loans factoring into Russian offers to resolve the 2006 and 2009 gas crises. Acknowledging that Russia faced its own mounting economic troubles, Sorokin stressed that the GOR package remained on the table. Belarus, the Union State, and Air Defense Union -------------- -- ¶4. (C) Sorokin described the February 3 visit of Belarusian President Lukashenko as a meaningful demonstration of the deep partnership between Russia and Belarus. He told us that the GOR was concerned about the Belarusian economic situation and that it was considering an additional USD 2.8 billion assistance package and granting Belarus access to the recently established EurAsEc USD 10 billion stabilization fund. Russia will also soon release the second tranche of the USD 2 billion assistance package approved in October, he said. Sorokin credited Lukashenko for playing the West and Russia against one another to get the most financial assistance, but that the GOR agreed with IMF conditionality for assistance to Belarus. ¶5. (C) Characterizing the air defense agreement with Belarus as the result of five years of negotiations, he said that the agreement was not connected to developments in Europe, including missile defense. He put the agreement into the broader context of the CSTO's efforts to strengthen common security. He was negative on the progress towards a Union State, telling us that there was still no agreement on a constitutional act. However, Sorokin was hopeful that negotiations on a common currency could go forward, without providing details. MOSCOW 00000465 002 OF 002 Comment -------------- ¶6. (C) Despite Russia's own economic troubles, it continues to propose significant economic assistance to its neighbors: USD 2 billion loan to Belarus and consideration of additional assistance, contribution of USD 7.5 billion to the new EurAsEc stabilization fund, USD 2.2 billion in loans and grants to Kyrgyzstan, and USD 500 million for Armenia. Overt political linkage aside, Russia's ability to come through with economic assistance for its neighbors during a time of general economic crisis -- if fulfilled -- would be an effective demonstration of soft power, with the GOR calculating that its worth the cost to advance it "privileged" interests in the neighborhood. BEYRLE