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