CAN TYMOSHENKO MAINTAIN BALANCE AS THE ELECTIONS

C O N F I D E N T I A L SECTION 01 OF 03 KYIV 000008

SIPDIS

E.O. 12958: DECL: 01/04/2020
TAGS: PGOV EFIN PREL UP
SUBJECT: CAN TYMOSHENKO MAINTAIN BALANCE AS THE ELECTIONS
NEAR?

REF: 09 KYIV 2138

Classified By: Ambassador John F. Tefft for reasons 1.4 (b,d).

Summary
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1. (C) During a December 31 introductory call, PM Tymoshenko
discussed with Ambassador Tefft her efforts earlier that day
to convince National Bank of Ukraine (NBU) Chairman Stelmakh
to disburse $2 billion in reserves so that the government can
make its scheduled January gas payment. Tymoshenko is
concerned about fraud in the elections but believes that, if
she is able to maintain economic stability, her chances of
winning the presidency in the second round are equal to those
of current front-runner Viktor Yanukovych. She argued that
radical pro-western ideals have not served previous Ukrainian
leaders well and, therefore, she would take a more 'balanced'
approach as President. Ukraine's path is clearly toward
Euro-Atlantic integration, she added, but she would not do
anything to bring Ukraine into open conflict with Russia.
The stress caused by her opponents' daily public attacks
(especially from President and erstwhile ally Yushchenko) and
Ukraine's flailing economy have taken a visible toll on the
traditionally calm and focused PM. End summary.

IMF Money: NBU Still Resisting
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2. (C) Prime Minister Tymoshenko, accompanied by Deputy PM
Nemyria, told Ambassador Tefft that her first priority, even
above the upcoming Presidential election, was to achieve
economic stability for Ukraine. She related that she had just
exited from a very difficult five-hour meeting with National
Bank of Ukraine (NBU) Chairman Stelmakh, who had agreed, she
said, to a mechanism to transfer $2 billion in IMF money from
the NBU to the Government of Ukraine.


3. (C) Tymoshenko said that Stelmakh was not comfortable with
the IMF board decision of December 30 concerning the transfer
of IMF liabilities from the NBU directly to the GOU. Instead
of a direct transfer, Stelmakh proposed a scheme whereby
Ukraine's Ministry of Finance would issue a promissory note
worth $2 billion to the IMF. The Government of Ukraine would
then ask the IMF, based on this promissory note, to cancel $2
billion of the NBU's liabilities to the IMF and reallocate
the $2 billion as a GOU liability. According to the Prime
Minister, if the IMF makes the reallocation, Stelmakh said he
would issue $2 billion to the GOU.


4. (C) Deputy PM Nemyrya characterized the scheme as simply a
mechanism to implement the IMF board's decision and told us
that if the IMF agrees to the technicalities of this
transfer, then the GOU would receive the money on January 4
from the NBU. Stelmakh is insisting, however, on a positive
response from the IMF approving the transfer scheme. Nemyrya
said IMF lawyers were looking over the proposal. (Comment:
This sounds like a very complex way to achieve something that
should be relatively simple, if only Stelmakh were on board.
It could be that Stelmakh is again trying to delay the
transfer while "appearing" to agree with the Prime Minister's
requests. End comment.)


5. (C) Once the government received the money, the Prime
Minister stated that she would use the money for gas
payments, as stipulated by the IMF.

Opponents Seeking to Destabilize the Economy
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6. (C) Tymoshenko believed the $2 billion would be enough to
get the country through the election period. She could not
be certain, however, because her political rivals were
seeking to destabilize the country to draw votes away from
)!QQQQsQ%hQP?Q;ecoming harder and harder every day before the election to
maintain balance in the country.

U.S. Business Concerns
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7. (C) The Ambassador thanked the Prime Minister for her
engagement in resolving the issues that had prevented the
Overseas Private Investment Corporation (OPIC) from operating
for almost a decade in Ukraine. U.S. firms want to

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participate in Ukraine's development, and the reopening of
OPIC would facilitate their investment here. In addition, the
Ambassador noted the need to address other issues that limit
investment in Ukraine, such as the unreliable VAT refund
system. Tymoshenko pledged to address VAT arrears after the
elections. Finally, the Ambassador expressed support for a
U.S. consortium that recently won the auction to rebuild the
Lviv airport. The Prime Minister said she was aware of and
welcomed U.S. involvement in the Lviv airport project.
Nemyrya acknowledged that he and the Ambassador had discussed
these business issues in great detail recently.

Elections: Tough Road Ahead, But Optimistic
--------------


8. (C) Turning to the upcoming presidential elections,
Tymoshenko dismissed the validity of recent polls that show a
growing gap between front-runner Yanukovych and her in the
second round. She argued that such polls do not accurately
represent the strength of her support because most of her
electorate lives in the countryside, while the polls mostly
query urban voters. She asserted that her own polling shows
her chances of winning in the second round equal to
Yanukovych's, and reminded us that polls in previous
elections underestimated her support by 10%.


9. (C) Tymoshenko admitted that her main campaign goal for
the January 17 first round is to keep the difference between
Yanukovych and her as small as possible, since a big gap
would have a demoralizing effect on her supporters. She
pointed to economic stability as the key issue that could
affect the vote during the first round, but also emphasized
her opponent's proven record of willingness to falsify
elections in his favor. "Yanukovych says we will use fraud
to win, but I pledge that we will not. He has already done
so in 2004, and the Supreme Court proved this," she added.
The PM had no doubt that Regions is already preparing false
ballots for the elections, adding that her ability to fight
cheating is hindered by the prohibition against sending
police into polling stations to seize fraudulent ballots.


10. (C) Tymoshenko scoffed at Yanukovych's claim of being
disadvantaged because he does not have access to the same
"administrative resources" that she and President Yushchenko
have. Because most current local officials were appointed by
President Yushchenko while Yanukovych was PM, she argued that
these local officials are actually aligned with Yanukovych
rather than with her.


11. (C) Tymoshenko acknowledged that President Yushchenko's
incessant attacks on her are affecting her level of support
among "orange" voters in central and western Ukraine. His
effect during the second round is hard to predict, but she is
hopeful that "orange" voters will realize that staying at
home would in essence be voting for a Yanukovych presidency.
Her campaign strategy going forward will be to mobilize the
west and center in her favor while working to undermine
Yanukovych's support in the east. She told us that she will
begin visiting Ukraine's regions immediately after the
January 1 New Year holiday.

Approach to Russia?
--------------


12. (C) When asked about her strategy towards Russia, the PM
answered in philosophical terms. She observed that in
Ukraine's history, radical pro-Western and nationalistic
views have not been a recipe for success. She pointed to
Yushchenko as an example, stating that his support decreased
significantly as his pro-Western views became more radical.
Thus, to lead Ukraine, one must strike a balance between
Russia and the West. In her mind, Ukraine's orientation must
remain toward Europe and independence. That said, the leader
of Ukraine must avoid rhetoric that would antagonize Russia
or incite its leaders to action.

Euro-Atlantic Integration
--------------


13. (C) Tymoshenko emphasized her desire to see Ukraine join
NATO, adding that she would not agree to any integration with
Russia into a "single economic space" or similar arrangement.
She did not, however, believe Ukraine's citizens were ready
for NATO integration, and opposed a national referendum on
the issue at this time. She argued that Yushchenko's radical
position on pushing for NATO membership had needlessly
polarized the Ukrainian populace.


14. (C) Tymoshenko stated unequivocally that as President she
would not do anything to lead Ukraine into direct
confrontation with Russia -- "this would be insanity." She

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argued that groups in Crimea are just waiting for Kyiv to
take some radical action in order to respond and destabilize
the region further. Any drastic action by Kyiv toward the
Russian Black Sea Fleet could be such an action.

Comment: Visibly Strained
--------------


15. (C) During the meeting, the PM appeared tired, stressed,
and rundown, showing that the daily barrage of attacks from
her opponents, combined with the dire economic situation and
the demands of running the country, have taken their toll on
the usually calm and focused Tymoshenko. As she herself
stated, it is becoming increasingly difficult each day to
maintain the balance. The elusive $2 billion is arguably her
best hope of keeping the budget afloat and pulling out a
come-from-behind victory in the upcoming elections, a point
driven home by her direct involvement in the five-hour
negotiations with the National Bank head and postponement of
her meeting with the Ambassador until late in the day on New
Year's Eve.
TEFFT