VZCZCXRO1951
RR RUEHDBU RUEHSL
DE RUEHKV #0278/01 0551205
ZNY CCCCC ZZH
R 241205Z FEB 10
FM AMEMBASSY KYIV
TO RUEHC/SECSTATE WASHDC 9371
INFO RUCNCIS/CIS COLLECTIVE
RUEHZG/NATO EU COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RHEHAAA/NSC WASHDC
RHMFISS/DEPT OF ENERGY WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC

C O N F I D E N T I A L SECTION 01 OF 03 KYIV 000278

SIPDIS

STATE FOR EUR/UMB AND EEB/OMA

E.O. 12958: DECL: 02/23/2030
TAGS: PGOV EFIN PINR ECON PREL UP
SUBJECT: FORMER TYMOSHENKO INSIDER CALLS HER DESTRUCTIVE,
WANTS HER OUT OF POWER

Classified By: Ambassador John F. Tefft for Reasons 1.4 (b) and (d)

¶1. (C) Summary. In a damning indictment of Prime Minster
Yuliya Tymoshenko and her lack of leadership, respected
xxxxxxxxxxxx argued that Tymoshenko
would continue to work against reform. To limit her
destructiveness, xxxxxxxxxxxx argued for early parliamentary
elections, which would help strengthen new leaders such as
Tihipko and Yatsenyuk. He also expressed hope that the
International Monetary Fund (IMF) would strictly hold Ukraine
to its commitments to implement reform. xxxxxxxxxxxx appeared to
deliver his message not in anger, but in sincere sorrow for
the country and frustration at his inability to convince
Tymoshenko to take advantage of the opportunity presented by
the economic crisis for reform. Instead, xxxxxxxxxxxx said
Tymoshenko wasted the opportunity in favor of populism and a
simple desire for all-embracing power. End Summary.

----------------------------------
Tymoshenko: Power-hungry Populist
----------------------------------

¶2. (C) During a meeting with the Ambassador on xxxxxxxxxxxx,
accused Prime Minister Tymoshenko of wasting the opportunity
for reform that came with the economic crisis. He believed
that Tymoshenko would continue to work against reform, and
that her argument would be that she and her government were
able to make all domestic and international payments during
the crisis without implementing what would amount to painful
reforms for the public. In this sense, xxxxxxxxxxxx said the IMF
program had actually harmed Ukraine. Neither the Ukrainian
government nor the public suffered terribly from the crisis
thanks to IMF money. As a result, support for change that
would pull the economy out of crisis evaporated.

¶3. (C) xxxxxxxxxxxx said that it was an easy decision for
Tymoshenko to do nothing to reform the economy. He was
critical of her leadership skills and said that she made
policy decisions without listening to considered advice. He
found it difficult to understand Tymoshenko,s logic most of
the time, except in the sense that her decisions were
normally guided by &adventurous populism.8 She also was
overly confident in her own decisions and believed everyone
else is wrong. xxxxxxxxxxxx concluded that Tymoshenko simply
wanted to consolidate power in her own hands. In her eyes,
populism helped her do this; reform would not.xxxxxxxxxxxx
own frustration with his inability to influence policy xxxxxxxxxxxx.

--------------------------------------------- ----
Pre-term Parliamentary Elections Best for Country
--------------------------------------------- ----

¶4. (C) xxxxxxxxxxxx was certain that Tymoshenko would continue
to act as a destructive force in &hard-core8 opposition to
Yanukovych. As a result, he argued that pre-term
parliamentary elections would be best for the country. He
assumed BYuT and Our Ukraine would lose seats in Parliament
with a pre-term election. It would also allow new voices,
such as Serhiy Tihipko and Arseniy Yatsenyuk, to gain a
stronger position. xxxxxxxxxxxx thought that the voters in the
presidential election had shown that they wanted new leaders
to come to power.

¶5. (C) Although elections would delay reform for a few more
months, xxxxxxxxxxxx thought a new parliament would be more
likely to implement reform. He understood that this could
delay the return of the IMF to Ukraine; but, xxxxxxxxxxxx argued
that the country could get through the next six months on its
reserves, particularly if no new budget were adopted. The
lack of a budget limited the government,s ability to spend,
he said. In fact, xxxxxxxxxxxx argued that pushing the country
into a deeper crisis could actually be a benefit because
voters and the leaders would feel the need for change more
acutely.


Kyiv 00000278 002 of 003


----------------------------------
xxxxxxxxxxxx Prescription For Reform
----------------------------------

¶6. (C) xxxxxxxxxxxx argued that in the 1990s and in 2000, when
the economy was truly in crisis, Ukraine had made some
positive changes that led to growth. Ukraine again had a
unique opportunity to reform the structure of the government
itself, to tackle corruption, and to implement economic
reform that would put the country back on the path to growth.
He agreed with the conditions contained in the IMF package
for Ukraine, including gas price increases and pension
reform, but said that the IMF should be stricter in forcing
adherence. xxxxxxxxxxxx passed the Ambassador two documents,
xxxxxxxxxxxx, outlining his reform priorities. The papers are
copied below, paras 8 and 9.

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

¶7. (C) xxxxxxxxxxxx appeared to deliver his message not in anger,
but in sorrow for the country and in frustration at his
inability to convince Tymoshenko to take advantage of the
opportunity presented by the economic crisis for reform. His
indictment of Tymoshenko was particularly damning xxxxxxxxxxxx,
one of the few we have
found in high-levels of government in Ukraine. It is
unfortunate that Tymoshenko,s unwillingness to make the hard
decisions has cost the country dearly, not only in terms of
larger deficits, greater public debt, and declining GDP, but
also in that she has driven out intelligent, xxxxxxxxxxxx.

----------------------
Preventative Measures
----------------------

¶8. (U) Unofficial translation of xxxxxxxxxxxx ten preventative
measures for Ukraine.

¶A. Government reform (functional structure). Eliminate
six ministries; subordinate other government bodies to the
ministries.
¶B. Increase the pension age: two years up for men; 3
years up for women. Cancel the right of early retirement and
length of service calculation when one year is counted as
two. (Note: For every year of work, workers in hazardous
sectors -- such as steel workers and miners -- receive credit
for two years worked. AT the end of 20 years at work, for
example, miners' pensions are calculated on the basis of
having worked 40 years.)
¶C. Limit pensions for working pensioners.
¶D. Cancel special pensions -- these were distributed to
high-level government officials, judges, scientists, or
managers at state-owned firms and are higher than normal
pensions.
¶E. Double gas prices for public consumption. Increase gas
prices 50% for consumption by municipal heating companies.
Increase electricity prices by 40%.
¶F. Grant the authority to set prices to public service
providers (for 2 years); increase service prices
simultaneously with gas prices.
¶G. Cancel the legislative provision banning communal
service providers from cutting off or fining consumers for
non-payment of communal services.
¶H. Increase excise duty for petrol by EUR 60 (Note: Not
clear on what volume. end note.) Cancel preferential rates,
increase vehicle owner taxes by 50%.
¶I. Keep the minimum subsistence-level payment unchanged
but introduce extra payments for the needy.
¶J. Bind privileges and social payments to incomes: if
incomes are high, privileges and social payments will be
lower.

--------------------------------------------- -
Priority Reform Measures for the New Government

--------------------------------------------- ----

¶9. (U) Below is xxxxxxxxxxxx paper on priority reform for the
new government.

Kyiv 00000278 003 of 003



Pensions:
¶1. Pension age increase (currently pension age is 55 for
women; 60 for men).
¶2. Abolish special pensions
¶3. Limit pensions to working pensioners
¶4. Set pension age for military to age 60.
¶5. Abolish norm of retirement prior to pension age.

Energy Sector:
¶1. Imminent increase of gas prices for households 2 times;
additional 50% increase on July 1. Cancel Government
Resolution requiring Trade Unions' consent for gas price
increase.
¶2. Immediate increase of gas price for heating entities
50%; additional 30% by July 1.
¶3. Electricity tariff increase by 40%.
¶4. Privatization of all coal mines and cancelling of all
subsidies to coal mining sector.

Benefits:
¶1. Elimination of benefits for communal services,
transportation, etc.
¶2. Elimination of government support for birth assistance,
free meals and school books. (Families should pay.)

Communal Services:
¶1. No new tax benefits.
¶2. Limit Single Tax Payers (STP) status.
¶3. Cancel special VAT regimes for rural areas.
¶4. Cancel VAT exemptions for pharmaceuticals.
¶5. Increase Excise tax for gasoline; increase auto-owners
tax by 50%; unify excise tax.
¶6. Cancel double taxation treaty with Cyprus (today it is
zero.)

Rural Issues:
¶1. Cancel moratorium on land sales.
¶2. Ban subsidies for pork and chicken meat.

Public Administration:
¶1. Reduce size of government to 14 ministries. One deputy
prime minister. Abolish Minister of the Cabinet of Ministries
position. Eliminate 6 ministries.
¶2. Subordinate all government entities to ministries (for
instance, the Tax Administration, Customs Service, State
Property Fund -- to MinFin.)
¶3. Limit extra payments to government officials.

Other Social Funds
¶1. Temporary subordination to the government.
¶2. Cancel free tours for vacations.
¶3. Cancel any subsidies to businesses.
¶4. Unemployment subsidy payable only after minimum of 6
months of employment.
¶5. Introduce sick leave payment at 70% of income, but not
less than subsistence level.
¶6. Sick leave payment starting only from 3rd day of leave.
¶7. Money saved from above should go to the Pension Fund.

Prices:
¶1. Increase prices for transport; cancel transport
benefits.

End xxxxxxxxxxxx.

Tefft