VZCZCXRO9578
PP RUEHDBU
DE RUEHKV #0954 1541523
ZNY CCCCC ZZH
P 031523Z JUN 09
FM AMEMBASSY KYIV
TO RUEHC/SECSTATE WASHDC PRIORITY 7903
INFO RUCNCIS/CIS COLLECTIVE PRIORITY
RUEHZG/NATO EU COLLECTIVE PRIORITY
RUEATRS/DEPT OF TREASURY WASHINGTON DC PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC PRIORITY
RHEHAAA/NATIONAL SECURITY COUNCIL WASHINGTON DC PRIORITY

C O N F I D E N T I A L KYIV 000954 
 
SIPDIS 
 
DEPT FOR EUR, EUR/UMB, EEB/OMA 
 
E.O. 12958: DECL: 06/02/2019 
TAGS: EFIN EREL ETRD PGOV PREL XH UP
SUBJECT: IMF ON UKRAINE'S BUDGET AND BANKING BENCHMARKS 
 
Classified By: A/DCM EDWARD KASKA, REASONS 1.4 (B) AND (D) 
 
¶1.  (C) Summary. Kyiv-based IMF resident representative Max 
Alier told us on June 2 that Ukraine remained far from 
completing structural benchmarks on bank reform, necessary 
for the disbursement of the IMF's third loan tranche. 
Ukraine was still saddled with an unfinanced budget deficit, 
the size of which cannot be precisely determined due to PM 
Tymoshenko's deliberate refusal to announce official economic 
data.  Absent signals of support from potential foreign 
donors, Ukraine's authorities continue to press the IMF for 
budget financing in the next tranche.  The IMF mission team 
is due to return to Ukraine in the second half of June, 
though an exact date has not yet been set.  End summary. 
 
¶2.  (C) Alier commented to us on June 2 that structural 
benchmarks on bank reform set out by the IMF after its 
mission team's first review were still largely unmet, though 
quantitative performance criteria for the end of May had been 
realized.  Alier suggested that the Ukrainian authorities 
would stall on bank reforms, waiting until after the mission 
team left Kyiv.  Alier notably did not comment on a recent 
statement by Acting Minister of Finance Umanskiy that the 
Cabinet of Ministers could proceed with the recapitalization 
of Rodovid Bank, Ukrgazbank, and Bank Kyiv as early as the 
week of June 8. 
 
¶3.  (C) The IMF official criticized Tymoshenko's delayed 
release of official economic indicators.  The Prime 
Minister's refusal to disclose first quarter GDP was "a 
serious mistake," Alier said, especially since she could have 
begun to take credit for an apparent stabilization of the 
exchange rate and the financial market.  Instead, she will be 
forced to defend her decision to hide bad news while 
responding to the political fallout from first quarter GDP 
figures that Alier said would show declines "anywhere from 10 
to 29 percent" (compared to the first quarter of 2008). 
Alier expressed concern that Ceyla Pazarbasioglu's mission 
team would not have access to official macroeconomic figures 
while in Kyiv, necessary for making accurate budget deficit 
forecasts.  He was reluctant to pin down a date for the 
mission team's return, suggesting to us that he had told GOU 
authorities the next review would come in the latter half of 
June. 
 
¶4.  (C) Ukraine's fiscal gap remains large, Alier said, but 
the IMF cannot yet project whether or by how much tax 
revenues may ultimately fall.  Nonetheless, the GOU continues 
to press the IMF to pour the entire third tranche into budget 
support.  Alier said more IMF budget support would not be 
forthcoming without program revisions, and program revisions 
would require a credible interlocutor who "could not only 
promise but carry out" structural reforms.  He stated that 
the World Bank would instead need to bolster its program to 
cover the budget gap, with the EU providing another 300-400 
million euros.  Alier put in a plug for U.S. bilateral 
financing, suggesting a figure of $300-400 million would be 
adequate. 
 
¶5.  (C) Comment.  Alier's pointed statements confirm that the 
Ukrainian authorities remain unfocused on necessary actions 
for banks and the budget.  With Alier suggesting that 
inevitable delays on structural benchmarks will further sully 
the NBU and GOU's reputation in the eyes of the international 
community, the IMF has given the impression that Ceyla 
Pazarbasioglu's mission team would attempt to hold firm with 
the GOU on its previously stated expectations. 
PETTIT