VZCZCXRO6102
RR RUEHDBU RUEHFL RUEHKW RUEHLA RUEHROV RUEHSR
DE RUEHCH #1275/01 2951508
ZNY CCCCC ZZH
R 221508Z OCT 07
FM AMEMBASSY CHISINAU
TO RUEHC/SECSTATE WASHDC 5812
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE

C O N F I D E N T I A L SECTION 01 OF 02 CHISINAU 001275 
 
SIPDIS 
 
SIPDIS 
 
STATE FOR EUR/UMB 
 
E.O. 12958: DECL: 10/22/2017 
TAGS: PGOV PREL PBTS ECON PHUM MD
SUBJECT: TRANSNISTRIA: SMIRNOV'S POWER WEAKENING 
 
REF: A. CHISINAU 1243 
     ¶B. CHISINAU 388 
 
Classified By: Ambassador Michael D. Kirby for reasons 1.4 (b) and (d). 
 
¶1. (C) SUMMARY:  With Transnistria's (TN) economic situation 
deteriorating, "President" Smirnov is showing unprecedented 
signs of weakness, and the previously unquestioned position 
of the TN leader now seems increasingly uncertain.  While TN 
leaders formerly presented a united front, in recent meetings 
with the Ambassador, "Foreign Minister" Litskai and "Speaker" 
of the Supreme Soviet Shevchuk were openly critical of the 
leader's "uncompromising" policies.  They noted that Smirnov 
was increasingly nervous and complained of his erratic and 
irrational behavior. 
 
¶2. (C) The gap between the Legislature and the Executive in 
TN appears to have widened, as evidenced by recent Supreme 
Soviet measures to address the economic situation which 
openly shot down Smirnov's proposals.  Meanwhile, the stature 
of the more flexible Shevchuk has risen.  Shevchuk's 
receptive response to Voronin's recent initiatives contrasted 
favorably with Smirnov's knee-jerk rejection.  The TN Supreme 
Soviet is taking the lead on drafting its own proposals in 
response.  Depending on where the Transnistrian dynamic 
leads, we could see changes that augur for greater 
flexibility at the 5 plus 2 negotiating table in the months 
ahead.  END SUMMARY. 
 
DETERIORATING ECONOMIC SITUATION WEAKENS SMIRNOV 
--------------------------------------------- --- 
 
¶3.  Transnistria's economic situation has deteriorated 
sharply since Russia severed financial assistance to the 
separatist region in April (REF B).  A record drought over 
the summer compounded the situation, causing crop losses, 
increases in food prices and high inflation.  The TN central 
bank projects inflation may reach 30-35% by the end of the 
year.  Since Russia cut financial assistance to TN, Tiraspol 
has been struggling to cope with mounting budget deficits and 
demands to maintain social spending.  In response, 
Transnistrian leader Smirnov announced plans to increase 
taxes on corporate profits, utility rates for consumers and 
food prices. 
 
SUPREME SOVIET CHALLENGES THE EXECUTIVE 
--------------------------------------- 
 
¶4. (C) Meanwhile, the stature of Yevgeny Shevchuk, leader of 
the opposition Obnovlenie Party, which controls a majority in 
Parliament, has risen, as the Legislature increasingly 
challenges the Executive.  Over the past two months, the 
Supreme Soviet has dealt Smirnov several defeats.  Smirnov's 
efforts to raise taxes on alcoholic beverages, increase 
duties on the export of building materials, and modify the 
tax system to allow random checks of TN enterprises were all 
rejected by the Obnovlenie-controlled Supreme Soviet. 
 
¶5. (C) The Supreme Soviet has also acted more independently. 
It repealed Smirnov's migration tax on foreigners and those 
transiting TN, stating that the tax was inconsistent with TN 
law, and voted to cancel the 100% duty on imports of some 
goods from right-bank Moldova.  On October 10, the Supreme 
Soviet rejected the Executive's 2008 economic forecast, the 
basis for the budget, as "unrealistic."  The Chairman of the 
Standing Committee for Economic Policy, Budget and Finance 
noted that the Executive's economic projections did not take 
into account the lack of Russian budgetary support, and thus 
provided a distorted view of the current economic situation 
and prospects for 2008.  For example, the Executive set the 
inflation target at 12% for 2008, despite inflation which 
could reach 30-35% in 2007. 
 
¶6. (C) Though Smirnov delivered his standard rejectionist 
response to President Voronin's recent confidence-building 
proposals (REF A), Shevchuk stepped forward with a more 
positive reply.  Smirnov seems isolated in his rebuff of 
Voronin's offers, as the Parliament moves forward with 
drafting its own proposals.  (COMMENT: Just as in the case of 
complying with Moldovan export rules, business interests' 
views - which Shevchuk is seen to represent - conflict with 
Smirnov's views and appear to be more receptive of Chisinau's 
initiatives.  END COMMENT.) 
 
COMMENT 
------- 
 
¶7. (C) We lack insight into the rational for Russia's 
suspension of direct support to TN, but the result is a 
weakening of Smirnov's control.  Perhaps the Russians are 
sufficiently satisfied with Chisinau's pledges to maintain 
 
CHISINAU 00001275  002 OF 002 
 
 
Russian investors' property rights in TN so that they no 
longer need to support a hard line against business.  The 
Russians may believe that the time to act is before the 2009 
Moldovan parliamentary elections, which likely will lead to a 
change in government with a new President who almost 
certainly will not support a Russian-centric resolution to 
the TN conflict. 
 
¶8. (C) Russia may also believe that TN has served its 
purpose, linking Moldova inextricably to Russia's sphere of 
influence.  If such is Russia's thinking, then Smirnov, whose 
personal, ideological and financial ties obstruct a solution, 
is no longer an asset.  Removing Smirnov has long been 
Chisinau's precondition for a political settlement to the 
conflict.  In 2001, when a possible resolution was in sight, 
President Voronin secured a promise from Russia to remove 
Smirnov prior to the TN "presidential" elections.  However, 
the resilient Smirnov survived then, despite Russian pressure 
and rumors that the FSB - frustrated by his intransigence ) 
was planning to permanently "retire" him. 
 
¶9. (C) In any case, Russia's withdrawal of economic support 
for TN appears to have weakened Smirnov and emboldened 
Shevchuk.  The legislative defeats Smirnov suffered 
demonstrate Shevchuk's growing power inside TN.  Shevchuk has 
presented himself as a reasonable interlocutor concerned 
about economic affairs and open to negotiations with Chisinau 
within the 5 plus 2 format.  We are under no illusion that 
Shevchuk is a democrat, however, as Smirnov noted during the 
visit of Spanish Foreign Minister Moratinos, "everyone is 
ignoring me, even the Russians."  We believe Shevchuk and 
Obnovlenie will continue to challenge the Executive as TN 
struggles with its mounting economic crisis.  Smirnov has 
been a major obstacle to Moldova's reunification to date, but 
his star appears to be fading.  END COMMENT. 
KIRBY