VZCZCXRO8203
PP RUEHIK RUEHLN RUEHPOD RUEHSK RUEHVK RUEHYG
DE RUEHKV #0199/01 0291506
ZNR UUUUU ZZH
P 291506Z JAN 09
FM AMEMBASSY KYIV
TO RUEHC/SECSTATE WASHDC PRIORITY 7162
INFO RUCNCIS/CIS COLLECTIVE
RUEHZG/NATO EU COLLECTIVE

UNCLAS SECTION 01 OF 02 KYIV 000199 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: PGOV PREL ECON UP
SUBJECT: DNIPROPETROVSK: HUNKERING DOWN FOR ECONOMIC SLIDE 
 
Summary 
-------- 
 
¶1. (SBU)  Poloff met with local government and political 
leaders and political analysts during a two-day visit to 
Dnipropetrovsk (DP).  They reported that DP is calm for now, 
but an expected surge in layoffs and ineffectual government 
anti-crisis measures could result in large-scale unrest and 
political destabilization in the eastern industrial city. 
Kyiv must be more responsive to local issues and problems, 
but national political leaders have little connection to the 
people they are supposed to represent.  Local government 
lacks the discretionary budget authority or political power 
to effectively address local fallout from the economic 
crisis.  The small, but growing middle class is especially at 
risk.  Needed reform to rebalance the fiscal and political 
relationship between Kyiv and the regions should happen now. 
End Summary. 
 
Crisis Evident, but Dnipropetrovsk is Stable...For Now 
--------------------------------------------- --------- 
 
¶2. (SBU) On January 22 and 23 in Dnipropetrovsk, Poloff met 
with local Tymoshenko Bloc (BYuT) and Party of Regions 
(Regions) leaders, the Deputy Mayor, political analysts and 
NGO representatives to assess the political mood in one of 
Ukraine's most important industrial centers.  While the 
economic crisis is the talk of DP and "everyone feels" the 
looming crisis, the city and oblast appear to be calm, with 
no one reporting any large-scale unrest or protests.  Vice 
Mayor Vladimir Tyurin explained that, as an industrial 
center, DP had a labor deficit before the economic downturn. 
This labor imbalance provided a "cushion" during the initial 
months of the downturn.  Interlocutors also reported that 
many businesses and factories instituted mandatory vacation 
in December in order to push the "hard decisions" about 
layoffs beyond the holiday season.  But forced vacations 
cannot go on forever, Tyurin said. 
 
¶3. (SBU) Oleskandr Smirnov, Director of the DP branch of the 
Kyiv-based think tank Gorshenin Institute, suggested that the 
people of DP would be patient in the face of the economic 
crisis.  He posited that DP had seen no protests or unrest 
yet because "our people have come to expect disappointment." 
Local BYuT vice-chairman Valeriy Murlyan said that because 
people have heat, food, and see activity on the streets, they 
want to pretend like nothing is wrong for as long as 
possible. Vladyslav Romanov, Director of DP-based 
Prydneprovye Analytical Center (PAC), said that the majority 
of people in DP will respond to the crisis by finding 
whatever work they can, being creative to meet their 
families' needs, and spending less.  Without some sort of 
provocation that ripples through the population, Romanov 
expected a minority of "more anarchic people" to agitate and 
protest, with the majority of Ukrainians turning inward to 
focus on their immediate needs rather than national issues. 
 
 
Expect Things to Get Worse 
-------------------------- 
 
¶4. (SBU) All interlocutors agreed that Dnipropetrovsk is 
likely to see a worsening economic and social situation 
starting in February or March, when more factories and 
businesses shut their doors and lay off large numbers of 
workers.  Mikhail Razgoniayev, deputy chairman of the DP 
Regions Party, worried that as industry grinds to a halt, the 
ripple effect would start to hit small and medium sized 
businesses soon.  Local businessman and Committee of Voters 
of Ukraine (CVU) representative Oleksandr Sydorenko said that 
the primary business being transacted in DP now was "food and 
drink." 
 
¶5. (SBU) Vice Mayor Tyurin told us that with rising 
unemployment the city expected a concomitant rise in crime 
and general unrest.  Analyst Romanov reported that Regions 
representatives in Kyiv recently met with mayors from around 
Ukraine to try to convince them to use the unrest to organize 
large protests around the country.  Romanov said that the 
mayors, led by DP's Ivan Kulichenko, balked at Regions' plan, 
arguing that once people are on the streets, it would be 
difficult to get them back off. 
 
Middle Class At Risk 
-------------------- 
 
¶6. (SBU) Many interlocutors expressed confidence that Ukraine 
could weather the economic crisis as it has in the past.  The 
difference this time, however, is the effect on Ukraine's 
growing middle class.  Smirnov described the middle class as 
the "management class" that has decent salaries but little 
 
KYIV 00000199  002 OF 002 
 
 
influence.  CVU's Sydorenko echoed Smirnov, saying that the 
middle class was built on good salaries and access to credit, 
both of which they will lose in the economic downturn. 
Sydorenko suggested that it would take "some time" to rebuild 
the middle class.  Meanwhile, the rich will still be rich and 
"the poor were poor already." 
 
Local Government Lacks Means to Act 
----------------------------------- 
 
¶7. (SBU) Tyurin said that, while the city and oblast expect 
things to get worse, they can do little more than talk about 
the crisis while "we wait for help from Kyiv."  A common 
lament in Dnipropetrovsk is that, as a large net donor to the 
national budget, DP should see more benefits from the 
national budget and more local authority to govern.  Instead, 
the current national/local government power structure leaves 
local governments weak, with little budgetary discretion to 
meet local needs.  Local government could provide local 
solutions to local problems, but budget constraints make it 
impossible to counter the negative consequences of the 
economic downturn at the local level.  Tyurin noted that the 
city had an anti-crisis plan in place, but it consisted 
primarily of "starting a dialogue" with employers, and 
limiting city expenses. 
 
¶8. (SBU)  According to Tyurin, the priority for local 
government is to continue salaries for police, teachers, 
medical personnel, and other local service agencies.  He 
predicted budget shortfalls in the second quarter that would 
jeopardize the city's ability to provide communal and other 
services, and make impossible any infrastructure 
improvements.  The Gorshenin Institute's Smirnov noted that 
civic organizations were stepping in to address issues that 
local government cannot or will not address, but said that 
such a system was not sustainable.  Smirnov concluded that if 
government worked, "the people wouldn't have to do it for 
themselves." 
 
Kyiv Disconnected from the Regions 
---------------------------------- 
 
¶9. (SBU) Tyurin said that DP was working through the 
Association of Ukrainian Cities to influence anti-crisis 
measures at the national level, but that "Kyiv politicians" 
do not pay much attention to the needs of the regions.  While 
both BYuT and Regions representatives touted their parties' 
strong connection to voters in DP, political analysts said 
that national politicians are disconnected from the reality 
in the regions, and that Ukraine's top down political system 
marginalizes voters and their concerns.  Vladyslav Romanov 
expressed disdain for national politicians that "fly in and 
fly out" without really getting to know local issues. 
 
Local Government Reform Needed 
------------------------------ 
 
¶10. (SBU) All interlocutors discussed the need for political 
reform to give more power to local government.  Romanov 
suggested that the economic crisis provided the opportunity 
to decentralize political power in Ukraine.  He argued that 
the system is not currently responsive to crises or the 
everyday needs of the people.  He said now was the time to 
try something new because "the results cannot be any worse" 
than the system we have now. 
TAYLOR