VZCZCXRO1366
RR RUEHDBU RUEHSL
DE RUEHKV #1920/01 3101353
ZNY CCCCC ZZH
R 061353Z NOV 09
FM AMEMBASSY KYIV
TO RUEHC/SECSTATE WASHDC 8741
INFO RUCNCIS/CIS COLLECTIVE
RUEHZG/NATO EU COLLECTIVE
RHMFISS/DEPT OF ENERGY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC

C O N F I D E N T I A L SECTION 01 OF 02 KYIV 001920 
 
SENSITIVE 
SIPDIS 
 
DEPT FOR EUR, EUR/UMB, EEB/OMA 
 
E.O. 12958: DECL: 11/05/2019 
TAGS: EFIN EREL ETRD PGOV PINR UP XH
SUBJECT: UKRAINE BUDGET MEASURE: A DARKER SHADE OF RED 
 
REF: A. KYIV 1916 
     ¶B. KYIV 1878 
     ¶C. KYIV 1835 
 
Classified By: Economic Counselor Edward Kaska for Reasons 1.4 (b) and 
(d) 
 
¶1.  (SBU) Summary.  The Rada (Ukraine's parliament) adopted 
amendments to the 2009 budget that will allow implementation 
of the so-called social standards law.  The move is likely to 
further destabilize Ukraine's partnership with the IMF, whose 
mission team had walked away from Kyiv in October, demanding 
that the law's increases for pension and wage increases not 
go forward.  Prime Minister Tymoshenko's BYuT faction 
abstained from voting on the budget amendment.  Her 
government will now face severe difficulties avoiding the new 
spending obligations.  Ukraine's growing budget deficit will 
not get much help from special IMF SDR allocations, already 
allotted to cover gas purchases from Russia during the 
balance of 2009.  End summary. 
 
BUDGET AMENDMENT PASSES, NEW GOU LIABILITY 
------------------------------------------ 
 
¶2.  (SBU) The Rada adopted a budget amendment on November 6 
that will allow for key elements of the so-called social 
standards law to take effect (Ref C).  The budget amendment 
served to raise Ukraine's subsistence minimum, thereby 
increasing minimum pension allotments and assistance 
payments.  The amendment did not include provisions for 
increasing public sector wages as envisioned in the social 
standards law.  Support for the budget amendment was 
consistent with previous voting on the social standards law 
(Party of Regions -- 169, BYuT -- 0, OU/PSD -- 33, CPU -- 25, 
Lytvyn Bloc -- 19, Non-Affiliated -- 0). 
 
¶3.  (SBU) The total cost to the 2009 budget envisioned by the 
law's sponsors is UAH 817 million ($100 million), though this 
estimation was a last minute downward revision made without 
clarification.  A previous, also hastily made cost estimation 
suggested the law would total UAH 1.2 billion ($146 million), 
including UAH 1.1 billion in new pension transfers and UAH 
100 million for additional assistance payments to the poor 
and disabled. 
 
¶4.  (SBU) Parliament Speaker Volodymyr Lytvyn was out of the 
Rada when the budget amendment proposal came up for a floor 
vote, apparently because he was meeting with visiting Belarus 
President Aleksandr Lukashenko.  In his absence, Deputy 
Speaker Oleksandr Lavronovych (Party of Regions) took up the 
gavel and allowed the budget amendment to be considered by 
the floor in one vote without Rada budget committee approval. 
 Because the Rada budget committee never voted to bring the 
budget amendment to the floor, BYuT deputy Oleh Lyashko was 
moved to claim that the amendment should not be considered 
valid. 
 
¶5.  (SBU) Yushchenko had submitted the amendment to the Rada 
budget committee earlier this week.  His justification for 
how the social spending law would be funded was based on 
unused allocations for domestic debt payments, totalling 
roughly UAH 3.3 billion ($400 million).  According to 
Yushchenko, Ukraine cancelled plans to issue certain 
short-term debt after it received IMF budget support. 
 
¶6.  (SBU) Although Party of Regions' deputies ultimately 
voted in favor of the budget amendment, some analysts 
believed a split had emerged in POR on this issue, with the 
pro-business wing suggesting the social spending increases 
would be bad for their interests and the economy as a whole. 
Shadow economy minister Iryna Akimova had even told one of 
our contacts last week that she opposed the social spending 
legislation. 
 
¶7.  (SBU) Prior to the budget amendment vote, Tymoshenko 
stated repeatedly that she opposed the social spending law, 
suggesting it would ruin the economy.  Her BYuT faction 
maintained strong voting discipline on the issue, again 
falling in line behind the Prime Minister on the November 6 
vote. 
 
LITTLE RECOURSE FOR THE PM 
-------------------------- 
 
¶8.  (SBU) The social spending legislation can now legally 
take effect, as the minimum subsistence level has been reset 
 
KYIV 00001920  002 OF 002 
 
 
by an amendment to the budget law.  Tymoshenko's primary 
avenue for blocking the budget amendment (and thus the social 
spending legislation) is gone, since the Rada budget 
committee was bypassed and her faction did not protest the 
vote on the Rada floor by blocking the rostrum. 
 
¶9.  (SBU) The budget amendment is now awaiting the 
President's signature.  There is no pocket veto in Ukraine. 
The only way to block this would be for the President to 
expressly veto his own budget amendment. 
 
¶10.  (SBU) Even if Tymoshenko were to try to block the law by 
legal means, such as through a Constitutional Court hearing 
or an injunction, it is unclear whether such an action would 
bear fruit.  If the Constitutional Court took up the case, 
most analysts believe it would almost certainly rule in favor 
of implementation.  An appeal to the Court could take up to 
four months, however, with one month (maximum) for the Court 
to decide whether it would hear the case and three months 
(maximum) for a decision to be made. 
 
¶11.  (SBU) In the meantime, even if an appeal were to be 
filed with the Constitutional Court, the social spending law 
would still take effect.  Tymoshenko could seek a temporary 
injunction, but it is unclear which lower court would have 
jurisdiction over such a matter.  (Note: Competing 
jurisdictional primacy is a wholesale problem throughout the 
country's legal system.  End note.) 
 
¶12.  (SBU) Up until the vote in the Rada on November 6, 
Tymoshenko could have admitted that 2009 budget targets had 
not been met (i.e. that revenues had fallen behind 
expenditures), something she has not yet done publicly.  By 
making such a public statement, she would have taken away the 
President's argument that there was money available for the 
social spending law and a revised budget. 
 
¶13.  (SBU) Tymoshenko could still decide to underfund 
articles in the amended budget that relate to pensions and 
assistance transfers.  She would need to instruct the state 
treasury not to pay any budget increases, but this would lead 
to wage and pension arrears that the GOU would ultimately be 
legally obliged to pay. 
 
IMF SDR ALLOCATION -- ONLY ENOUGH FOR GAS 
----------------------------------------- 
 
¶14.  (SBU) Tymoshenko will not be able to count on the IMF 
SDR allocation (Ref A) for her now growing budget deficit. 
Most observers speculate that Ukraine's October-December gas 
purchases from Russia will equal short of $2 billion, nearly 
the amount available to Ukraine through the SDR program. 
 
¶15.  (U) According to his official website, President 
Yushchenko told European Commission President Barroso over 
the phone that he had instructed the National Bank of Ukraine 
(NBU) to cooperate with the IMF on the transfer of SDR funds 
to the GOU treasury.  As the government's banker, the NBU 
would act to transfer the money from the treasury, likely to 
a state-owned bank such as Oshchadbank or UkrExIm, which 
would then lend to Naftohaz. 
 
COMMENT 
------- 
 
¶16.  (C) Out of money for her budget, and with a new spending 
obligation that the IMF staunchly opposes (Ref B), 
Tymoshenko's back is against the wall.  The Prime Minister 
will likely attempt to file an injunction against the budget 
amendment or the social standards law itself, while 
simultaneously appealing to the Constitutional Court.  A 
zealous approach of this kind would be risky in the run up to 
the presidential election, as Regions already stands to 
capitalize from BYuT's opposition to the spending increase. 
 
PETTIT