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Russia warns Ukraine over bailout

Russia warns Ukraine over bailout

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Published : 2014-02-06 20:03
Updated : 2014-02-06 20:03

KIEV (AFP) ― Russia warned protest-hit Ukraine on Wednesday that its huge bailout was dependent on Kiev‘s commitment to earlier promises made to Moscow, ahead of key talks between President Vladimir Putin and his Ukrainian counterpart Viktor Yanukovych.

Moscow’s stern statement came as EU foreign policy chief Catherine Ashton was in Kiev to offer support for democratic reforms demanded by the opposition who have spearheaded two months of mass protests that have led to the resignation of Ukraine’s entire cabinet.

But she also offered a downbeat assessment of the situation after meeting Yanukovych and opposition leaders.

“I really need to feel a growing sense of momentum on this. We still need a lot more work,” she told reporters.

Ukraine’s unrest erupted in November after Yanukovych rejected an association agreement with the European Union in favour of closer ties with Moscow, and the turmoil has now become an all-out movement to oust him.

In a bid to end the crisis, the president has already scrapped controversial anti-protest laws and dismissed the government but protesters on the streets are demanding early elections and Yanukovych’s departure.

Ratcheting up the pressure, Putin’s spokesman Dmitry Peskov told Kommersant FM radio that Russia was awaiting the appointment of a new prime minister in Ukraine before releasing the next installment of a $15-billion bailout package.

“Of course, it will take some time before the new Ukrainian head of government is able to explain to Moscow how much he intends to keep to the previously-declared course,” Peskov said.

He also said Ukraine‘s gas debt ― estimated by Russian giant Gazprom this week at $3.3 billion ― was “growing very fast.”

Peskov’s comments jarred with Putin‘s statement to EU leaders last week that Russia would honor the terms of the bailout no matter who came to head the government in Kiev next.

So far only $3 billion of the bailout have been transferred to Ukraine’s economy, which is struggling to recover from a recession and is being badly hit by capital flight and currency devaluation during its prolonged crisis.

Former Prime Minister Mykola Azarov and the entire cabinet stepped down last month under opposition pressure and Yanukovych has 60 days to name a new government.

Yanukovych’s Regions Party on Wednesday said the nomination could come next week, while nationalist opposition leader Oleg Tyagnybok said it could happen as early as Thursday.

Amid growing international calls for an end to the protests that have claimed several lives and injured 500 people, Yanukovych is due to attend the opening ceremony of the Winter Olympics in Sochi on Friday, where he will hold talks with Putin.

Speaking in Kiev, the EU’s Ashton meanwhile said a “Ukrainian-led” solution was still “entirely practical and possible.”

She said Brussels would support an inquiry into alleged abuses during the protests and advise on constitutional reforms the opposition has demanded to curb presidential powers.

Ashton also said Brussels was ready to provide financial support to debt-laden Ukraine but stressed that economic reform conditions would be attached. “This is not about large dollops of money,” she said.

The opposition has called for a “Marshall Plan” for Ukraine ― a reference to massive U.S. aid for Europe after World War II ― that will at least match the bailout amount offered by Russia.

But European Commission president Jose Manuel Barroso has ruled out a “bidding competition” with Russia.

The crisis has seen the Ukrainian hryvnia slump and one banker said residents had begun to “panic” and were scrambling to move their savings into other currencies, while businesses have been exporting capital out of the country.

The hryvnia fell to 9.40 to the dollar during trading on the interbank market on Wednesday, from a rate of around 8.0 just last month.

“There is no political solution going forward so it’s quite clear that the panic has started,” said Dmytro Sologub, an economist at Raiffeisen Aval Bank, adding that the central bank “has low reserves and is not supporting” the currency.

Buoyed by support from Western dignitaries, the opposition has accused Yanukovych of dragging his feet in the worst crisis in Ukraine’s history since the fall of the Soviet Union.

“The political crisis continues,” boxer-turned-opposition-leader Vitali Klitschko said in parliament as lawmakers again failed to strike a deal on reducing presidential powers. “People in the streets are waiting for a solution. If we don‘t agree on it, there will be a new wave of escalating tensions,” he said.

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