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Ukraine Officials Scour Globe for Cash as Protests Build

December 04, 2013

Anti-government Protesters

Protesters look out over an anti-government rally in Independence Square in Kiev, Ukraine on Dec. 3, 2013. Photographer: Brendan Hoffman/Getty Images

Ukraine’s opposition will hold talks tomorrow with President Viktor Yanukovych’s party after thousands of people joined protests against his rejection of a European Union trade pact that paralyzed Kiev.

Opponents of Prime Minister Mykola Azarov stepped up calls for the administration to resign, demanded demonstrators not be prosecuted and urged the arrest of police who have used violence. They also said 10 protesters are missing and asked the prosecutor’s office to investigate.

“We are widening our protests,” said Arseniy Yatsenyuk, the head of jailed ex-Premier Yulia Tymoshenko’s party at a news conference today in Kiev. “After talks in parliament today, the prospect of which didn’t look very good, we announced a political package.”

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Demonstrations have escalated against Yanukovych’s rejection of the EU agreement in favor of closer ties with Russia. The Interior Ministry said more than 20,000 people were in downtown Kiev at 6:30 p.m. local time. Ukraine, an essential energy transit route between Russia and the EU, is seeking financial aid as its economy struggles to exit a third recession since 2008 and its foreign reserves languish at the lowest level in seven years.

Flanked by the biggest protests in almost a decade, Ukrainian officials are holding talks in Beijing, Moscow and Brussels to drum up economic backing.

Maturing Debt

Ukraine is running out of options to repay $15.3 billion of maturing debt. Yields on its dollar-denominated bonds due 2023 declined after rising for six straight days, to 10.585 percent as of 6:30 p.m. in Kiev today from 10.596 percent yesterday, data compiled by Bloomberg show. The hryvnia fell 0.3 percent to 8.2450 per dollar, to the lowest since Nov. 2009.

Russia and the EU are jostling for influence over the formerly Soviet nation of 45 million. Russia supplies 60 percent of Ukraine’s gas, while the EU and Russia each buy a quarter of Ukraine’s exports.

Ukraine’s NAK Naftogaz owes $2.02 billion for three months of gas supplies, OAO Gazprom Chief Executive Officer Alexey Miller said today, adding that Gazprom is holding talks on the debt.

“I’ll stay here until Yanukovych resigns and Azarov and his ministers resign; until Ukraine signs the association agreement,” Oleksandr Yaremen, 30, who works at a school in the western town of Kosiv, said in an interview on Independence Square. “Kids were beaten here and it was the last straw.”

Force Banned

Interior Minister Vitaliy Zakharchenko was cited by Interfax today as saying he’d banned the use of force against protesters. A police crackdown four days ago left more than 150 people injured and at least 265 people were hurt on Dec. 1 around the presidential administration building.

As the square filled in the evening with people arriving after work, stalls dispensed cheese and ham sandwiches, soup and hot tea amid sub-zero temperatures. Some protesters, sitting on makeshift benches made of scrap wood and logs, kept warm by lighting fires inside metal barrels.

Yanukovych is lobbying in China for investments and loans, while delegations are in Russia and will travel to Brussels, according to Prime Minister Mykola Azarov. The 65-year-old premier pledged cabinet changes yesterday after surviving a no-confidence vote that prompted tens of thousands to march to the presidential palace in the capital, Kiev, to demand the government be fired.

Can’t Borrow

“Today’s political crisis mirrors the economic crisis,” Alexander Valchyshen, head of research at Investment Capital Ukraine in Kiev, said yesterday by phone. “The economic situation is really bad -- Ukraine can’t borrow on the international market. Money could come from either China or Russia.”

Franklin Resources Inc.’s biggest funds ramped up their bet on Ukraine by more than $1.4 billion in the third quarter, adding to the asset manager’s status as the country’s largest international bondholder.

Yanukovych said his China trip is crucial for economic growth and that several deals are being readied, including on investments. Twenty agreements have been prepared for signing including on energy, aviation and farming, Interfax reported. Ukraine may get as much as $1 billion in loans from China next year, Halyna Pakhachuk, head of the Finance Ministry’s debt department, said Oct. 31. Pakhachuk yesterday said by phone that it’s too early to comment on the size of a potential deal.

In Beijing, Chinese Foreign Ministry spokesman Hong Lei said “China has started a great deal of cooperation with Ukraine. This cooperation will boost Ukraine’s economic and social development.”

China Message

“Yanukovych going to China is his way of telling the protesters that he doesn’t have to deal with them,” Joerg Forbrig, senior program officer for Central and Eastern Europe at the Berlin bureau of the German Marshall Fund of the United States, said in a phone interview.

“The opposition and protesters are lacking some orientation and direction,” he said. “The next 24 to 36 hours will show us where it’s all going but I think it may peter out.”

Yuriy Boyko, Ukraine’s former energy minister, traveled to Moscow today and met Russian Premier Dmitry Medvedev and First Deputy PM Igor Shuvalov, Interfax reported. Russian Foreign Minister Sergei Lavrov, speaking in Brussels, warned against external involvement in Ukraine’s crisis which he termed and “internal matter.”

Central Bank Deputy

Ukrainian Deputy Central Bank Governor Mykola Udovychenko will lead a delegation traveling to Brussels this week for talks with the EU, the government said on its website. Talks will continue next week and be followed by a political decision on a road-map with the requirements from both sides aimed at ultimately signing a deal, the government said.

The president said Dec. 2 that he’d still consider a treaty with the EU as long as some areas of the proposed accord are changed to help protect Ukrainian interests. The EU couldn’t confirm the timing of the Ukrainian officials’ trip.

After yesterday’s failed no-confidence vote, opposition members in parliament will have to wait until February to try again. Only one no-confidence vote is allowed per parliamentary session. The current session ends on Jan. 17 and the next session starts Feb. 3.

Stefan Meister, an analyst at the European Council on Foreign Relations in Berlin, said the EU had made missteps in its offer to Ukraine.

EU Missteps

“The EU totally underestimated the internal dynamics in Ukraine,” Meister said in a phone interview. “They thought that simply offering a trade deal was enough. Yet the carrot they offered didn’t have the quality to the Ukrainian elites that they thought it would.”

Meister said that demanding the immediate release of Tymoshenko had been “a mistake.”

“Why did they take such a hard line on Tymoshenko?” he said. “She’s a highly problematic politician and there are so many other opposition figures in prison. Simply letting Tymoshenko free would be a big problem for Yanukovych before the 2015 elections and he won’t do it.”

Prime Minister Azarov, who yesterday pledged to shuffle his cabinet, told a weekly meeting of government officials today in Kiev that he will send proposed changes to the president and that while he was ready for dialog with the opposition, the reason for the protests had been taken care of.

‘Held Responsible’

“Those who didn’t gain society’s trust and who made mistakes will have to be held responsible,” he said.

Forbrig said cabinet changes would be largely meaningless.

“At the end of the day, it’s a very centralized power system and the government is not independent but rather under control of the president,” he said.

Organization for Security and Cooperation in Europe foreign ministers will meet tomorrow in Kiev. Among those attending will be German Foreign Minister Guido Westerwelle and Polish Foreign Minister Radek Sikorski. U.S. Secretary of State John Kerry is skipping the meeting and will instead visit Moldova.

To contact the reporters on this story: Daryna Krasnolutska in Kiev at dkrasnolutsk@bloomberg.net; Kateryna Choursina in Kiev at kchoursina@bloomberg.net; Ott Ummelas in Tallinn at oummelas@bloomberg.net

To contact the editors responsible for this story: James M. Gomez at jagomez@bloomberg.net; Balazs Penz at bpenz@bloomberg.net


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