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Kerry’s Kiev Visit Puts Him on Diplomatic Front Lines

March 04, 2014

U.S. Secretary of State John Kerry

U.S. Secretary of State John Kerry addresses the American Israel Public Affairs Committee (AIPAC) policy conference in Washington D.C. on March 3, 2014. Photographer: Nicholas Kamm/AFP/Getty Images

U.S. Secretary of State John Kerry arrived today in Kiev promising to guarantee $1 billion in loans to Ukraine’s embattled leaders as President Barack Obama challenged Russian President Vladimir Putin’s assertion of a right to intervene militarily.

Putin said today that he saw no immediate need to invade eastern Ukraine, while maintaining that a request from ousted President Viktor Yanukovych would justify doing so.

“President Putin seems to have a different set of lawyers making a different set of interpretations, but I don’t think that’s fooling anybody,” Obama told reporters in Washington today. “I think everybody recognizes that, although Russia has legitimate interests in what happens in a neighboring state, that does not give it the right to use force as a means of exerting influence inside of that state.”

U.S. sanctions such as travel and asset bans on Russian individuals and institutions are likely within days if Russia doesn’t de-escalate its actions in Ukraine and return its forces to barracks, according to U.S. officials traveling with Kerry who spoke on condition they not be named because the penalties aren’t final.

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At the same time, the Obama administration is working with Congress to provide $1 billion in loan guarantees that would help cushion the effects of reduced energy subsidies on Ukrainian citizens, according to a White House statement.

Technical Assistance

It’s also “moving quickly” to deploy more financial and technical assistance to help Ukraine withstand “politically motivated trade actions by Russia,” Treasury Secretary Jacob J. Lew said in a statement released in Washington.

Kerry’s trip to Kiev is meant to underscore U.S. support for a Ukrainian government that came to power in a popular uprising, and to provide concrete assistance to help the fledgling administration prevail in the face of intimidation from its giant neighbor to the east.

Ukraine also is becoming a test of whether Western economic and diplomatic weapons -- including sanctions -- can have much impact on Putin, who has sent military forces into Crimea and threatened to intervene elsewhere in Ukraine in the name of protecting ethnic Russians.

A Snapshot of Ukraine's Past and Future

In his first public remarks since Russian forces took control of the Crimean peninsula in southern Ukraine, Putin reserved the right to use force to protect ethnic Russians. There’s “no such necessity” at present, he told reporters at his residence near Moscow today.

Russian Economy

Matthew Rojansky, director of the Kennan Institute at the Wilson Center, a Washington policy group, said non-military pressure on Putin could be effective.

“The last decade has been a story of Russia’s economic growth as it becomes a fully integrated part of the international economy,” he said in a telephone interview. “The flip side is that Russia can’t act without seeing the effects on the Russian economy.”

Rojansky pointed to the “massive devaluation of the ruble, the massive slide on the stock market” and said “it can get much worse” if the U.S. and EU decide to freeze the assets of Russian companies.

Russia raised its main interest rate the most since 1998 as its currency plunged to a record low and investors pulled money from the stock market on tensions over Ukraine.

After plunging 11 percent yesterday, Russia’s Micex (INDEXCF) stock index reversed some of those losses and rose 5.3 percent today.

Currency Gained

Ukraine’s hryvnia gained 7.1 percent to 9.1 per dollar, while the yield on the government’s dollar debt due 2023 fell 89 basis points to 9.65 percent, data compiled by Bloomberg show.

The U.S. will advise the National Bank of Ukraine and the Finance Ministry on market pressures and on how to overhaul its energy industry, according to the American officials. They also are preparing to provide technical advice on Ukraine’s rights in the World Trade Organization in the face of expected pressure from Russia, according to a U.S. government fact sheet.

The U.S. and allies already have halted preparations for the Group of Eight summit planned for June in Sochi, Russia. The U.S., the U.K., Canada, France, Germany, Italy and Japan condemned in a statement Russia’s “clear violation of the sovereignty and territorial integrity of Ukraine.”

Military Suspension

Kerry said in a March 2 appearance on CBS’s “Face the Nation” that Russia risked being expelled from the G-8.

The Pentagon suspended military ties with Russia because of the crisis, a move that affects military exercises, bilateral meetings, port visits and planning conferences, Navy Rear Admiral John Kirby said yesterday in a statement. The U.S. also halted bilateral trade and investment talks with Russia, Trevor Kincaid, a spokesman for the U.S. Trade Representative’s Office, said yesterday in an e-mail.

The U.S. evacuated all Peace Corps volunteers from Ukraine, Maureen Knightly, a spokeswoman for the service corps, said in an e-mail. More than 200 volunteers were in the country.

Charles Kupchan, a professor at Georgetown University in Washington, said nothing the West can do including isolating Russia diplomatically -- by suspending the G-8 summit and a NATO-Russia Council -- and boosting North Atlantic Treaty Organization engagement on the alliance’s eastern frontier is likely to reverse Putin’s course.

‘Really Moved In’

“None of those are sufficiently potent to get Putin out,” Kupchan said on a conference call with reporters yesterday. “Unfortunately he has really moved in, in a big way in the last 48 hours.”

Obama urged Congress to back approval of an “economic package that can stabilize the economy in Ukraine.”

U.S. Senator Bob Corker, the top Republican on the Senate Foreign Relations Committee, has offered a proposal that would authorize measures aimed at isolating Russia internationally and promoting a democratic transition in Ukraine, according to an aide to the Tennessee lawmaker.

The aide, who asked not to be identified to discuss private talks among lawmakers, said Corker hoped his plan could provide the basis for bipartisan negotiations in both the House and Senate on legislation that could be introduced as soon as this week and considered by the Foreign Relations panel as soon as March 11.

‘Targeted Sanctions’

Corker’s proposal drew upon items outlined in a Feb. 28 letter to Obama, in which Corker and 11 other committee members endorsed loan guarantees to Ukraine as well as “targeted sanctions; and asset recovery targeting corruption.”

European Union President Herman Van Rompuy yesterday called a March 6 emergency EU summit, where leaders may debate measures to punish Russia if it doesn’t ease the crisis.

European foreign ministers “strongly condemned” Russia’s moves in Crimea. “In the absence of de-escalating steps by Russia, the EU shall decide about consequences for bilateral relations between the EU and Russia,” including suspending talks to deepen trade ties and ease European travel for Russian citizens as well as “further targeted measures,” the ministers said in a statement yesterday.

A range of diplomatic and economic measures would have a damaging impact on Russia, even considering that it holds about $500 billion in foreign reserves, Rojansky said in a phone interview.

Even so, Rojansky said he doubts that Putin will back down because Ukraine is essential to his vision of a Eurasian Union as a counter to the European Union and because his personal authority is intertwined with that project.

Putin’s Reputation

“His reputation of a man who sets out a goal and delivers is the underpinning of his authority in Russia,” he said.

The U.S. has to be careful not to overstate its commitments in Ukraine because “we do not have a lot of levers we can pull” to influence Russia, said Sean Kay, a professor of international relations at Ohio Wesleyan University who specializes in Europe.

“We have at best peripheral interests in Ukraine,” Kay said in a phone interview. “The Russians have vital interests in Ukraine. There are dangers of creating false promises of what we might be able to do in Ukraine.”

To contact the reporters on this story: Terry Atlas in Washington at tatlas@bloomberg.net; Nicole Gaouette in Washington at ngaouette@bloomberg.net; Indira A.R. Lakshmanan in Kiev at ilakshmanan@bloomberg.net

To contact the editor responsible for this story: John Walcott at jwalcott9@bloomberg.net


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