Bloomberg News

Ukraine Premier Bids to Calm East as Putin Presses Europe

April 11, 2014

Donetsk Protest

A pro-Russian militant guards a barbed wire covered barricade in front of the Donetsk regional administration building in Ukraine, on April 8, 2014. Photographer: Alexander Khudoteply/AFP via Getty Images

Ukraine’s premier sought to ease tensions among Russian speakers in the east demanding greater autonomy as President Vladimir Putin appealed to Europe to provide aid to the cash-strapped nation to ensure gas supplies.

Arseniy Yatsenyuk told reporters today in the city of Donetsk, where pro-Russian protesters have seized the local-government headquarters, that his administration in Kiev wants to give greater powers to the regions and to resolve the crisis that’s gripping the country as soon as possible.

Having annexed Crimea and deployed thousands of troops along the border, Putin has been ratcheting up pressure on Ukraine, threatening yesterday to halt gas shipments. Ukraine is dominating discussions at the spring meetings of the International Monetary Fund and World Bank, which started today.

Full coverage of the Crisis in Ukraine:

  • Ukraine Sees $7 Billion IMF Funding This Year
  • Miners Don Camouflage as East Revolt Mimics West
  • Putin Calls on Europe to Help Ukraine or Face Gas Transit Risk

“We need to maintain peace in our country and preserve its integrity -- this is the No. 1 task for today,” Yatsenyuk said. “The best recipe to ensure the nation’s integrity is to tell people that we know how to provide a better life for them tomorrow. We don’t have time to wait, we must act quickly.”

Russia’s gas export monopoly OAO Gazprom is supplying gas to Ukraine with little chance of receiving payments for more than $2.2 billion owed for fuel, Putin’s spokesman Dmitry Peskov told reporters today in Moscow, commenting on a letter from Putin yesterday to 18 European heads of state.

Putin’s Letter

“Russia cannot continue to bear such a burden all on its own,” Putin said today during a meeting with Security Council members outside Moscow. “Russia is being very careful in its action and is taking a very balanced and respectful line toward all of our partners. We most certainly guarantee that we will fulfil in full our obligations to our European gas customers.”

The European Union plans to help Ukraine pay its gas bill and there’s “no reason to panic” over shipments of the fuel, European Union Energy Commissioner Guenther Oettinger said in an interview with the Austrian radio station ORF.

“Political animosity and conflict over pricing make it probable that any disruptions will be protracted,” Eurasia Group analyst Alex Brideau said by e-mail. “Ukraine is likely to cut some of its gas imports from Russia due to the price dispute between the countries; this would place fall and winter gas deliveries to Europe at risk by compromising gas storage levels.”

Economy Slumps

Ukraine’s economy, which has endured two contractions since 2008, is already facing a recession the government says will cut 3 percent off gross domestic product this year. Its currency, the hryvnia, capped a fifth week of losses and has depreciated 35 percent in 2014 against the dollar, the worst performance among currencies tracked by Bloomberg. It tumbled to a record low of 13.61 per dollar today, before paring losses to trade 0.9 percent weaker at 12.71 by 8:24 p.m. in Kiev.

A Snapshot of Ukraine's Past and Future

The yield on Ukraine’s dollar bonds maturing in 2023 rose seven basis points to 9.49 percent, extending the five-day increase to 83 basis points.

Russia’s benchmark Micex Index (INDEXCF) slipped 0.4 percent to 1,362.40 in Moscow. The ruble weakened 0.3 percent to 41.8949 against the central bank’s target dollar-euro basket.

“The geopolitical situation is very volatile and in that environment it is not surprising that there is exchange-rate volatility” in Ukraine, IMF European Department Director Reza Moghadam said today in Washington.

Illegal, Illegitimate

U.S. Treasury Secretary Jacob J. Lew “emphasized that Russia’s ongoing occupation and purported annexation of Crimea is illegal and illegitimate,” with the U.S. prepared to “impose additional significant sanctions” if Russia continues to escalate tensions in Ukraine, the Treasury said in a statement after talks in Washington yesterday with his Russian counterpart, Anton Siluanov.

Hundreds of activists camped out at the seat of government in Donetsk, about 700 kilometers (440 miles) southwest of Kiev, are demanding a vote on greater autonomy. Similar movements in other heavily Russian-speaking cities in the east, Ukraine’s industrial heartland, have sprung up since the Russian-backed president, Viktor Yanukovych, was ousted in February.

“Those people in Kiev spat on us,” Roman Romanenko, the commander of the camp, said in an interview. “They think Ukraine is only western Ukraine and are ruling as they please.”

Donetsk’s mayor, Oleksandr Lukyanchenko, addressing reporters alongside Yatsenyuk, urged the holding of a referendum on decentralization alongside the presidential election scheduled for May 25.

Separatist Leanings

While only 8 percent of Ukrainians nationwide want their region to secede, in Donetsk province the figure is 18 percent, according to an opinion poll by the Kiev-based Democratic Initiatives Foundation. The creation of an independent state in southern and eastern Ukraine is backed by 11 percent, according to the March 16-30 survey conducted among 2,010 respondents in 24 Ukrainian regions including Crimea and the capital, Kiev.

Group of Seven finance ministers and central bankers had a “discussion of the situation in Ukraine, its financing needs and the international response,” they said in a statement after talks in Washington yesterday. The G-7 comprises the U.S., the U.K., Canada, France, Germany, Italy and Japan.

The IMF is looking to provide Ukraine with as much as $18 billion of financial aid. Managing Director Christine Lagarde told Bloomberg Television’s Tom Keene yesterday she has “overwhelming support” from members for the steps the lender is taking.

EU Aid

European Union foreign ministers will approve an aid package for Ukraine at talks April 14 that includes 1 billion euros ($1.4 billion) in financial assistance and trade concessions, the bloc said in a statement today.

While the U.S. and the EU have imposed some sanctions in the form of travel bans and asset freezes, Ukraine’s finance minister, Oleksandr Shlapak, said the moves were insufficient.

“You saw Russians are simply laughing because of the sanctions imposed by the U.S and Europe,” he told journalists in Washington. “Ukraine’s integrity has been broken. You promised to guarantee our unity when we gave up nuclear weapons. It is not right.”

The German government has deferred a decision on granting Russian export licenses to Airbus Group NV (AIR)’s defense and space arm following the annexation of Crimea, two people familiar with the negotiations said. The move puts on ice the sale of satellite technology worth as much as 700 million euros, said one of the people, both of whom asked not to be named because the deliberations are private.

Geneva Talks

The U.S., EU, Russian and Ukrainian foreign ministers will meet on April 17 in Geneva for talks, German government deputy spokeswoman Christiane Wirtz told a briefing in Berlin.

Russian Foreign Minister Sergei Lavrov today spoke with his U.S. counterpart, John Kerry, and called on the American side to use its influence to help avert the use of force in Ukraine and facilitate dialogue between the central government and representatives of the country’s southeast, according to a statement released by the ministry in Moscow.

A crackdown on protests in the regions would scuttle the prospect of any multilateral talks and cooperation over the Ukrainian crisis, the ministry said.

“We see a risk of further sanctions on Russia from the EU and the G-7,” Morgan Stanley economists Jacob Nell and Alina Slyusarchuk said in a research note. “We expect demonstrations and unrest to continue until presidential elections on May 25, with a potential peak of activity around the time of the important Soviet holidays of May 1 and May 9.”

To contact the reporters on this story: Volodymyr Verbyany in Donetsk, Ukraine, at vverbyany1@bloomberg.net; Daryna Krasnolutska in Washington at dkrasnolutsk@bloomberg.net; Elena Mazneva in Moscow at emazneva@bloomberg.net

To contact the editors responsible for this story: Balazs Penz at bpenz@bloomberg.net Paul Abelsky, Ben Holland


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