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Putin Is Expected to Offer Ukraine a Financial Lifeline
(about 3 hours later)
KIEV, Ukraine — The possibility of Ukraine’s joining Russia’s customs union with Belarus and Kazakhstan will not be discussed when President Viktor F. Yanukovich meets with President Vladimir V. Putin of Russia in Moscow on Tuesday, officials from Ukraine and Russia said Monday.
KIEV, Ukraine — President Vladimir V. Putin of Russia is likely to offer some form of desperately needed financial assistance to Ukraine when he meets Tuesday in Moscow with the country’s embattled president, Viktor F. Yanukovich, according to officials in Russia and Ukraine, as well as leaders of the anti-government protest movement here.
Statements by the officials seemed aimed at avoiding further antagonism of thousands of protesters who remain camped on the streets here in the capital.
In statements that seemed aimed at avoiding further antagonism of the thousands of protesters who remain camped on the streets here, officials in Kiev and Moscow stressed that the possibility of Ukraine joining Russian’s customs union with Belarus and Kazakhstan would not be discussed at the meeting.
Ever since Mr. Yanukovich balked at signing far-reaching political and free trade agreements with the European Union last month, demonstrators have expressed fear that he will join the customs union, increasing Russia’s leverage over Ukraine and precluding for the foreseeable future any possibility of reviving the accords with Europe.
At the same time, the increasing likelihood that Russia — not the West — would bolster Ukraine, which is facing a severe economic crisis, was being viewed as a potentially significant turning point in the now more than three-week-old civil uprising here.
Ukraine is facing an increasingly severe economic crisis and is in urgent need of a financial rescue package. Talks with the International Monetary Fund broke off weeks ago, and though Western officials have said they still hope to help Ukraine, Mr. Yanukovich has focused his efforts on seeking aid from Russia.
While injecting any money into Ukraine would be risky given the current political chaos, it would allow Russia to claim victory in its tug-of-war with Europe for influence over Ukraine. And by not requiring Mr. Yanukovich to publicly commit to the customs union — essentially a free-trade zone across a large section of the former Soviet Union — Mr. Putin could reinforce his claim that Europe, not Russia, was putting unfair pressure on Ukraine.
Even as officials said talk of the customs union was not on the agenda, a senior economic aide to Mr. Putin, Andrei Belousov, suggested on Monday that Russia was prepared to throw Ukraine a financial lifeline. Inevitably, that will raise questions about what the Kremlin ultimately expects in return.
Protest leaders, and some members of Parliament said they expected that any offer of Russian assistance would most likely be accompanied by major changes at the highest levels of the Ukrainian government, possibly including the dismissal of four or more cabinet ministers.
“The situation in Ukraine right now is such that without the provision of some sort of loans from someone or other they simply won’t be able to maintain economic stability,” Mr. Belousov told the Interfax news agency in Moscow.
While those ministers would almost certainly be replaced by others loyal to Mr. Yanukovich, the changes could sap energy from the protest movement by making it seem as if the demonstrators had achieved their goal of ousting cabinet members, especially those responsible for recent police violence.
“I don’t rule out that a loan will be extended if there is such a request,” he said.
“The scenario is true,” said Viktoria Syumar, a civic activist and one of the organizers of the protest movement. “So be it. The square will not disperse, but there will be less support in Kiev. The opposition will lose support.”
A meeting early this month between Mr. Yanukovich and Mr. Putin in Sochi, a Russian Black Sea resort city, animated the protesters here with rumors of secret deals on joining the customs union. Officials in each country denied those rumors, and on Monday, Russia’s minister of economic development issued a categorical denial that the customs union would be discussed on Tuesday.
A senior economic aide to Mr. Putin, Andrei Belousov, also indicated Monday that Russia was prepared to throw Ukraine a financial lifeline. Inevitably, that will raise questions about what the Kremlin ultimately expects in return.
Asked at a news conference if Ukraine’s possible entry into the customs union would be discussed, the minister, Alexei Ulyukayev, replied: “No. We have already said that is a big and difficult job.”
“The situation in Ukraine right now is such that without the provision of some sort of loans from someone or other they simply won’t be able to maintain economic stability,” Mr. Belousov told the Interfax news agency in Moscow. “I don’t rule out that a loan will be extended if there is such a request,” he said.
The customs union is essentially a free trade zone across a large section of the former Soviet Union, allowing goods to travel across borders without clearing customs. Citizens of a member country can work legally on the territory of any other member.
Protest leaders in Ukraine have called for a major rally again in Kiev on Tuesday as a sort of vigil against Mr. Yanukovich cutting a secret deal with Russia.
In recent months, Kyrgyzstan and Armenia have committed to joining the customs union. Armenia had been in negotiations with the European Union, but after a meeting with Mr. Putin in Moscow in September, the Armenian president, Serzh Sargsyan, abruptly announced that his country would join with Russia instead.
Ever since Mr. Yanukovich balked at signing far-reaching political and free trade agreements with the European Union last month, demonstrators have expressed fear that he would join the customs union, increasing Russia’s leverage over Ukraine and precluding for the foreseeable future any possibility of reviving the accords with Europe.
Here in Kiev, a statement by Mr. Yanukovich’s office said that he and Mr. Putin would discuss bilateral cooperation on a broad range of issues, including trade, energy, aviation and space, nuclear power, transportation and humanitarian aid, with “special attention” to the “further development of cross-border cooperation between Ukraine and Russia.”
In recent months, Kyrgyzstan and Armenia have committed to joining the customs union, which would allow goods to cross borders without clearing customs and permit citizens of a member country to work legally in the territory of any other member.
A deputy foreign minister, Andrei Olefirov, told reporters that a number of documents would be signed, but that they “in no way are concerned with” Ukraine’s joining the customs union.
Armenia had been in negotiations with the European Union, but after a meeting with Mr. Putin in Moscow in September, the Armenian president, Serzh Sargsyan, abruptly announced that his country would join with Russia instead.
The Kremlin had exerted heavy pressure to persuade Ukraine to scuttle the accords with the European Union, and Russian officials have long pushed the customs union as an alternative to closer economic ties with the West.
While Ukraine’s economic crisis has grown more severe, talks with the International Monetary Fund broke off weeks ago. And though Western officials have said they still hoped to help Ukraine, Mr. Yanukovich has focused his efforts on seeking aid from Russia.
Many Ukrainians have said they viewed accords with Europe as a key to a better political and economic future for the country, and Russia’s customs union as a step back to the days of the Soviet Union.
A meeting this month between Mr. Yanukovich and Mr. Putin in the Russian Black Sea resort city of Sochi, where the Winter Olympics will be held early in the new year, animated the protesters here with rumors of secret deals on joining the customs union.
Given the intense opposition to Russian influence over Ukraine, officials here have tried to tamp down any assertions of a secret deal with the Kremlin.
Officials in each country denied those rumors, and on Monday, Russia’s minister of economic development issued yet another categorical denial that the customs union would be discussed on Tuesday.
At the same time, Ukraine’s severe economic problems and its need for a rescue package are well known. Experts say the country will need as much as $18 billion in support to avoid a default in the coming months, and there was little expectation that Russia would be willing to provide such assistance without receiving some benefits in return.
Asked at a news conference if Ukraine’s possible entry into the customs union group would be discussed, the minister Aleksei Ulyukayev replied: “No. We have already said that is a big and difficult job.” Any assistance from Russia, however, will inevitably raise questions and suspicious about what the Kremlin ultimately will receive in return.
For weeks, Mr. Yanukovich had sought to continue dancing between Europe and Russia, insisting that while he was intent on restoring good economic relations with Moscow, it was also inevitable that Ukraine would ultimately move closer to Europe.
A senior European Union official, Stefan Fule, finally seemed to put an end to such speculation over the weekend, by saying that talks over potentially reviving the accords with Ukraine had broken off.
His statement was widely seen as eliminating any leverage Mr. Yanukovich might have in seeking a better deal from Russia, and also making clear to the Kremlin that it could find itself alone in providing aid — a risky venture given the severity of Ukraine’s economic woes.
The International Monetary Fund had been in talks with Ukrainian officials for months over the possibility of an assistance package. Those talks ended, however, when Ukrainian officials said they viewed the terms — including painful austerity measures and macroeconomic reforms — as too onerous.
In exchange for aid, the monetary fund had demanded a number of tough steps, including the end to energy subsidies for households that now eat up about 7.5 percent of Ukraine’s annual economic output.
“Low gas and heating tariffs for households cannot be maintained any longer,” Jerome Vacher, the I.M.F.'s representative in Ukraine, told the newspaper Zerkalo Nedeli in a recent interview. To buffer an increase in rates, the fund proposed subsidies for as much as 40 percent of Ukraine’s 46 million people.
The fund had urged Mr. Yanukoivch to limit increases in government spending, hold public sector wages steady and limit pension increase to the rate of inflation. All of those steps would serve to cut off the sort of government largess that can play well with voters.
The European Union’s ambassador to Ukraine, Jan Tombinski, said the fund had been right to continue demanding reforms and added that the European Union had done everything possible to persuade Ukraine to sign the accords.
“What will happen, with not signing of the association agreement?” Mr. Tombinski said, referring to the accords with Europe. “Will it increase the possibilities to conclude the deal with the I.M.F.? No. Will it help Ukraine to keep its rating in financial markets? No. Will it help Ukraine to attract investment? No. Will it help the Ukrainian economy to be more competitive? No.”
Senior I.M.F. officials were scheduled to discuss Ukraine’s situation at a board meeting in Washington on Monday. Some officials have said that Ukraine’s poor record in implementing reforms demanded in conjunction with earlier assistance from the fund had limited the flexibility on terms going forward.
Still, Western officials have seemed eager to find a way to help Ukraine get through its economic crisis. The political chaos has only added to the financial problems, with borrowing costs spiking to record highs and the currency, the hryvnia, under pressure that has required the central bank to intervene and provide support.
