Russia signalled yesterday it was about to agree a loan deal with Ukraine to help its indebted neighbour stave off economic chaos and keep it in its former Soviet master’s orbit.
In snowbound Kiev, the opposition went ahead with plans for another big rally for today against what they see as moves by President Viktor Yanukovych to sell out national interests to Russia after he backed away from a landmark deal with the European Union that would have shifted their country westwards.
An aide to Russian President Vladimir Putin suggested a credit would be agreed at talks with Yanukovych in Moscow today, and Ukraine’s Energy Minister said a deal was also very probable on lower prices for Russian gas.
Yanukovych has turned to Moscow for money after spurning the chance of joining a free trade pact with the EU, despite the risk of protests against him swelling. He also visited China this month as he sought the best deal for his country. “The situation in Ukraine is now such that without loans, from one side or another, they will simply fail to maintain economic stability,” Andrei Belousov, an economic adviser to Putin, told Interfax news agency. “I do not rule out that, if there is a request, a credit could be provided (to Ukraine).”
Russia’s Finance Ministry confirmed talks on a loan were under way. Ukraine’s dollar bond prices rallied and debt insurance costs fell on the growing expectations Moscow could reach agreements with Kiev.
“I consider it a positive. A Russia deal is better for Ukraine in the short term as it is more likely Ukraine will get more financial support more quickly,” said Charles Robertson, emerging markets economist at Renaissance Capital.
Investors have fretted that without international support, Ukraine will struggle to repay debt that falls due next year.
Agreement today would also be seen in Moscow as a triumph for Putin keeping Ukraine in Russia’s political and economic orbit more than two decades after the Soviet Union collapsed, and preventing a historic Westward shift by Kiev.
Underlying the East-West tug-of-war that has emerged over Ukraine, Sweden’s Foreign Minister Carl Bildt accused Moscow yesterday of trying to woo Kiev with propaganda and “sometimes outright lies”.
His Russian counterpart Sergei Lavrov, meeting EU foreign ministers in Brussels, took a veiled swipe at the bloc by criticising “external intervention” as Ukraine considers its future. Divisions have emerged in Brussels over how to handle the issue. The EU’s enlargement chief said on Sunday the 28-nation bloc was halting work on a trade and political pact with Ukraine, suggesting the EU has lost patience with Kiev’s demands for financial aid, but other EU ministers later said the door remained open.
Ukraine is seeking help to cover an external funding gap of $17 billion next year – almost the level of the central bank’s depleted currency reserves.
Belousov did not say how much Russia, whose own economy is stuttering badly, would be ready to offer Ukraine. But sources in Ukraine said the deal could be worth $15 billion, with Russian providing about $3-5 billion up front.
The most Brussels has so far offered Ukraine is €610 million but EU officials are in discussion with the International Monetary Fund, the World Bank and other financial institutions on ways to help Ukraine.
Apart from loans, Ukraine is seeking a lower price for Russian gas – now at around $400 per 1,000 cubic metres – to help it cope with its debt burden.
Ukrainian Prime Minister Mykola Azarov says he hopes a deal on a cheaper price for gas deliveries will soon be concluded. A reduction of at least 10-15 per cent is likely, sources in Kiev said.