Ukraine Seeks $35 Billion as Russia Questions Legitimacy
Ukraine replaced its central bank chief as it scrambles to fend off default, while Russia condemned the interim leadership, questioning its legitimacy.
The temporary government in Kyiv said it needs $35 billion of financial assistance, while the U.S. and the European Union pledged aid for a new administration. Russia’s Foreign Ministry said deposed President Viktor Yanukovych’s opponents broke a Feb. 21 peace agreement and set the country on a course for “dictatorial, terrorist methods.”
With Kremlin-backed Yanukovych on the run from an arrest warrant, leaders of the protest movement are facing a contentious period after Russia halted payments from a $15 billion bailout. An international aid package is taking shape as demonstrators control Kyiv, while the positioning has started for early presidential elections scheduled for May 25.
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“The economic and political challenges that Ukraine faces are enormous,” Lubomir Mitov, chief economist for emerging Europe at the Institute of International Finance, which represents more than 400 institutions globally, said on a conference call with reporters today. “To avoid a complete collapse in the coming weeks, Ukraine needs money now.”
While a new government needs to be established before Ukraine can receive aid, the first payments may arrive next week, Elmar Brok, the head of the European Parliament’s foreign affairs committee, told reporters in Kyiv today.
Bonds Gain
Ukrainian assets have benefited from the momentum for financial aid, with the yield on the government’s dollar bond maturing in 2023 falling 93 basis points, or 0.93 percentage point, to 9.26 percent, the lowest since Jan. 28. The UX Index of stocks soared 15 percent, the most since May 2010.
The Cause of Unrest in Ukraine
Acting Finance Minister Yuriy Kolobov proposed calling an international conference of donors with the EU, the U.S. and other countries, according to the statement. The $35 billion financing package is needed for this year and next, the ministry estimated.
The EU has been working on an international economic support package for Ukraine for the short, medium and long term, European Commission spokesman Olivier Bailly said today. Bailly said he isn’t “personally aware” of a donor conference being organized.
Premier Candidates
Mykola Tomenko, a member of former Prime Minister Yulia Tymoshenko’s Batkivshchyna party, said she was a candidate for the premiership, along with party leader Arseniy Yatsenyuk and billionaire ex-Economy Minister Petro Poroshenko. Tymoshenko, who was imprisoned more than two years ago for abuse of power, later ruled out the role for herself, as did Vitali Klitschko, who heads the UDAR party.
Lawmakers appointed Stepan Kubiv, the ex-chairman of Lviv-based VAT Kredobank, to head the central bank after voting out Ihor Sorkin. The monetary authority this month introduced capital controls to halt the hryvnia’s slide after the currency fell to a five-year low against the dollar.
“The new government’s task is to stop the country’s slide, to stabilize the currency rate, to ensure timely salary and pension payments, to win back investors’ trust and to create new jobs,” Parliament Speaker Oleksandr Turchynov, handed presidential powers, said today. “Another priority is to return to the European integration path.”
The Yanukovych administration in 2012 started negotiations for a $15 billion International Monetary Fund bailout, the country’s third since 2008. Talks stalled as the government rejected demands by the Washington-based lender to cut household heating subsidies. The fund’s most recent mission left Kyiv in October, when the two sides said discussions were continuing.
Treasury ‘Robbed’
Ukraine needs to renew the program immediately after its Treasury was “robbed,” Yatsenyuk, the head of Tymoshenko’s party, said at a parliamentary committee meeting today. The new government will ready for “unpopular, but necessary reforms,” according to Yatsenyuk, who also called for a change of leadership at the central bank.
The European Bank for Reconstruction and Development is in touch with other international institutions to weigh assistance to Ukraine, Suma Chakrabarti, the head of the London-based lender, said in an interview today.
Ukraine spiraled into crisis in November when protesters took to the streets to oppose Yanukovych’s rejection of a deal to deepen ties with the EU. Violence crested last week in fighting in central Kyiv before a peace agreement brokered by EU foreign ministers ended the clashes and triggered Yanukovych’s flight from Kyiv.
‘Unknown Direction’
Yanukovych went to Crimea in southern Ukraine after his plane in the eastern city of Donetsk was denied permission to leave the country, acting Interior Minister Arsen Avakov said on his Facebook page. Stopping at a private residence also in the country’s south, Yanukovych was denied entry by state guards and departed with his entourage “in an unknown direction in three cars,” he said.
“A criminal case was opened into the mass murder of civilians,” Avakov said. “Yanukovych and other officials have been declared wanted.”
With western nations and Russia tussling for sway over the country of 45 million people, the IMF is ready to help Ukraine “not only from a humanitarian point of view but also from an economic point of view,” Managing Director Christine Lagarde told reporters in Sydney following a meeting of Group of 20 officials yesterday.
Checkbook Open
Treasury Secretary Jacob J. Lew said the U.S. was prepared to help Ukraine return to a path of democracy, stability and growth. U.K. Chancellor of the Exchequer George Osborne agreed.
“We are here ready to help just as soon as there is someone at the end of the telephone,” Osborne said in an interview yesterday in Sydney. “We should be there with a checkbook to help the people of Ukraine rebuild their country.”
Russia halted a $15 billion bailout for its neighbor after the unrest and talks on resumed financing may continue only after a new government is formed, RIA Novosti reported yesterday, citing Russian Finance Minister Anton Siluanov in Sydney.
Russia will honor all its agreements with Ukraine, including an accord for cut-price gas shipments, that Yanukovych signed in December, Russian Prime Minister Dmitry Medvedev said, according to the Interfax news service. Even so, the premier said he had questions about the legitimacy of many Ukrainian state institutions and warned that his country’s interests are under threat, Interfax reported.
Nation Divided
In Ukraine, the political crisis polarized sentiment between its western and central regions bordering the EU and those in the south and east that are home to more Russian speakers and ethnic Russians.
While people toppled Vladimir Lenin’s statues across the country in protests, according to Ukraine’s Channel 5, more than 2,000 rallied for closer ties with Russia in the southern city of Odessa. In Kerch, also in the south, marchers replaced a Ukrainian flag at the mayor’s office with Russian and Crimean flags, the Unian news service reported.
The opposition is following the lead of “armed extremists and thugs whose actions pose a direct threat to the sovereignty and constitutional order in Ukraine,” Russian Foreign Minister Sergey Lavrov said in a statement on Feb 22.
White House National Security Adviser Susan Rice said the U.S. would work with European partners to help finance Ukraine’s economic recovery, while warning Russia that any insertion of its troops would be “a grave mistake.”
“It’s not in the interests of Ukraine or of Russia or of Europe or of the United States to see the country split,” Rice said on NBC’s “Meet the Press” program.
To contact the reporters on this story: Daryna Krasnolutska in Kyiv at dkrasnolutsk@bloomberg.net; Kateryna Choursina in Kyiv at kchoursina@bloomberg.net; Ilya Arkhipov in Moscow at iarkhipov@bloomberg.net
To contact the editors responsible for this story: Balazs Penz at bpenz@bloomberg.net; James M. Gomez at jagomez@bloomberg.net