Ukraine Clash Over Cabinet Fuels Protests for Azarov Exit

Photographer: Viktor Drachev/AFP/Getty Images

A protester holds placard depicting Ukrainian President Viktor Yanukovych and the Prime Minister Mykola Azarov behind bars near the Cabinet of Ministers in Kiev on Dec. 4, 2013. Close

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Photographer: Viktor Drachev/AFP/Getty Images

A protester holds placard depicting Ukrainian President Viktor Yanukovych and the Prime Minister Mykola Azarov behind bars near the Cabinet of Ministers in Kiev on Dec. 4, 2013.

Ukraine’s opposition set up a clash with the ruling party over a proposed cabinet shakeup, bolstering demands for the ouster of Prime Minister Mykola Azarov after the biggest street protests in almost a decade.

While opposition leaders said they’ll continue talks today with President Viktor Yanukovych’s Party of Regions, they want the government to step down after Azarov survived a confidence vote in parliament Dec. 3. The premier said yesterday that he’ll draw up proposals for Yanukovych on reshaping his cabinet.

Demonstrations have escalated against Yanukovych’s snub of a pact to cement ties with the European Union in favor of closer relations with Russia. Events in the Ukrainian capital will garner further attention as officials including German Foreign Minister Guido Westerwelle arrive for a two-day meeting of the Organization for Security and Cooperation in Europe.

“The ongoing unrest in Ukraine is unlikely to recede in the coming days as Azarov’s response to the demonstrations will fall short of satisfying the protesters and opposition political leaders,” Otilia Dhand, vice president of Teneo Intelligence in London, said yesterday by e-mail. “The protesters will likely use the presence of European politicians and diplomats to further pressure the government.”

Currency Gains

Yields on Ukrainian dollar-denominated bonds due 2023 snapped a seven-day advance, declining 20 basis points to 10.417 percent by as of 2:45 p.m. in Kiev , data compiled by Bloomberg show. The hryvnia rose 0.4 percent to 8.215 per dollar after dropping yesterday to the lowest since Nov. 2009.

Azarov, who’s pledged to purge his cabinet of those “who made mistakes,” today reiterated his willingness to speak to the opposition. Even so, he said the protesters ranks contain “extremists” and accused demonstrators of deploying “non-European tactics” such as “illegal” blockades of government buildings, Interfax reported.

The opposition doesn’t want constructive dialog, Serhiy Arbuzov, Azarov’s first deputy, said today in a statement. Arbuzov had said yesterday that the way out of the impasse is to “sit at a table and talk” and that officials are prepared to discuss early elections.

Azarov’s foes stepped up calls for the administration to resign, demanded demonstrators not be prosecuted and urged the arrest of police who’ve used violence after crackdowns at the weekend left more than 400 people injured.

‘That Gang’

Protests continue on Independence Square, scene of the 2004 Orange Revolution. The Interior Ministry said more than 12,000 people are on the streets of Kiev today, with 10,000 at the parliament building, where opposition lawmakers blocked the speaker’s rostrum for a second day as part of efforts seeking the government’s resignation.

Demonstrators want Ukraine to sign EU association and free-trade accords that Yanukovych rejected last week at a summit in the Lithuanian capital of Vilnius.

“We need Yanukovych’s resignation and the resignation of all that gang,” said Natalia, an 18-year-old student who wouldn’t give her full name. “We came here to support the idea of European integration, but when we saw that horrible violence against protesters we decided that the situation can’t last.”

Nine protesters were ordered to be held in custody for two months Dec. 3 for allegedly organizing public disorder two days earlier. Supporters yesterday picketed the general prosecutor’s office and the Kiev court building where the hearings took place. The opposition, which says those detained were beaten, has hired lawyers to appeal the decisions.

‘Scare Tactics’

“The authorities are trying to scare protesters by detaining those boys,” heavyweight boxing champion Vitali Klitschko told crowds late yesterday on Independence Square.

Klitschko met Westerwelle yesterday and showed him the square, according to the website of Klitschko’s party, UDAR, which means “punch.” The boxer said he wants the “political crisis” in Ukraine to be resolved peacefully.

Opposition leaders claim 10 protesters are still missing after clashes with police and asked prosecutors to investigate. On a wall near Independence Square, a poster hung seeking the whereabouts of a 16-year-old girl named Marina, who’s been missing since a Nov. 30 rally.

Interior Minister Vitaliy Zakharchenko said yesterday he’d banned the use of force against protesters.

Beijing, Moscow

Ukraine, an essential energy transit route between Russia and the EU, is seeking financial aid as its economy struggles to exit a third recession since 2008 and its foreign reserves languish at the lowest level in seven years.

The government is running out of options to repay $15.3 billion of maturing debt. Standard & Poor’s analyst Trevor Cullinan said yesterday that the ratings company may cut Ukraine’s B- credit grade “if there were to be a further increase in tension or an escalation in violence.”

Yanukovych is seeking to drum up business during a trip to Beijing, saying today on his website that Ukraine will get $8 billion in Chinese investment to start projects in industries such as agriculture, shipbuilding and energy. The announcement falls short of market expectations, according to Luis Costa, an emerging-market strategist at Citigroup Inc. in London.

“Project-related investments are always welcome, but this doesn’t fix Ukraine’s main issue now: $10 billion of refinancing pressure in 2014,” he said by e-mail. “I see no reason to go out and buy Ukrainian bonds on the back of the Chinese deal.”

No Direction

As well we the China push, Deputy Premier Yuriy Boyko traveled yesterday to Moscow for talks on economic cooperation. Mykola Udovychenko, a deputy governor in Ukraine’s central bank, will lead a delegation traveling to Brussels this week for talks with the EU, the government said.

With the country’s leaders fanning out around the globe, the opposition preparing for talks with the ruling party and the no-confidence vote against Azarov having failed, it’s unclear how long the protests will last.

“The opposition and protesters are lacking some orientation and direction,” Joerg Forbrig, senior program officer for Central and Eastern Europe at the Berlin bureau of the German Marshall Fund of the U.S., said by phone. “I think it may peter out.”

While U.S. Secretary of State John Kerry pulled out of the OSCE meeting after Ukraine rejected the EU pact, he said yesterday during a visit to neighboring Moldova that Ukrainians “deserve the opportunity” to choose their own future.

As well as Westerwelle, officials including and Polish Foreign Minister Radek Sikorski are attending the OSCE meeting, which began today. The U.S. is being represented by Victoria Nuland, assistant secretary for European and Eurasian Affairs. She’ll also meet Ukrainian officials and opposition leaders in Kiev, RIA Novosti reported.

To contact the reporters on this story: Daryna Krasnolutska in Kiev at dkrasnolutsk@bloomberg.net; Kateryna Choursina in Kiev at kchoursina@bloomberg.net; Ott Ummelas in Kiev at oummelas@bloomberg.net

To contact the editors responsible for this story: Balazs Penz at bpenz@bloomberg.net; James M. Gomez at jagomez@bloomberg.net

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