Russia, U.S. Trade Blame as Ukraine Accord Nears Collapse

April 21 (Bloomberg) -- Peter Cook reports on Vice President Joe Biden’s trip to Ukraine. Cook speaks on Bloomberg Television's “In The Loop.” (Source: Bloomberg)

Russia and the U.S. traded blame for failing to rein in extremists in Ukraine, as a diplomatic accord reached last week all but collapsed.

U.S. Secretary of State John Kerry warned Russian Foreign Minister Sergei Lavrov today that “there will be consequences” if Russia fails to act “over the next pivotal days” to restrain pro-Russian militants in eastern Ukraine, spokeswoman Jen Psaki said in Washington. In Moscow, Lavrov called on the U.S. to hold Ukraine’s interim government accountable for curbing what Russia portrays as right-wing militias.

The agreement signed in Geneva by Ukraine, the European Union, the U.S. and Russia on April 17 calls for all illegal groups to give up their arms and return seized buildings. Pro-Russian forces held their ground in several eastern cities, as their leaders denied they were bound by the accord. The government in Kiev has said Russia is behind the unrest, exploiting the situation to prepare a potential invasion.

Full coverage of the Crisis in Ukraine:

Russia’s Micex Index and ruble bonds fell for the first time in four days. The country’s main equity gauge declined 0.9 percent to 1,345.04 by the close in Moscow. OAO Sberbank, the nation’s biggest lender, lost 1.5 percent. The Russian currency declined 0.2 percent against the central bank’s target basket of dollars and euros to 41.8080 in Moscow. The yield on Russia’s ruble-denominated debt due February 2027 rose four basis points to 9.04 percent.

Photographer: Anatoliy Stepanov/AFP via Getty Images

A pro-Russian activist guards a barricade outside the regional administrative building in the eastern Ukrainian city of Donetsk on April 21, 2014. Close

A pro-Russian activist guards a barricade outside the regional administrative building... Read More

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Photographer: Anatoliy Stepanov/AFP via Getty Images

A pro-Russian activist guards a barricade outside the regional administrative building in the eastern Ukrainian city of Donetsk on April 21, 2014.

Treasuries Rise

In the U.S., Treasuries rose, pushing yields down from almost the highest levels in two weeks, as the clashes in Ukraine’s east spurred demand for the safety of government debt.

“It is about risk-aversion,” said Adrian Miller, director of fixed-income strategies at GMP Securities LLC in New York. “With most of the global markets closed and no place to offset risk exposure, you’ll see a bid for bonds, even ahead of the supply.”

U.S. Vice President Joe Biden arrived today in Kiev to offer support for Ukraine’s democracy, sovereignty and economy as the Obama administration weighs imposing additional economic sanctions on Russia, according to an official who briefed reporters on the plane and discussed the visit on condition of anonymity.

A Snapshot of Ukraine's Past and Future

In an interview with MSNBC’s Chuck Todd today, deputy national security adviser Ben Rhodes said the U.S. “will move to additional sanctions,” including some on Russian President Vladimir Putin’s “cronies” and their companies if pro-Russian forces don’t disarm and give up the buildings they’ve seized.

Senate Pressure

Two members of the Senate Foreign Relations Committee -- Democratic Senator Chris Murphy of Connecticut and Republican Senator Bob Corker of Tennessee -- urged the imposition of sanctions on Russia’s banking and energy sectors yesterday on NBC’s “Meet the Press.”

Rhodes signaled today that any escalation of sanctions will be measured, saying sectoral sanctions will be “kept in reserve for a more dramatic escalation by the Russians” and that the administration is seeking “to bring along the Europeans,” who have more extensive energy and trade relations with Russia than the U.S. does.

U.S. Ambassador to Ukraine Geoffrey Pyatt said it will take “days, not weeks” to determine whether Russia is complying with the Geneva agreement.

Russia’s Lavrov called on the U.S. to avoid threats of sanctions, while brushing off accusations that Russian forces are involved in attacks in Ukraine. Russia is receiving increasing requests to intervene in eastern Ukraine to protect the Russian-speaking population, he said today.

‘Creeping Destabilization’

“I see this as a creeping destabilization,” Angela Stent, director of the Center for Eurasian, Russian and East European Studies at Georgetown University in Washington, said in an interview yesterday. “I’m not sure it’s a civil war yet, but the preconditions for a civil war are there.”

Vyacheslav Ponomaryov, who leads pro-Russian forces in Slovyansk in eastern Ukraine told reporters today that “the things that were agreed on in Geneva were agreed on without us taking part.”

“We don’t have any relation to the things that were said in Geneva,” he said. “We are not aggressors, we are on our own land.”

At least three “activists” were shot dead at a roadblock in Slovyansk over the weekend, Ukraine’s Interior Ministry said. The clash wounded three others, the ministry said.

Ukraine’s Security Service said saboteurs carried out the assault, while Lavrov blamed supporters of the government in Kiev.

Dueling Accusations

“This is a crime carried out by those who want to abort the implementation of the Geneva agreement,” Lavrov said today in Moscow. “Everything points to the fact that the Kiev authorities either don’t want to or can’t control the extremists.”

Russia’s Foreign Ministry blamed the Ukrainian nationalist group Pravyi Sektor for the attack, which Pravyi Sektor denied in a statement. Viktoria Syumar, first deputy head of the National Security and Defense Council in Kiev, said on her Facebook page that Russia’s accusation and statements show it is preparing grounds to invade Ukraine.

Ukraine’s acting president, Oleksandr Turchynov, accused Putin of seeking the “extermination of independent Ukraine.”

Increased Autonomy

Turchynov, speaking on the Ukraina television channel yesterday, said his government is willing to increase the autonomy of local regions and appoint governors “proposed by residents of Donetsk, Luhansk regions” in the restive east. Those offers have done little to quell the violence.

Russia, meanwhile, moved quickly today to assert its control over Crimea, which it annexed last month, closing four Ukrainian lenders on the Black Sea peninsula.

Russian bank regulators banned Privatbank, VAB Bank, Bank Kyivska Rus and Imexbank from Crimea for violating the “legal rights” of depositors, by ceasing operations with no sign of resuming, according to a website statement. Milan-based UniCredit SpA, Raiffeisen Bank International, based in Vienna, and Alfa Bank, Russia’s largest privately owned lender, have also stopped working in the region, as there’s no “legal basis” to operate under Ukrainian law, the statement said.

To contact the reporters on this story: Henry Meyer in Moscow at hmeyer4@bloomberg.net; Kateryna Choursina in Kiev at kchoursina@bloomberg.net

To contact the editors responsible for this story: John Walcott at jwalcott9@bloomberg.net Larry Liebert

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