Dec. 16 (Bloomberg) -- Ukrainian President Viktor Yanukovych goes to Russia tomorrow seeking a bailout loan of as much as $15 billion as anti-government protesters in Kiev pressure him against forging closer Russian ties.
Ukraine is experiencing its biggest demonstrations since the 2004 Orange Revolution as the country struggles with its third recession since 2008 and foreign-currency reserves are at a seven-year low. Protesters are calling for closer ties with the European Union. The Black Sea nation of 45 million, the second most populous post-Soviet state, is a key transit land for pipelines taking Russian gas to western Europe.
“The Russians aren’t so naive that they’ll give Yanukovych a bag of cash and let him go home,” Joerg Forbrig, senior program officer for Central and Eastern Europe at the Berlin bureau of the German Marshall Fund of the U.S., said in a phone interview. “The customs union is off the agenda because Putin knows even talking about it -- let alone signing it -- would refuel protests in Kiev.”
Forbrig said Russia’s quid pro quo may be Ukrainian entry to its customs union at a later date or stakes in Ukrainian assets. Russia’s Finance Ministry said today it’s in talks about a loan for Ukraine. Ukraine is negotiating with Russia for a loan of as much as $15 billion, two people familiar with the talks said.
Ukraine will probably get a discount for Russian natural gas of at least 25 percent from the price it now pays, according to Viktor Medvedchuk, a Ukrainian ally of Russian President Vladimir Putin.
“We are sure that everything is already decided: that Yanukovych will bring quite good loans, financial support, a new gas price,” Vitali Klitschko, opposition leader, parliament member and boxing heavyweight champion, told reporters in Kiev. “The question is, in exchange for what?”
Parliament will meet for the first time in Kiev tomorrow since police unsuccessfully tried to push protesters off Independence Square in the early hours of Dec. 11.
Ukraine’s hryvnia weakened today against the dollar to 8.2945 as of 6:02 p.m. in Kiev. The yield on Ukraine’s dollar-denominated notes due 2023 declined to 9.9 percent, the lowest level since Nov. 28, from 10.16 percent on Dec. 13. The country’s credit default swaps rose to 1,070.45 basis points, compared with 1,056.37 on Dec. 13.
“The longer the standoff goes on, the greater the risk that political uncertainty will raise demand for foreign currency, cause inward investment to dry up, or trigger capital flight,” Fitch Ratings wrote in a note today.
While the focus shifts to Moscow, the political crisis continues to reverberate in Kiev.
Yanukovych today fired 24 regional administration leaders, including 13 from western Ukraine, according to decrees on his website. No reasons were given for the dismissals.
Mykhailo Chechetov, a Ukraine Party of Regions governing lawmaker, said today that cabinet changes will be made by year-end. Hanna Herman, another ruling lawmaker, said the party asked Prime Minister Mykola Azarov to change 90 percent of his ministers.
Yanukovych will dismiss Economy Minister Ihor Prasolov, Foreign Minister Leonid Kozhara and Industrial Policy Minister Mykhailo Korolenko for failing to inform the government in time about risks linked to signing an EU trade deal, Kommersant reported, without saying where it got the information.
Klitschko said partial firing of the cabinet isn’t enough. The opposition wants dismissal of all ministers, he said.
Protesters have blocked Kiev’s city center since last month when the government pulled out of the planned EU accord in favor of closer Russian ties. Hundreds of thousands joined competing demonstrations of the anti-government camp and supporters of Yanukovych yesterday as the U.S. and the EU ratcheted up pressure on the administration.
“People’s patience has just run out,” said Oleksandr Ivanyshyn, 45, a businessman from Lviv listening to the speeches with his family yesterday. “They squeezed everything from business and now all that’s left is ordinary people. The refusal to sign the EU deal and the dispersal of the protests by force was the last straw.”
EU foreign ministers met in Brussels today with Russian Foreign Minister Sergei Lavrov and EU chief diplomat Catherine Ashton to discuss Ukraine. After the talks, Lavrov said he found support for what he termed “three-way talks” on Ukraine’s possible free-trade deal with the EU.
EU Door Open
“The EU door remains open to Ukraine, but clearly they are not willing or able to walk through it,” U.K. Foreign Secretary William Hague told reporters in Brussels. “Ukraine should be able to decide on these things without external pressure.”
The U.S. threatened to impose trade sanctions on Ukraine over the crackdown on protesters and European lawmakers urged the 28-nation bloc to consider steps against Russia.
“Yanukovych needs the Russian money but is going to try to play for time,” Fredrik Erixon, director of the European Centre for International Political Economy in Brussels, said in a phone interview. “Any move to the Russian customs union will energize protesters and if Yanukovych walks down this path he’ll have to step up the brutality of his regime.”
Anti-government protesters rebuilt barricades around the square that were removed by police last week. Fortifications include barbed wire, snow-filled sacks reinforced with logs, lumber and old tires. Alcohol is banned on the square by the organizers.
Borys Tarasyuk, an opposition lawmaker, said another anti-government protest is planned for tomorrow as a show of strength to coincide with Yanukovych’s Russia trip to prevent him from signing up to the Russian customs union deal.
Ukraine hasn’t given up talks with the EU on signing an association agreement, First Deputy Prime Minister Serhiy Arbuzov said in a 1+1 television interview late yesterday, as confirmed by his spokesman.
Ukraine’s consideration of the EU deal was followed by Russian bans on exports such as chocolate. Yanukovych warned on Dec. 13 that the protests are hurting the country’s economy.
“The Russians know that Yanukovych is playing just as much of a game with them as with the EU,” the German Marshall Fund’s Forbrig said. “But he’ll only be able to play this game as long as there are two sides to play off against each other.”