Feb. 26 (Bloomberg) -- Ukrainian protesters were called to a rally in Kiev’s Independence Square to help mold an interim cabinet as tensions flared in the Russian-speaking Crimea region after pro-Western politicians took control of the capital.
Demonstrators will gather at 7 p.m. in Kiev to discuss candidates for a national unity government that acting President Oleksandr Turchynov wants in place tomorrow. In Crimea, pro-Russia activists clashed with protesters from the region’s Tatar minority. Russia said it’s taking unspecified steps to protect its Black Sea Fleet in Crimea’s Sevastopol port. Military exercises at home were unrelated to Ukraine, it said.
With deposed President Viktor Yanukovych on the run after his ouster last week, Ukraine’s new leaders are grasping for a $35 billion financial lifeline to stave off a default. While the U.S. and the European Union have pledged aid, Russia has questioned the legitimacy of the new administration and halted a $15 billion bailout. The hryvnia weakened to a 20-year low.
“Successful installation of a prime minister is critical for moving Western governments to carry out their commitments to help the government financially,” Eurasia Group analyst Alex Brideau said by e-mail from Washington. “The tension between Crimea and the central government is likely to increase. It’s unlikely at this stage that Russia would directly intervene, but the risk of this will rise if the situation escalates sharply.”
Ukraine’s currency, which is managed by the central bank, weakened 4.4 percent to 10.15 per dollar at 6:22 p.m. in Kiev, extending this year’s slump to 18.4 percent, data compiled by Bloomberg show. The central bank imposed capital controls this month to stem the currency’s decline.
Having indicated that a new administration should be formed quickly, Turchynov yesterday pushed back a parliamentary vote on its formation to tomorrow. Ukraine needs a cabinet to begin negotiations over financial aid.
The new government should be largely technocratic and should avoid “political quotas,” said Oleksiy Haran, a member of the Maidan Council, which represents the protesters whose three-month campaign toppled Yanukovych.
“The large bailout plan that Ukraine currently seeks won’t be handed out by international donors to a weak and non-inclusive government,” Lilit Gevorgyan, senior economist at IHS Global Insight in London, said by e-mail.
Events in Kiev are unsettling parts of Ukraine’s Russian-speaking east and south. In the city of Simferopol in Crimea, several hundred pro-Russian demonstrators faced off as many as 7,000 Ukrainian Tatars chanting: “Crimea isn’t Russia!”
The head of Crimea’s regional parliament, Vladimir Konstantinov, denied speculation that lawmakers would vote on splitting away from Ukraine and joining Russia, calling the reports a provocation to discredit the legislature.
“People of Crimea! Crimea is our common home! Peace here is in our hands!” he said on parliament’s website.
As Channel 5 TV reported protesters in Simferopol were hurling objects at each other, Russian President Vladimir Putin ordered a check of Russia’s combat-readiness in the central and western military districts as well as tests of air defenses, Interfax cited Defense Minister Sergei Shoigu as saying.
The move isn’t linked to Ukraine, Shoigu said, according to Interfax. While there were no exercises in the Black Sea region, RIA Novosti cited the minister as saying Russia is seeking to ensure the safety of Black Sea Fleet infrastructure, arsenal and property in light of the Crimea tensions.
“This is a preventative step, part of a package of political, diplomatic and economic measures, part of a comprehensive reaction to the coup,” Konstantin Makienko, deputy director of the Centre for Analysis of Strategies and Technologies in Moscow, said by e-mail. “But it could become an offensive, depending on how the situation develops.”
Russia has vowed not to meddle in Ukraine’s affairs and urged the West to follow suit. While the opposition leaders in Kiev have pledged to align Ukraine with Europe, membership of the North Atlantic Treaty Organization shouldn’t be a priority, NATO chief Anders Fogh Rasmussen said today in Brussels.
NATO defense ministers said in a statement that the alliance would continue to support Ukrainian sovereignty, independence, territorial integrity, democratic development, and the principle of inviolability of frontiers.
Financial aid took center stage in Kiev, where central bank Governor Stepan Kubiv said today that he’d invited the International Monetary Fund to Ukraine as soon as possible.
The Washington-based lender will probably send a team to Ukraine as soon as the nation seeks aid, Managing Director Christine Lagarde said yesterday in California.
“We are ready to engage,” Lagarde said. “We will probably shortly send some technical assistance support to the country because this is our duty to a member, if that member asks,” which is “clearly what is likely to happen.”
Ukraine risks default without “significantly favorable changes” in its political crisis, Standard & Poor’s said Feb. 21 as it cut the nation’s credit rating to CCC, leaving it eight levels short of investment grade.
Russia won’t be the party to trigger such an event, though it’s under no obligation to disburse the remaining $12 billion of the bailout it granted in December, Deputy Finance Minister Sergei Storchak told reporters yesterday in Moscow. He said there’s a high chance Ukraine will default.
Even so, Ukrainian government dollar debt maturing in June is trading at 94 cents on the dollar and its 2023 bonds fetch 86 cents, according to data compiled by Bloomberg. That compares with 25 cents for Argentina’s benchmark bonds before the country’s record $95 billion default in 2001. Ecuador’s notes traded at 32 cents a week before it halted payments in 2008.
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