March 12 (Bloomberg) -- Russia stood by deposed Ukrainian President Viktor Yanukovych and called possible U.S. aid to the new government in Kiev illegal, as the standoff with Western governments over Crimea intensified.
Financial support sought by the U.S. for Ukraine’s interim leadership would violate American law barring aid to any regime that uses force to take power, the Russian Foreign Ministry said yesterday in a statement. Russia considers the ouster of Moscow-backed Yanukovych a coup, an assertion rejected by the U.S.
Russia is wresting control of Crimea, sparking the worst crisis between Russia and the West since the Cold War. Ukraine says its neighbor has as many as 19,000 troops in the region. There’s a danger Russia’s incursions may eventually spread to Ukraine’s east, according to Amanda Paul, a policy analyst and program executive at the European Policy Centre.
“With Crimea apparently well under Russia’s control, it can now play around with the east,” she said by e-mail from Brussels. “Ukraine seems to be doing its best not to be provoked by Russian aggression. But it’s like having your house robbed and having to stand and watch without doing anything.”
Tensions remained high as Ukraine’s interim prime minister, Arseniy Yatsenyuk, prepared for meetings today in Washington with U.S. President Barack Obama and Secretary of State John Kerry. Yatsenyuk travels to New York tomorrow where he’ll address the United Nations Security Council.
The U.S. disagrees with Russia’s contention that the change of government in Kiev last month was a coup, State Department spokesman Jen Psaki said yesterday in an e-mail.
“The Ukrainian government was overwhelmingly approved by the democratically elected parliament, including dozens of members of Yanukovych’s own party,” she said. It’s “preparing for elections on May 25 that will give the people of Ukraine the opportunity to determine their own future.”
The U.S. and U.K. are among Western governments threatening repercussions unless Russian President Vladimir Putin pulls troops back to barracks in Crimea and begins talks with the new Ukrainian government. Russia has rejected those calls and vowed to defend the ethnic Russians who dominate in Crimea.
Germany warned Russia yesterday it must switch course by next week or risk more penalties and urged the cancellation of a planned March 16 referendum in Crimea on whether to join Russia. The European Union will discuss harsher penalties on March 17 barring “obvious changes in Russia’s actions,” German Foreign Minister Frank-Walter Steinmeier said in Estonia.
“We don’t want a confrontation, but the actions of the Russian side make the preparations necessary,” Steinmeier said in Tallinn. “We continue to urge Russia to use the last possibilities that are still there for a diplomatic solution against such an escalation. Otherwise, relations between Europe and Russia won’t improve.”
The EU announced a three-stage sanctions process against Russia last week, starting with the suspension of trade and visa-liberalization talks. Stage two includes asset freezes and travel bans for as-yet unidentified officials and would be imposed if Russia boycotts international talks on a settlement with Ukraine. Stage three envisages “additional and far-reaching consequences” if Russia further destabilizes Ukraine.
Britain hosted a meeting yesterday to compile a list of people who could be hit by sanctions. The U.S. banned visas for Russian officials and others it said were complicit in violating Ukraine’s sovereignty, while Obama also authorized financial measures.
Russia’s position is unchanged by the threat of sanctions, Foreign Minister Sergei Lavrov said March 4. Three days later, he cautioned Kerry against “hasty and ill-considered moves” that could hurt relations.
Polish Premier Donald Tusk said today that the EU is seeking alternatives to “surrender or war” over Crimea and “effective, persistent pressure” on Russia is the best solution.
The unrest presents Russia’s economy with a “very challenging backdrop,” Citigroup Inc. analyst Ivan Tchakarov said yesterday in an e-mailed note. He cut his 2014 growth forecast for gross domestic product growth to 1 percent from 2.6 percent.
The crisis is also hurting financial markets in Russia and Ukraine. Russia’s RTS stock index has declined 22.7 percent this year, the most in the world, while the ruble’s 9.9 percent weakening against the dollar is the second-worst performance among 24 emerging-market currencies tracked by Bloomberg.
The hryvnia, which has slumped 11.2 percent this year, was 0.5 percent weaker at 9.275 per dollar today. The yield on state Eurobonds due 2023 rose six basis points to 10.67 percent, advancing for a sixth day. GDP grew 3.3 percent from a year earlier in the fourth quarter, data released yesterday showed.
Putin says ethnic Russians in the region are at risk from the new government in Kiev, a claim Ukraine denies. The Russian Foreign Ministry yesterday, in a statement referring to Yanukovych as president, accused the U.S. of “turning a blind eye on the stranglehold of ultra-nationalist forces” that are “exerting pressure on the Russian-speaking population.”
Yanukovych, appearing yesterday in the southern Russian city of Rostov-on-Don, warned of a possible civil war and said that lawlessness is spreading in Ukraine, fomented by “fascists” who are in charge in Kiev.
Russia backs Crimea’s recently appointed administration, which plans to hold the March 16 referendum on joining Russia. As the Black Sea region prepares for the ballot, its isolation from the rest of Ukraine intensified yesterday as Kiev’s Boryspil airport said on its website that flights had been canceled to Simferopol, the region’s capital.
Russian forces have also taken charge of a ferry crossing at Kerch and blocked harbors, according to Ukrainian border guards. Surveillance pictures show Russia controls the roads leading onto the peninsula, they said March 9.
With tensions running high, Ukraine may create a 20,000-member National Guard to secure borders and offer a non-military “answer to destabilization,” Interior Minister Arsen Avakov said yesterday.
The Ukrainian military began drills March 10 to test combat readiness. Infantry, tanks, artillery and intelligence units participated in exercises yesterday in the eastern Kharkiv region, where pro-Russian demonstrators have rallied.
Ukraine is also working to secure financing to stave off default. The World Bank said March 10 it had received a request for aid and that it was ready to provide as much as $3 billion this year.
The U.S. has pledged $1 billion in loan guarantees to Ukraine, while the EU has outlined an 11 billion-euro ($15 billion) package of loans and grants for the coming years tied to the country agreeing on a program from the International Monetary Fund, which sent a mission to Kiev last week.
A U.S. Senate panel plans to vote as soon as today on an aid package for Ukraine that was being assembled last night. The measure will include a request from Obama to boost IMF resources, Senator Bob Menendez, a New Jersey Democrat who leads the Foreign Relations Committee, wrote in an Washington Post op-ed article. That provision wasn’t included in a version passed by the House last week.
“The EU will open its doors to exports from Ukraine,” European Trade Commissioner Karel De Gucht told reporters yesterday in Strasbourg, France. This “is more than a gesture, it is an economic lifeline.” The EU has had 610 million euros ready to go as soon as Ukraine reaches an accord with the IMF.
To contact the reporters on this story: Kateryna Choursina in Kiev at firstname.lastname@example.org; Volodymyr Verbyany in Kiev at email@example.com; Ilya Arkhipov in Moscow at firstname.lastname@example.org