Russia Raises Pressure on Ukraine After Its Cabinet Quits

Russia ramped up pressure on Ukraine with a threat of withholding aid until the country forms a new government after the cabinet loyal to President Viktor Yanukovych bowed to nationwide protests and quit.

Premier Mykola Azarov, 66, resigned yesterday, as Yanukovych tried to ease a political crisis. It was not enough for protesters, who vowed to hold their positions at the site of deadly clashes with police last week in the capital Kiev. Opposition leaders maintained a demand for a snap presidential election and wrangled with government lawmakers on further concessions including an amnesty for protesters and constitutional changes.

Yanukovych, 63, is struggling to contain unrest that’s spread from the capital to other cities since his rejection of a European association pact triggered anti-government protests in November. The demonstrations turned deadly last week and the turmoil has led to a tug-of-war between Russia and Europe for influence in the nation of 45 million people.

“Elections are the best method for the people to decide,” Elmar Brok, chairman of the European Parliament’s foreign affairs committee and head of delegation to Ukraine, told reporters in Kiev. “The people have lost the belief they can trust what the government says.”

The yield on Ukraine’s dollar-denominated government debt due 2023 jumped 51 basis points to 9.55 percent at 6:29 p.m. today, data compiled by Bloomberg show. The hryvnia strengthened to 8.4750 per dollar from 8.4850 yesterday.

Russian Aid

Russia agreed to lend Ukraine $15 billion and give its western neighbor a one-third discount on natural gas supplies to Ukraine after Yanukovych pulled out of the EU agreement, which Russian President Vladimir Putin has said could damage Russia’s economy.

Ukraine has received a first $3 billion tranche as is waiting for $2 billion more “in the nearest future” Serhiy Arbuzov, Azarov’s former deputy who is acting as premier and will lead the the cabinet until Yanukovych names a replacement, said at a government meeting.

The Black Sea state needs the funds to repay more than $1 billion to the International Monetary Fund by Feb. 12, the Washington-based Lender’s data show. The country had $20.4 billion in international reserves at end-December, down from as much as $38.4 billion in 2011.

Aid Wait

Putin told his cabinet at a meeting outside of Moscow today “it’s reasonable” to wait until a new cabinet emerges before extending more aid to Ukraine, a key transit route for Russian gas shipments to Europe.

“We confirm our commitment to the obligations we took on” regarding Ukraine, Russian Economy Minister Alexei Ulyukayev said today. “As for the timetable and parameters -- it’s a question that requires additional discussion with our Ukrainian colleagues and needs to take into account the overhaul of the government that’s taking place.”

Prime minister Dmitry Medvedev said Ukraine wasn’t paying its gas bills even with the lower price, which “seriously changes the situation.”

Ukraine’s state energy company, NAK Naftogaz Ukrainy, missed the most recent deadline to repay debt, which tallied to $2.7 billion in 2013, OAO Gazprom Deputy Chief Executive Officer Alexander Medvedev said on Russian state television. Plans to hold talks with Ukrainian officials fell through after the government’s resignation, he said.

Protests Continue

In an echo of trade difficulties the two countries faced last August, Ukraine’s Employers Federation said the country’s exporters are again facing delays on the border after Russia placed additional requirements, imposed fees and subjected them to more detailed inspections. The changes went into effect yesterday, the group said in a statement on its website.

In Kiev, activists at the epicenter of last week’s riots Hrushevskogo street, and nearby Independence Square, known as Maidan, said they would stay until Yanukovych resigns.

“Azarov’s resignation is not even a small victory,” said Ivan, 27, an agriculture entrepreneur, from Kremenchug, central Ukraine who refused to give his last name for fear of reprisals. “We will stay at Maidan until Yanukovych goes away and those who shot people and beat them are punished.”

The unrest has spread beyond the capital, where activists have taken over the agriculture and energy ministries. Protesters are occupying or blocking the offices of governors picked by Yanukovych in more than half of the nation’s 25 regions, while police have expelled demonstrators from others.

‘Logical Step’

The opposition says six protesters have died and a thousand have been injured, while a policeman wounded in a clash on Jan. 27 died yesterday, the Interior Ministry said. Three people have died from gunshot wounds.

The president’s resignation would now be a “logical step,” ex-world heavyweight boxing champion Vitali Klitschko, who heads the opposition UDAR party, said yesterday in a statement. He and fellow opposition leader Arseniy Yatsenyuk, 39, have rejected offers to work in a government with Yanukovych remaining president.

The opposition also wants to revise the constitution, possibly reverting to the 2004 version under which parliament picks the prime minister. At present, that decision is up to Yanukovych, who has 60 days to install a new government.

To placate demonstrators, lawmakers repealed anti-rally laws that triggered the clashes that turned deadly last week.

Amnesty Struggle

A vote on granting amnesty to protesters, including 116 detained by police for suspicion of taking part in protests, stalled in parliament and a member of Yanukovych’s Regions Party said it would not gain enough votes to pass.

Justice Minister Olena Lukash said Jan. 27 that the amnesty bill would only take effect if demonstrators cleared the streets and returned all state buildings they had seized.

Catherine Ashton, the EU’s foreign policy chief, said she was “shocked” at reports of violence and missing people tied to the rallies and urged both sides to find a peaceful solution.

Mired in its third recession since 2008, Ukraine shouldn’t face an “either-or” choice of allegiance between Russia and Europe and the door remains open for it to sign the association pact with the bloc, German Chancellor Angela Merkel said in the lower house of parliament in Berlin. She called both Putin and Yanukovych, urging the latter to protect protesters.

“There can be no more violence,” the chancellery said in an e-mailed statement today. “Citizens’ rights must be protected; and a democratic path out of the crisis must be found.”

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