Ukraine May Resume Push in East as Russian Deal Crumples

Ukraine’s president urged security services to resume an offensive to uproot militants in the east as an agreement with Russia to ease tensions neared collapse after a visit by U.S. Vice President Joe Biden to Kiev.

With eastern Ukraine in control of “terrorists” supported by Russia, the separatists have “crossed the line” after two bodies were found today, acting President Oleksandr Turchynov said in a statement. In a call with U.S. Secretary of State John Kerry, Russian Foreign Minister Sergei Lavrov said Ukraine must retract orders to use the army against the population in the southeast and proceed with the disarmament of local “ultra-nationalist” militias to comply with the accord.

With the April 17 agreement in tatters, Ukraine is inching closer to a renewed push to dislodge militants in defiance of Russia’s warnings that a crackdown risks sparking civil war. The “active phase” of the military operation was suspended four days ago as Ukraine’s government pledged to abide by the agreement negotiated in Geneva by Ukraine, the European Union, the U.S. and Russia.

“The opportunity to generate a united Ukraine, getting it right, is within your grasp,” Biden told a group of prominent Ukrainians including confectionery magnate Petro Poroshenko, former Prime Minister Yulia Tymoshenko and former world boxing champion Vitali Klitschko. “And we want to be your partner and friend in the project. We want to assist.”

Separatist Rejection

Pro-Russian forces, who took over buildings in eastern Ukrainian cities, have said they are not bound by the Geneva deal. The government in Kiev accuses Russian President Vladimir Putin of stirring unrest and exploiting the situation to possibly lay the groundwork for an invasion.

The two bodies recovered today showed signs of torture, Turchynov said. While the identity of one of the victims wasn’t known, one of the dead was a member of the municipal council from the nearby town of Horlivka in the Donetsk region, according to Turchynov. The politician was identified as a member of presidential candidate Yulia Tymoshenko’s Batkivshchyna party, to which Turchynov also belongs.

Eastern Tensions

During a day marked by incidents with the pro-Russian militants, a Ukrainian military plane was damaged by gunfire during a reconnaissance flight near insurgent-held Slovyansk, where government buildings have been seized and road blocks set up, according to a statement today by the Defense Ministry.

Separatists abducted the chief of police in the eastern city of Kramatorsk and took him for “talks” to Slovyansk, Ihor Diomin, the spokesman for Donetsk regional police, told Ukrainian private TV 5 channel today.

The crisis has hit both Russian and Ukrainian markets. Russia’s Micex Index dropped 0.7 percent to 1,335.62, extending its slide since Putin’s intervention in Crimea started on March 1 to 7.6 percent. The hryvnia, the world’s worst-performing currency this year, retreated after the biggest rally on record last week, depreciating 3.2 percent to 11.67 per dollar.

Ukraine’s government is doing its part to uphold the Geneva accord and “Russia needs to comply with the commitments it made” or face more sanctions, White House spokesman Jay Carney told reporters traveling with U.S. President Barack Obama. A decision to impose additional penalties may be made in the “coming days,” he said.

Further Sanctions?

The U.S. has threatened further measures against Russian interests, including sanctions targeting the banking and energy industries, unless progress is made in easing the crisis sparked by Russia’s annexation of Crimea last month.

Widening the EU blacklist of visa bans and asset freezes “depends as much as anything else on the situation on the ground,” EU spokesman Michael Mann said today.

The U.S. and the EU have urged Russia to withdraw about 40,000 troops from its border with Ukraine, while officials from NATO and the government in Kiev say masked pro-Russian activists in eastern Ukraine are under Putin’s control, who said his troops supported the conduct of a secessionist referendum in Crimea last month.

“I would expect more Russian individuals and banks to be added to the sanctions list as relations between the U.S. and Russia further deteriorate -- the Geneva accord appears to have had little impact,” Timothy Ash, an economist in London for emerging markets at Standard Bank Group Ltd., said by e-mail.

Military Exercises

The U.S. will send 600 troops from the Army’s 173rd Airborne Brigade Combat Team to four European nations for bilateral exercises this week, Rear Admiral John Kirby, a Pentagon spokesman, said today.

A company-sized force of 150 troops each from the brigade based in Vicenza, Italy, will arrive in Poland, Lithuania, Latvia, and Estonia -- all members of the North Atlantic Treaty Organization -- by the end of this week for a month of training, Kirby said.

“This is a tangible representation of our commitment to security obligations in Europe and to the alliance” and are in response to the crisis in Ukraine, Kirby said. The troops are not part of a NATO training mission, which is also under review separately, Kirby said.

Sweden proposed measures to buy more fighter jets and submarines amid an increase in geopolitical tensions.

Russia “has acted ruthlessly and aggressively” in Ukraine and “those motives could also be used in the Baltic states,” Deputy Prime Minister Jan Bjoerklund said at a news conference.

Increasing Requests

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 yesterday in Moscow.

The U.S. offered Ukraine $50 million in aid to help it pursue political and economic changes to stabilize its government, Biden’s office said in a statement. That includes $11.4 million for a May 25 presidential election that Biden said “may be the most important election” to date for the country of 45 million people on the Black Sea.

The U.S. will also help Ukraine on issues ranging from non-lethal military aid to the fight against corruption, Biden’s office said in a statement.

IMF Assistance

The International Monetary Fund’s executive board will receive within days a staff report detailing Ukraine’s proposed loan program, in an effort to approve emergency financing by early May, a board official said.

The report, which will describe the economic outlook, financing needs and policy steps Ukraine agreed to take, may trigger a request for an expedited board review, according to the official, who spoke about private discussions on condition of anonymity. That means a typical two-week period for the board to study the report may be cut in half, with a vote next week, the person said.

The IMF is leading a $27 billion international loan package with a contribution of as much as $18 billion, which was agreed to in principle almost four weeks ago. The fund is seeking to complete its report.

After meeting Turchynov and Prime Minister Arseniy Yatsenyuk, Biden said Obama’s administration was also there to help on energy issues “so that Russia can no longer use energy as a political weapon against Ukraine and Europe.”

Russia will demand advance payments for gas supplies to Ukraine unless the country resumes paying its bills, Russian Prime Minister Dmitry Medvedev said. The move, which would cut off gas to Ukraine unless it resumed payments to Russia, would “be a tough but fair decision,” Medvedev said in Russia’s State Duma.

Russia’s government is prepared to protect its economy from the possible wider sanctions by the U.S. and its allies, according to Medvedev.

“The government is ready to operate under conditions where the priority is to protect the economy and citizens from the unfriendly actions that may follow the escalated foreign-policy situation,” Medvedev said.

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