Russia Renews Threat to Respond in Ukraine as Truce Frays

Russia vowed to defend its citizens in neighboring Ukraine after the government in Kiev said it’s resuming operations to oust militants from eastern cities.

Russian Foreign Minister Sergei Lavrov said his country would retaliate if its “legitimate interests” are “attacked directly,” drawing a parallel with its actions in a 2008 war over Georgia’s breakaway South Ossetia region. After a pause for the Easter holiday, a military operation is under way to eliminate militias in Kramatorsk, Slovyansk and other cities, Ukraine’s First Deputy Prime Minister Vitali Yarema said today.

“Russian citizens being attacked is an attack against the Russian Federation,” Lavrov said in an interview today with the state-run television broadcaster RT. “If we are attacked, we would certainly respond.”

The friction risks derailing an accord to disarm rebels signed last week in Geneva between Ukraine, Russia, the European Union and the U.S., with the former Soviet republics accusing each other of breaking the agreement. As tensions flare, the U.S. said it will send hundreds of troops for exercises in four countries bordering Russia, days after NATO bolstered the defense of frontline member states in eastern Europe.

Auction Aborted

Russian and Ukrainian assets suffered. Russia failed to sell local-currency bonds due August 2023 at today’s auction and the Micex Index lost 0.5 percent. Ukrainian bonds tumbled, lifting yields on the government’s dollar-denominated notes due 2023 by 0.08 percentage point to 10.05 percent, the highest in a month, data compiled by Bloomberg show.

Ukraine’s shrinking economy may get a boost from an International Monetary Fund loan. The Washington-based lender’s staff endorsed a $17 billion bailout that may get board approval next week, according to government officials who’ve seen the recommendations and spoke on condition of anonymity.

There are signs Ukraine is implementing the Geneva pact, according to Michael Mann, spokesman for EU foreign-policy chief Catherine Ashton. The bloc is calling on Russia “to use its leverage to ensure an immediate end to what is going on in eastern Ukraine,” he told reporters in Brussels today.

The U.S. said it hasn’t seen any indication Russia is carrying out the Geneva accord and reiterated that failure to do so will trigger penalties on top of the visa bans and asset freezes already in place. It joined the EU in imposing sanctions as Russia annexed the Black Sea Crimea region last month.

Distorted View

“I don’t want to put a deadline on it, but we’re talking days here,” Daniel Baer, the U.S. representative to the Organization for Security and Cooperation in Europe, told a news conference today in Brussels. Russia’s non-compliance is “regrettable particularly given that Russia committed to this plan just five days ago.”

Ukraine hasn’t fulfilled a single clause of the April 17 pact, Lavrov told RT, accusing the U.S of “running the show.”

Russia’s Foreign Ministry said Ukraine and the U.S. have a distorted interpretation of the Geneva accord and are ignoring provocations by right-wing extremists. The government in Kiev should pull its military back from Ukraine’s southeast, the ministry said.

With the Geneva accord faltering, acting Ukrainian President Oleksandr Turchynov yesterday called on security forces to move against the separatists after the discovery of two bodies in the country’s eastern region, saying “terrorists” backed by Russia had “crossed the line.”

Tortured Corpse

Two Russian citizens, including an intelligence operative, are on a wanted list for orchestrating the killing of Volodymyr Rybak, whose body was among the two recovered yesterday, according to Ukraine’s SBU State Security Service.

Rybak, a member of the local council in the eastern city of Horlivka, was abducted April 17 and driven to Slovyansk’s separatist headquarters, the agency said today in a statement. He was tortured and thrown into a river on April 20, it said.

As many as 1,300 separatists are involved in securing control over government buildings in the Donetsk region, according to the SBU. Twenty-one Russian agents, including three intelligence officers, have been arrested or detained, SBU chief Valentyn Nalyvaychenko said during an online discussion sponsored by the Washington-based Atlantic Council.

The town of Sviatogirsk was freed today without casualties as part of Ukraine’s “anti-terrorist” operation, the Interior Ministry said in a statement on its website. The SBU pledged to use “all means” to restore order in the east.

Invasion Plot?

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 separatists who took over buildings in eastern Ukrainian cities have said they’re not bound by the Geneva agreement.

Putin has parliamentary approval to deploy troops in Ukraine to protect Russian speakers and those of Russian heritage. He has about 40,000 troops massed on the border with Ukraine, according to the North Atlantic Treaty Organization.

A week after NATO Secretary General Anders Fogh Rasmussen said the alliance will upgrade contingency plans, hold more military drills in eastern Europe and step up air and naval policing on its flanks, the U.S. announced plans to send airborne infantry to Poland, Lithuania, Latvia, and Estonia.

NATO jets have succeeded in stopping Russian incursions into the Baltic region, Douglas Lute, the U.S. ambassador to NATO, told a German Marshall Fund conference today in Brussels.

Before it's here, it's on the Bloomberg Terminal.