Ukraine Peace Talks Resume as Russia Condemns Move to NATO

Talks on ending the more than eight-month conflict in Ukraine resumed after the country’s parliament angered Russia by voting to cancel its non-aligned status.

Ukrainian and pro-Russian separatist representatives met today in Minsk, Belarus, along with diplomats from Russia and the Organization for Security and Cooperation in Europe to discuss implementing agreements on prisoner exchanges and the withdrawal of heavy weaponry. The talks ended for the night, and participants left the venue without commenting to reporters.

“We hope that these efforts will in the end lead to the stabilization of the situation,” Russian Deputy Defense Minister Anatoly Antonov told reporters in Moscow today.

A two-week truce has tempered the bloodshed in a conflict that has killed more than 4,700 people since April in fighting between government forces and separatists in Ukraine’s eastern Donetsk and Luhansk regions. Ukraine’s parliament yesterday moved to drop the country’s neutral status, which Russia denounced as a step toward seeking membership of NATO.

The legislation put forward by President Petro Poroshenko was supported yesterday by 303 of 357 lawmakers in the chamber, hours after the announcement that the Ukraine contact group would meet today and Dec. 26 in Minsk.

In a phone call at the start of the week, Poroshenko, Russian President Vladimir Putin, German Chancellor Angela Merkel and French President Francois Hollande emphasized the need to fulfill agreements made at the contact group’s last meeting in September, including “withdrawal of troops and heavy armament, as well as immediate liberation” of all prisoners, according to the Ukrainian president’s website.

Prisoner Swap

The talks may focus on the full prisoner swap, according to Ukrainian State Security Service adviser Markiyan Lubkivsky. Ukraine has a list of 225 names ready, including Russian officers, he said, declining to disclose how many.

“The main task at the moment is to stop the violence,” Alexei Panin, deputy director of the Center for Political Information, a Moscow-based research group, said by phone. The confrontation in Ukraine may evolve into a frozen conflict that could encourage the European Union to lift sanctions against Russia by mid-2015, though U.S. measures imposed over the crisis will remain, he said.

Ukraine has increasingly sought integration with Europe after protests broke out against Kremlin-backed former President Viktor Yanukovych last year. The country is seeking to achieve “all criteria of membership” for the North Atlantic Treaty Organization, Foreign Minister Pavlo Klimkin told parliament yesterday.

‘Counter-Productive’

The vote in Ukraine is “counter-productive” and will increase confrontation, Russian Foreign Minister Sergei Lavrov told reporters in Moscow yesterday. It will have “extremely negative consequences” and amounts to an “application to join NATO,” Russian Prime Minister Dmitry Medvedev wrote on Facebook.

Poroshenko said in November that Ukraine would hold a referendum on seeking NATO membership at the end of this decade after it had completed “real” policy changes. Germany and France have signaled that they’re opposed to Ukraine joining the 28-member alliance because of concerns that this will inflame tensions with Russia.

‘Robbed, Fighting’

Defense spending is Ukraine’s top priority, Finance Minister Natalie Jaresko told parliament yesterday as she presented the government’s draft 2015 budget for what she called the “robbed and fighting country.” Ukraine is in its most difficult situation since independence, she said.

Parliament will approve the budget this year, although it’s a difficult process, Prime Minister Arseniy Yatsenyuk said today. Ukraine is seeking to unlock the next tranche of a $17 billion bailout led by the International Monetary Fund. The Washington-based lender may disburse the aid by the third week of January, Interfax reported today, citing Valeriy Chaly, deputy chief of the presidential administration in Kiev.

Ukraine’s economy may shrink by 4.3 percent next year, according to the draft budget published on the parliament’s website.

Moody’s Investors Service said in its annual Ukraine Credit Analysis that the “risk of default is rising” and Ukraine may need as much as $20 billion during the next 12 months beyond what is provided by the existing bailout. The economy will shrink by 7.5 percent this year and may contract by 6 percent in 2015, it said.

Recession Risk

The conflict has hammered Russia as well as Ukraine. There is a 93 percent risk of Russia sliding into recession in the next 12 months, up from 75 percent a month ago, according to the median estimate of 20 economists polled by Bloomberg, the highest since the first survey more than two years ago. The world’s biggest energy exporter has been hit hard by a decline in oil prices to about $61 a barrel from more than $115 in June.

Standard & Poor’s said yesterday that there is a 50 percent chance that Russia’s rating will be cut to junk for the first time in a decade in the next 90 days.

Russia’s ruble is trading down 39 percent against the dollar this year, the second-worst performance after the hryvnia out of more than 170 currencies tracked by Bloomberg. It has strengthened about 14 percent in the past four days, buoyed by purchases as companies pay year-end taxes and by government pressure on exporters to sell foreign-currency revenue.

The U.S. and the EU imposed sanctions after Russia annexed Crimea from Ukraine in March. They extended the penalties after accusing Russia of aiding the rebels in eastern Ukraine.

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