Ukraine PM praises Moscow's economic lifeline, vows stability

PM tells a Cabinet meeting an EU deal would have brought 'bankruptcy and collapse'

Russian President Vladimir Putin (L) and President of Ukraine Victor Yanukovych attend a Russian-Ukrainian Summit on Dec. 17, 2013 in Moscow, Russia.
Dmitri Azarov/Kommersant/Getty Images

Ukraine's leadership on Wednesday praised a Russia-financed bailout as a guarantee of financial stability, while opposition activists and critics claimed the deal would deepen the country's economic troubles and increase dependence on Moscow.

Russian President Vladimir Putin on Tuesday pledged to buy $15 billion worth of Ukrainian bonds and sharply cut the price of natural gas in an effort to relieve political pressure on Ukraine's embattled president, Viktor Yanukovich.

The Ukrainian economy risks a default next year, and over the past months, Yanukovich has actively lobbied both Russia and the European Union for a financial life jacket, seemingly playing one off the other to see who would offer a better rescue package.

His decision last month not to sign up to a EU trade pact triggered a wave of demonstrations that have crystallized into a large, round-the-clock protest camp in Independence Square in Kiev, the country's capital.

Prime Minister Mykola Azarov told a Cabinet meeting that the deal with Russia ensures "people's confidence in a stable life," while a strategic trade agreement with Europe would have given Ukraine a "New Year's present" of "bankruptcy and social collapse."

The deal with Moscow, which includes increased access to Russia's market for Ukrainian exporters and large orders for Ukraine's manufacturing industry, did nothing to sway the protesters, who have demanded that Yanukovich and Azarov resign and snap election be held in 2014.

"The gas discount will bring absolutely no benefit for Ukrainians. Yanukovich simply agreed on a discount for the oligarchs surrounding him," Oleh Tyahnybok, leader of the nationalist opposition party Svoboda, said in a statement.

In return for an approximate 33 percent discount of the gas price, Russia has won a pledge from Ukraine to buy up to 20 percent more gas next year and import more Russian coal.

This, along with the promise to buy $15 billion in Ukrainian bonds, will only serve to bolster Ukraine's dependence on its large neighbor, critics said.

Igor Burakovsky, director of the Institute for Economic Research and Policy Consulting, a Kiev-based think tank, said Russia's share of Ukraine's sovereign debt could jump to 50 percent, a level at which Moscow will have significant political and economic leverage.

"The money allows Ukraine to plug budget holes, but that's also a problem because there will be a temptation to spend all that money before the 2015 (presidential) election," said Burakovsky.

The deal is structured so that both the gas price and bond purchases are subject to quarterly review, allowing the Kremlin to maintain pressure on Yanukovich, who is expected to run for re-election.

Putin said Tuesday that the two sides did not discuss Ukraine's membership in the Moscow-led Customs Union, a trade alliance that includes Belarus and Kazakhstan and that many Ukrainians feel is an attempt to resurrect the Soviet Union.

"I think sooner or later Ukraine will be required to make a firm political commitment, and set a time, for joining the Customs Union," said Burokovsky.

He said while it was legally possible for Ukraine to have simultaneous trade agreements with the EU and Russia, Moscow will not allow it because Puitin's ambition to create a Eurasian trade bloc that would serve as a counterweight to the United States, EU and China would have no chance of succeeding without Ukraine.

The Associated Press

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