Ukrainian President Viktor Yanukovich (L) winks at his Russian counterpart Vladimir Putin during a signing ceremony after a meeting of the Russian-Ukrainian Interstate Commission at the Kremlin in Moscow. REUTERS/Sergei Karpukhin
Russia has agreed a $US15 billion bailout for Ukraine and
slashed the price of gas exports under a deal that keeps the
cash-strapped country in Moscow's orbit but fuelled street
protests in Kiev.
Vladimir Putin's agreement with Ukrainian President Viktor
Yanukovich was a triumph for the Russian leader in a
geopolitical battle with Europe. But he failed to lure
Ukraine into a customs union with other ex-Soviet republics
and the deal is a heavy financial burden for Russia.
Tens of thousands of protesters gathered within hours of the
deal in Kiev and accused Yanukovich of selling his country to
the highest bidder after walking away from a trade deal with
"He has given up Ukraine's national interests, given up
independence and prospects for a better life for every
Ukrainian," Vitaly Klitschko, a protest leader and
heavyweight boxing champion, told crowds on Kiev's
The United States said any agreement between Ukraine and
Russia would not address the concerns of the protesters.
The two countries' leaders reached agreement at talks in the
Kremlin that appeared to begin frostily but ended with them
rubbing shoulders and laughing at a ceremony where documents
were signed on reducing trade barriers for Ukraine.
Russian Finance Minister Anton Siluanov said Moscow would tap
a National Welfare Fund - a rainy day fund - to buy $15
billion worth of Ukrainian Eurobonds. The deal boosted the
price of Ukraine's dollar debt, a sign of investors'
Ukraine's Naftogaz energy company will pay Russia's Gazprom
$268.5 per 1,000 cubic metres of natural gas, on which it is
heavily dependent. The previous price had been about $400 per
1,000 cubic metres.
"Ukraine is our strategic partner and ally in every sense of
the word," Putin said after the talks, with Yanukovich
sitting beside him in a gilded Kremlin hall.
"I want to draw your attention to the fact that this
(assistance) is not tied to any conditions ... I want to calm
you down - we have not discussed the issue of Ukraine's
accession to the customs union at all today."
INVESTORS ENCOURAGED BUT SEE RISKS
Ukraine had been seeking help to cover an external funding
gap of $17 billion next year - almost the level of the
central bank's depleted currency reserves.
Investors said the deal would stave off the immediate threat
of default or a currency crisis but said there were also
risks for Russia, whose own economy is stuttering.
"This is a rescue. Without that money, Ukraine would have
defaulted sometime before the middle of next year ... And the
cheap gas will provide a significant stimulus for the Ukraine
economy," said Chris Weafer, senior partner with consultancy
Macro-Advisory. "The next move is for the protesters in
Ukraine, which had fears fuel supplies could be hit during
the financial crisis, is caught between Western powers, keen
to anchor the country in a friendly embrace on the EU's
borders, and its former Soviet masters in Moscow.
Yanukovich has been seeking the best possible deal for his
country of 46 million but faces calls to resign at home and
has been criticised in the West after police used force
against the protests in the heart of Kiev.
The deal appears to preclude Ukraine looking West in the near
future, though its leaders say they still see building ties
with the European Union as a possible long-term goal.
Tuesday's agreement was Ukraine's reward from Moscow for
scrapping a planned trade and cooperation deal with Europe
last month, Russian former economy minister Andrei Nechayev
"It is clear that this refusal had a cost, and, see, Russia
has paid," he told Ekho Moskvy radio, portraying it as a
purely geopolitical decision because the economic risk to
Russia of Ukraine looking West now was "not very big".
Although Russia appears to have won nothing in return, there
could be other terms agreed in secret and Moscow now has a
financial hold over Ukraine: If it withdraws its money and
alters the gas price, it could pull the plug on its
Putin appeared to underline this by saying the agreements on
the gas price and $15-billion investment were temporary.
Russia also agreed to resume oil supplies to a refinery in
Ukraine following a three-year break, traders said.
But Putin will be disappointed if he cannot bring Ukraine
into the Eurasian Union he plans to build with Kazakhstan,
Belarus and other former Soviet republic to match the
economic might of the United States and China.
Ukraine, with its large market, mineral resources and borders
with the EU, is vital to that project. Yanukovich may be
withholding Ukraine's membership to seek more concessions.
People at anti-government demonstrations in Kiev that have at
times attracted hundreds of thousands fear Ukraine will now
be stuck in Moscow's orbit, more than two decades after the
fall of Soviet communist rule.
"With what has been signed now in Moscow, we can forget about
Europe. Yanukovich made a massive mistake. He'd better not
come back here, he'd better stay in Moscow," said Deni Deyak,
a businessman at the pro-Europe protest in Kiev.
Many protesters say the EU offers hope of more freedom and
prosperity. Opponents, and EU leaders, criticise widespread
corruption and say Yanukovich manipulates the judicial system
to keep opposition leader Yulia Tymoshenko in jail.