Ukraine's Prime Minister vows stability after Moscow deal
After weeks of protest in Kiev over the government's decision to pursue relations with Moscow instead of Brussels, Prime Minister Mykola Azarov promises stability
Ukraine’s leadership on Wednesday praised a Russia-financed bailout as a guarantee of financial stability, while opposition activists and critics claimed the deal will deepen the country’s economic troubles and increase dependence on Moscow.
Russian President Vladimir Putin on Tuesday pledged to buy US$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 Yanukovych.
The Ukrainian economy risks a default next year, and over the past months Yanukovych has actively lobbied both Russia and the European Union for a financial life line, seemingly playing one off the other to see who would offer a better rescue package.
His decision last month to cosy up to Russia triggered a wave of demonstrations that have crystallised 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 Yanukovych and Azarov resign and a snap election be held next year.
“The gas discount will bring absolutely no benefit for Ukrainians. Yanukovych 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 per cent discount of the gas price, Russia has won a pledge from Ukraine to buy up to 20 per cent more gas next year and import more Russian coal.
This, along with the promise to buy US$15 billion in Ukrainian bonds, will only serve to bolster Ukraine’s dependence on its large neighbour, 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 per cent, 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 Yanukovych, who is expected to run for re-election.
Putin said on 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 Putin’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.