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Europe

Russia woos Ukraine with $15 bn bailout and cut in gas price

© AFP

Text by FRANCE 24

Latest update : 2013-12-17

Russian President Vladimir Putin opened his wallet in the battle with the European Union over Ukraine's future, saying Moscow will buy $15 billion worth of Ukrainian bonds and sharply cut the price of natural gas for its struggling neighbour.

The announcements came after Putin held talks in Moscow on Tuesday with Ukraine's  President Viktor Yanukovich, who is facing massive protests at home for his decision to shelve a pact with the EU in favour of closer ties with Moscow.

The proposed bailout package angered Yanukovich’s opponents. Vitaly Klitschko, a Ukrainian opposition leader, said that Yanukovich had betrayed Ukraine's national interests and independence.

"He has given up Ukraine's national interests, given up independence and prospects for a better life for every Ukrainian," he told crowds in Kiev's Independence Square.

Klitschko, a world heavyweight boxing champion, called for early elections and said he wanted to meet Yanukovych “in the ring".

Putin's move came as Ukraine said it desperately needs to raise at least $10 billion in the coming months to avoid bankruptcy. The Fitch ratings agency has given Ukraine's bonds a B-minus rating, which puts them in “junk bond'” territory.

While Putin sought to calm protesters in Kiev by saying he and Yanukovych didn't discuss the prospect of Ukraine joining the Russian-dominated Customs Union, the sweeping Kremlin agreements vexed demonstrators who want Ukraine to break from Russia's orbit and integrate with the 28-nation EU.

Anton Siluanov, the Russian finance minister, said after the Kremlin talks that Russia would purchase $15 billion in Ukraine's Eurobonds starting this month. The money would come from Russia's National Welfare Fund that accumulates oil and gas revenues.

Putin jab at IMF

Putin emphasized that Russia's decision to buy the Ukrainian securities wasn't contingent on Kiev freezing social payments to its citizens -- a clear jab at the International Monetary Fund, which has pushed Ukraine to reduce spending as a condition for providing a bailout loan.

Putin said the Russian state-controlled gas monopoly, Gazprom, will cut the price that Ukraine must pay for Russian gas deliveries by about one-third from the current $400 per 1,000 to $268.5 per 1,000 cubic meters.

Ukraine serves as a key conduit for Russian natural gas exports to Europe, and fierce gas pricing disputes between the neighbours have repeatedly resulted in supply cuts to EU customers.

Last month, Yanukovych abandoned a proposed free trade pact with the EU, arguing that he wanted to repair ties with Russia, which has banned or halted imports of some Ukrainian goods and threatened more sanctions if Ukraine signs the EU pact.

At the same time, Russia also has sought to cajole Yanukovych to join a Moscow-dominated bloc with a mix of promised credits, investment pledges and a discount on energy prices, particularly natural gas. The EU has been cool about Ukraine's pleas for a bailout.

Putin and Yanukovych both pledged Tuesday to boost economic and trade ties to expand the “strategic partnership” between the two countries.

A dozen agreements signed Tuesday included one to settle disputes in mutual trade, a deal to jointly modify a Soviet-designed transport plane, a deal on industrial cooperation and a pact to design a bridge across the Kerch Strait.

Russia's decision to buy Ukrainian securities effectively means a $15 billion financial aid package, which could be enough to avert a balance of payments crisis for the next 18 months, according to an estimate by Neil Shearing, the chief emerging markets economist at Capital Economics in London.

He said in a note to investors that the gas price cuts could reduce Ukraine's current account deficit by around $4.5 billion a year. Together with the purchase of Ukrainian securities that would be enough to sustain Ukraine's balance of payments for around two years.

(FRANCE 24 with AP and Reuters)

 

Date created : 2013-12-17

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