MOSCOW (AP) — Russian President Vladimir Putin on Tuesday opened his wallet in the battle with the European Union over Ukraine’s future, saying Moscow will buy $15 billion worth of Ukrainian government bonds and sharply cut the price of natural gas for its economically struggling neighbor.
The announcements came after Putin held talks in Moscow with Ukrainian President Viktor Yanukovych, who is facing massive protests at home for his decision to shelve a pact with the EU in favor of closer ties with Moscow. Russia’s bailout package angered protesters, who immediately accused Yanukovych of selling the country out to the Kremlin and pressed demands for his ouster.
Putin’s move came as Ukraine said it desperately needs to get 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.
Russian Finance Minister Anton Siluanov 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 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 neighbors have repeatedly resulted in supply cuts to EU customers.
Yanukovych explained his decision to spike a landmark association agreement and free trade pact with the EU last month as necessary to improve 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 neighbors.
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.
Shearing noted, however, that while averting the immediate threat of financial collapse, the Russian aid package could further enflame the protests.
“The shift towards Moscow and away from the EU risks stoking the protests that have gripped the country over the past month and could yet plunge Ukraine into a deeper political crisis,” he said.
Tim Ash, emerging markets analyst from Standard Bank in London, said that it remains unclear what conditions Putin placed for the generous aid.
“I cannot imagine that Putin suddenly felt very generous,” he said. There will be a tough set of requirements that “either permanently breaks the link with the EU … or ensures Russia’s control over gas supply/transit.”
Ukrainian opposition leaders, speaking to protesters who have camped on Kiev’s main Independence Square for nearly a month, quickly denounced the Kremlin agreements and accused Yanukovych of treason.
Vitali Klitschko, a world heavyweight boxing champion who quit boxing to concentrate on politics, accused Yanukovych of making Ukrainian assets collateral for the Russian bailout.
“The only way out for the country is early elections,” he told a crowd of over 10,000 protesters. “We are all staying here and will fight for the right to live in a free country.”
The opposition leaders vowed to continue their protests, if necessary through New Year and Orthodox Christmas, celebrated on Jan. 7, calling for the ouster of Cabinet and demanding early presidential and parliamentary elections.
Another opposition leader, Oleh Tyahnybok, also accused Yanukovych of selling out Ukraine to Russia by signing the agreements with Putin.
“He wants to surrender us, Ukrainians, to serfdom, to eternal slavery under Moscow,” Tyahnybok said. “Today Yanukovych betrayed Ukrainians.”
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Danilova reported from Kiev, Ukraine. Laura Mills in Moscow contributed to this report.
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