Putin tosses a lifeline to Yanukovych as Ukraine seethes

With economic default looming in Ukraine, the Russian president agreed to a $15 billion loan and cut the price for natural gas.

President Vladimir Putin on Tuesday tossed a golden lifeline to his floundering Ukrainian counterpart, Viktor Yanukovych, including a $15 billion loan and  sharply discounted gas prices to help Ukraine dodge what many fear is an imminent financial collapse.

At a Kremlin meeting, Mr. Putin warmly greeted the Ukrainian leader as "our strategic partner and ally," and pledged "vigorous action" to reverse the free fall in Russia-Ukrainian trade and boost industrial cooperation between the two former Soviet republics.

But there was no talk of Ukraine joining the Moscow-led Customs Union, a move that would have particularly inflamed the thousands of pro-Europe protesters who've been occupying Kiev's Independence Square ever since Mr. Yanukovych refused to sign a sweeping association agreement with the European Union last month.

"I'd like to calm everyone down that we didn't even discuss Ukraine's accession to the Customs Union today," Putin told journalists after announcing the package of Russian aid. The deal includes the purchase of $15 billion in Ukrainian government bonds and a temporary one-third cut in the price of Russian natural gas, from $400 per thousand cubic meters to $268.5. Some 15 other economic agreements were inked, including stepped-up cooperation in aviation, space, shipbuilding, and nuclear industries.

Anger in Ukraine

The three-and-a-half-week-old protest camp in Ukraine's capital began swelling as news of the Kremlin bargain spread. For many EU supporters, the very fact that Yanukovych flew to Moscow amid tense political crisis is a sign for many that he may be conspiring with the Kremlin to sell out Ukraine's economic independence.

"Every single thing Yanukovych does heightens peoples' resistance to him," says Pavel Movchan, a parliamentary lawmaker with the BYuT party led by jailed opposition leader Yulia Tymoshenko.

"He's constantly in Moscow. It causes suspicion and indignation among people, because he behaves like a vassal. We had negotiations with the EU for years, then suddenly he dropped them. How can we trust anything he does? Even if the Russians give us some aid, and cheaper gas, don't you think that will come with a high price for us?" he says.

Though the protests opened with the demand that Yanukovych sign the EU association deal – something he claims he will eventually do – they have gradually morphed into a rolling revolt against the leadership of Yanukovych, who was fairly elected three years ago and holds a narrow parliamentary majority. Under his presidency, however, the economy has become mired in graft and cronyism, leading the global corruption watchdog Transparency International to call it "the most corrupt in Europe." He has also lost political capital by dithering between the growing pressures from Moscow and Brussels to choose a strategic direction for Ukraine, observers and political opponents say. 

"We're witnessing the demise of the oligarchic model, in which a few rich tycoons managed the economy in their own interests while a pseudo-democratic president and parliament managed the state," says Dmitro Vydrin, an independent Kiev political analyst and former government adviser. "People are starting to call things by their real names."

On Tuesday Ukraine's up-and-coming opposition star, heavyweight boxing champion Vitaly Klitschko, suggested the only way out of the continuing impasse is for Yanukovych to resign and call emergency elections for both parliament and the presidency.

"[Yanukovych] has given up Ukraine’s national interests, given up independence and prospects for a better life for every Ukrainian," he said. 

"The president said at the roundtable [talks between opposition and government last week] that he is not afraid of snap elections. Then let him call a fair election. We are confident that it can be held in March 2014," Mr. Klitschko told journalists.

Too late?

The tug-of-war has seen Moscow deploy a wide array of economic carrots and sticks, while Europe has insisted that Ukraine should negotiate a financial aid package with the International Monetary Fund that would involve harsh austerity measures.

With the Kremlin deal it would appear that Putin has offered Yanukovych at least a temporary respite from the pressure to make a definitive choice between East and West.

"This is an effort by Putin to outmaneuver Europe by putting real money on the table," says Sergei Strokan, foreign affairs columnist with the Moscow business daily Kommersant. "Up to this point, at least, the Europeans have been long on political declarations of support for the pro-Europe protesters but short on actual promises of financial assistance to help Ukraine out of its very deep economic hole. Europe is offering millions, while here is Putin offering billions.

"Putin thinks he's handing Yanukovych a trump card in his appeal to the other Ukraine – not the protesters on Independence Square whose minds will not be swayed by anything Russia does – but to another part of the country where people can count money, would rather have industrial jobs, affordable heating and free trade with Russia," Mr. Strokan says. "But it's probably too late. Neither Putin nor Yanukovych are trusted, and anything they do looks likely to just make the protesters angrier."