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Ukraine Replaces Central Bank Head

By Daryna Krasnolutska, Kateryna Choursina and Ilya Arkhipov
February 24, 2014 1:08 PM EST 87 Comments
Anti-government demonstrators guard a government building near Independence Square in Kiev, Ukraine, on February 23, 2014.
Photographer: Jeff J Mitchell/Getty Images
Anti-government demonstrators guard a government building near Independence Square in Kiev, Ukraine, on February 23, 2014.

Ukraine replaced its central bank chief as it scrambles to fend off default, while Russia poured scorn on the legitimacy of the new interim leadership.

The temporary government in Kiev said it needs $35 billion of financial assistance as the U.S. and the European Union pledged aid for a new administration. Russia’s Foreign Ministry said opponents of deposed President Viktor Yanukovych broke a Feb. 21 peace agreement and set the country on a course for “dictatorial, terrorist methods.”

Lawmakers appointed Stepan Kubiv, the ex-chairman of Lviv-based VAT Kredobank, to head the central bank after voting out Ihor Sorkin. The monetary authority this month introduced capital controls to halt the hryvnia’s slide after the currency fell to a five-year low against the dollar. Kubiv plans to invite an International Monetary Fund mission, the Unian news service reported, without giving details.

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“The economic and political challenges that Ukraine faces are enormous,” Lubomir Mitov, chief economist for emerging Europe at the Institute of International Finance, which represents more than 400 institutions globally, said on a conference call with reporters. “To avoid a complete collapse in the coming weeks, Ukraine needs money now.”

With Kremlin-backed Yanukovych on the run from an arrest warrant, payments from a $15 billion Russian bailout stand suspended. An international aid package is taking shape as demonstrators control Kiev and jockeying gets underway before early presidential elections scheduled for May 25.

Bonds Gain

While a new government needs to be established before Ukraine can receive aid, the first payments may arrive next week, Elmar Brok, the head of the European Parliament’s foreign affairs committee, told reporters in Kiev today.

The Cause of Unrest in Ukraine

Ukrainian assets have benefited from the momentum for financial aid, with the yield on the government’s dollar bond maturing in 2023 falling 93 basis points, or 0.93 percentage point, to 9.26 percent, the lowest since Jan. 28. The UX Index of stocks soared 15 percent, the most since May 2010.

Acting Finance Minister Yuriy Kolobov proposed calling an international conference of donors with the EU, the U.S. and other countries. The $35 billion financing package is needed for this year and next, the ministry estimated.

The EU has been working on an international economic support package for Ukraine for the short, medium and long term, European Commission spokesman Olivier Bailly said today. Bailly said he isn’t “personally aware” of a donor conference being organized.

Economic Lifeline

Ukraine’s new leaders are scrambling for a new lifeline as their Russian neighbor signaled changes to its political and financial support for the country.

Russia will honor all its agreements with Ukraine, including an accord for cut-price gas shipments, that Yanukovych signed in December, Russian Prime Minister Dmitry Medvedev said, according to comments posted on a government website. Even so, the premier said he had questions about the legitimacy of many Ukrainian state institutions and warned that his country’s interests are under threat.

“The new government’s task is to stop the country’s slide, to stabilize the currency rate, to ensure timely salary and pension payments, to win back investors’ trust and to create new jobs,” Parliament Speaker Oleksandr Turchynov, handed presidential powers, said today. “Another priority is to return to the European integration path.”

Premier Candidates

Meanwhile, jostling began among those seeking future leadership roles.

Mykola Tomenko, a member of former Prime Minister Yulia Tymoshenko’s Batkivshchyna party, said she was a candidate for the premiership, along with party leader Arseniy Yatsenyuk and billionaire ex-Economy Minister Petro Poroshenko. Tymoshenko, who was imprisoned more than two years ago for abuse of power, later ruled out the role for herself, as did Vitali Klitschko, who heads the UDAR party.

Ukraine spiraled into crisis in November when protesters took to the streets to oppose Yanukovych’s rejection of a deal to deepen ties with the EU. Violence culminated last week in fighting in central Kiev that killed 82 people before a peace agreement brokered by EU foreign ministers ended the clashes and triggered Yanukovych’s flight from Kiev.

U.S. Vow

Yanukovych went to Crimea in southern Ukraine after his plane in the eastern city of Donetsk was denied permission to leave the country, acting Interior Minister Arsen Avakov said on his Facebook page. Stopping at a private residence also in the country’s south, Yanukovych was denied entry by state guards and departed with his entourage “in an unknown direction in three cars,” he said.

“A criminal case was opened into the mass murder of civilians,” Avakov said. “Yanukovych and other officials have been declared wanted.”

With western nations and Russia tussling for sway over the country of 45 million people, the IMF is ready to help Ukraine “not only from a humanitarian point of view but also from an economic point of view,” Managing Director Christine Lagarde told reporters in Sydney following a meeting of Group of 20 officials yesterday.

Treasury Secretary Jacob J. Lew said the U.S. was prepared to help Ukraine return to a path of democracy, stability and growth.

‘Grave Mistake’

In Ukraine, the political crisis polarized sentiment between its western and central regions bordering the EU and those in the south and east that are home to more Russian speakers and ethnic Russians.

While people toppled statues of Vladimir Lenin across the country in protests, according to Ukraine’s Channel 5, more than 2,000 rallied for closer ties with Russia in the southern city of Odessa. In Kerch, also in the south, marchers replaced a Ukrainian flag at the mayor’s office with Russian and Crimean flags, Unian reported.

The opposition is following the lead of “armed extremists and thugs whose actions pose a direct threat to the sovereignty and constitutional order in Ukraine,” Russian Foreign Minister Sergey Lavrov said in a statement on Feb 22.

White House National Security Adviser Susan Rice said the U.S. would work with European partners to help finance Ukraine’s economic recovery, while warning Russia that any insertion of its troops would be “a grave mistake.”

“It’s not in the interests of Ukraine or of Russia or of Europe or of the United States to see the country split,” Rice said on NBC’s “Meet the Press” program.

To contact the reporters on this story: Daryna Krasnolutska in Kiev at dkrasnolutsk@bloomberg.net; Kateryna Choursina in Kiev at kchoursina@bloomberg.net; Ilya Arkhipov in Moscow at iarkhipov@bloomberg.net

To contact the editors responsible for this story: Balazs Penz at bpenz@bloomberg.net; James M. Gomez at jagomez@bloomberg.net

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