Search

Ukraine Seeks IMF Rescue as Gunmen Storm Crimea Assembly

By Henry Meyer and Ekaterina Shatalova
February 28, 2014 2:20 AM EST 113 Comments
Police forces intervene as a group of Russian supporters gathers in front of the parliament building in Simferopol, the capital of the Autonomous Republic of Crimea on Feb. 27, 2014.
Photographer: Bulent Doruk/Anadolu Agency via Getty Images
Police forces intervene as a group of Russian supporters gathers in front of the parliament building in Simferopol, the capital of the Autonomous Republic of Crimea on Feb. 27, 2014.

Ukraine’s new government started work on securing international financing to avert a default as separatist tensions flared in the southern Crimea region.

Prime Minister Arseniy Yatsenyuk’s government on its first day in office invited the International Monetary Fund to Kiev for talks about a bailout worth as much as $15 billion. Deposed former President Viktor Yanukovych, who claims to be the country’s rightful leader, surfaced in Russia and will hold a news conference today.

“The issue now is national unity and anyone who calls for a split will act against Ukraine and its people,” Yatsenyuk told parliament yesterday. “We face incredible economic challenges. The only way out is to do very unpopular things concerning tariffs, subsidies and social programs.”

Related:

Ukraine’s currency plunged a further 5 percent yesterday as ethnic tensions at home and Russian military maneuvers nearby rattle investors. A crisis in Crimea risks further stoking political tensions within Ukraine and gives Russia a potential excuse to interfere in a country still reeling from an uprising. Yatsenyuk told lawmakers that the Yanukovych regime had moved $70 billion into off-shore accounts and the state coffers are “empty and robbed.”

Yanukovych said he’s been granted safe haven by Russia, according to an address cited by Russian news service Interfax. He’ll hold a briefing at 5 p.m. Moscow time in the southern Russian city of Rostov-on-Don, RIA Novosti reported.

Hryvnia Plunge

What Caused Ukraine's Crisis?

Yanukovych’s exit unnerved parts of Ukraine’s Russian-speaking east and south. Supporters of Russia in Crimea clashed with ethnic Tatars and seized the parliament and government buildings, raising the Russian flag.

Both countries’ major commercial ports on the Black Sea are located outside the Crimea, with Ukraine’s Odessa lying to the west and Russia’s Novorossiysk to the east.

Russian President Vladimir Putin ordered his government to consider humanitarian aid to Crimea and to hold talks with the IMF and other countries on a Ukraine bailout, state-run RIA Novosti reported, citing Putin’s spokesman Dmitry Peskov.

In Washington, U.S. Secretary of State John Kerry said he had received assurances from Russian Foreign Minister Sergei Lavrov that Russia respects Ukraine’s territorial integrity and that the military exercises Moscow is staging on Ukraine’s border have nothing to do with the political upheaval there.

Yanukovych’s Legitimacy

Kerry added that he and Lavrov discussed yesterday’s militant takeover of the Crimean parliament.

The top U.S. diplomat also disputed Yanukovych’s claims that he’s still Ukraine’s legitimate leader. “He left the field of engagement,” Kerry said. “I think it’s clear that events have now overtaken whatever legitimacy he claimed.”

German Foreign Minister Frank-Walter Steinmeier said after meeting Kerry in Washington yesterday that it’s important not to have a tug of war between East and West over Ukraine. He said the focus should be on helping stabilize the country’s economy.

Steinmeier urged Russia to join stabilization efforts, “because nobody can have an interest in the country going bankrupt.”

‘Under Control’

Ukraine’s new finance minister, Pavlo Sheremeta, said in an interview with the Wall Street Journal yesterday that there’s no significant risk of an imminent economic collapse. He said the drop in the hryvnia is “under control,” the Journal reported.

Ukraine’s dollar-denominated bonds due in June rose to 94.2 cents on the greenback from 93.94 the previous day, lowering the yield to 32.55 percent last night in Kiev. The hryvnia weakened 5.4 percent to 10.7 per dollar, the lowest level since it was introduced in 1996, data compiled by Bloomberg show.

The country’s debt was affirmed today by Fitch Ratings at CCC, eight steps below investment grade. Ukraine’s political risk “remains high and the transition of power has a range of outcomes,” the credit evaluator said from London.

“Ukraine’s ability to obtain external financing will largely depend on how quickly it can form a new government that has broad popular acceptance and set out a coherent economic policy programme,” Fitch said.

Central Bank Governor Stepan Kubiv will hold a press conference with Yatsenyuk at 10 a.m. in Kiev as the IMF is signaling it will help them find a way out of the immediate fiscal impasse.

“We are ready to respond,” IMF Managing Director Christine Lagarde said in a statement. A fact-finding mission “will enable the IMF to make its usual technical, independent assessment of the economic situation in Ukraine.”

Crimea Takeover

In the Crimea, about 120 trained and well-armed men took over the parliament and government buildings in Simferopol yesterday, according to Serhiy Kunitsyn, a lawmaker for former boxing champion Vitali Klitschko’s UDAR party.

Deputies were let into the legislature in Simferopol and agreed to hold a May 25 referendum on expanding the territorial powers of Crimea within Ukraine, the parliament’s spokeswoman, Lyudmila Mokhova, said by phone.

A group of about 50 armed men in military uniform without identification seized the Simferopol international airport early today, Interfax-Ukraine reported, citing eyewitnesses. They wore the same gear as those who seized the Crimean parliament, the news service reported, citing eyewitnesses.

The gunmen, who thought Ukrainian troops were landing, left after excusing themselves, Ekho Moskvy radio reported, citing airport spokesman Igor Stratilati.

Sevastopol Airport

In a separate incident, Russian servicemen last night took over an airport in Sevastopol -- home of Russia’s Black Sea fleet -- to prevent the landing of hostile forces, Interfax-Ukraine reported, citing unidentified military officials.

A vote in favor of the new status would mean that Crimea would no longer send its tax revenue to Ukraine’s national budget, the parliament’s spokeswoman Mokhova said.

The proposed plebiscite has no legal basis, Unian said, citing the Central Election Committee. The constitution requires a nationwide vote for any change in territorial status.

Naval Base

Russia’s Black Sea fleet leases its main base from Ukraine in Sevastopol, 80 kilometers (50 miles) from Simferopol. It began military exercises Feb. 26 in its western central regions, though said they weren’t related to events in Ukraine.

Seven armored personnel carriers from Russia’s Black Sea fleet drove toward Simferopol yesterday morning before turning back, Crimean Security Service spokeswoman Irina Galinskaya said by phone.

Ukraine’s acting President, Oleksandr Turchynov, said he regards movements of Russia’s Black Sea forces outside of their bases as aggression. The Ukrainian Foreign Ministry summoned Russia’s envoy in Kiev for “urgent” talks.

In an interview with Bloomberg Television before his confirmation, Yatsenyuk said he believes Russia is a “friendly” neighbor that “would never intervene with military forces in Ukraine.”

In Kiev, lawmakers confirmed the makeup of an interim cabinet that will remain in place for about four months. Yatsenyuk, who heads ex-Premier Yulia Tymoshenko’s opposition party in parliament, is a former central banker, economy minister and foreign minister and is backed by the U.S.

U.S. Vice President Joe Biden called Yatsenyuk last night to welcome the formation of a new government and to assure the prime minister of full U.S. support as Ukraine works to shore up its economy and pursue constructive relations with its neighbors, the White House said in a statement.

With Yanukovych on the run and facing murder charges, Lavrov reiterated calls for the implementation of a European Union-negotiated peace deal in Ukraine under which Yanukovych would remain leader until as late as December. The EU said it recognizes Turchynov as Ukraine’s president.

To contact the reporters on this story: Henry Meyer in Crimea at hmeyer4@bloomberg.net; Ekaterina Shatalova in Moscow at eshatalova@bloomberg.net

To contact the editors responsible for this story: Balazs Penz at bpenz@bloomberg.net; Denis Maternovsky at dmaternovsky@bloomberg.net

More related content »