Thursday

1st Sep 2016

EU and US warn Ukraine it risks going bust

Brussels and Washington have told Kiev it is unlikely to get International Monetary Fund (IMF) aid after it binned plans to sign an EU treaty.

EU foreign relations chief Catherine Ashton said in a statement on Thursday (21 November) the EU pact was a chance for Ukraine to show it "is serious about its modernisation pledge and becoming a predictable and reliable interlocutor for international markets."

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  • Yanukovych (l) and Putin: Ukraine blamed the move on Russian trade pressure (Photo: president.gov.ua)

She added: "It would have … given momentum to negotiations on a new standby arrangement with the IMF."

US state department spokeswoman Jen Psaki said the EU treaty was "an historic opportunity to … demonstrate to international financial institutions and investors its [Ukraine's] unwavering commitment to democratic reform."

IMF and EU processes are not formally linked, but European and US diplomats have influence in the Washington-based body.

Ukraine's rift with the EU also means that a European loan, worth €610 million, is likely to be put on hold.

The IMF is in any case unhappy with Kiev.

It suspended a credit line worth $15 billion in 2011 because Ukraine reneged on promises to stop subsidising household gas bills.

It is currently in talks with Kiev on a new credit line reportedly worth $10 billion to $15 billion.

Ukraine needs the money to help with $60 billion of looming debt repayments. It has just $22 billion in foreign currency reserves and the same lousy credit rating as EU bailout countries Cyprus and Greece.

The EU and US "disappointment" comes after Ukraine on Thursday issued a decree halting the signature of an EU association and trade pact at a summit in Vilnius next week.

The move follows a series of what one Ukrainian diplomat described as "man-to-man" meetings between Yanukovych and Russian President Vladimir Putin.

It is unclear what Putin offered or threatened in return for the u-turn.

But Swedish foreign minister Carl Bildt on Thursday accused Russia of blackmailing Ukraine with gas prices and trade blockades.

His remarks came in a debate with a counsellor from the Russian embassy to the US, Dmitry Cherkashin, hosted by the Brookings Institution, a think tank, in Washington.

"I can just assure you that Russia does not exert any pressure on its neighbours," Cherkashin said.

"So you are saying that when the Ukrainians are saying that you’ve cut trade and when the Ukrainians are saying that you are forcing them to near bankruptcy, the Ukrainians are lying?" Bildt replied.

The Ashton and Psaki statements added that the West is "keeping the door open" on Ukraine relations for the sake of "Ukrainian people."

Yanukovych himself on Thursday said he remains committed to "Euro-integration" despite the Vilnius fiasco.

It is unclear what this will mean in practice, however.

The Ukrainian decree also called for the creation of a high level EU-Russia-Ukraine trade panel to promote economic ties.

The idea is not new, but EU diplomats do not believe that Putin, who prefers "man-to-man" meetings, would take it seriously.

One option is for the EU and US to keep giving Ukraine assistance in order to stop Yanukovych from joining Putin's Customs Union and Eurasian Union.

But another option is to cut him loose.

"We should make clear that Ukraine is not welcome in Vilnius at the top level. There should be no more phone calls. No more offers. The EU should make a pause in relations, and six months down the line, when he is left alone to deal with Russian pressure, he will come to us on his knees," an EU diplomat said.

The contact noted that Yanukovych, who is expected to stay in power until at least 2019, has broken trust.

"I don't think EU-Ukraine relations will go anywhere until the current administration has left," the EU source said.

Sweden's Bildt added at the Brookings debate that even if Yanukovych stays out of Putin's Customs Union, Ukraine's future looks bleak.

"They are not going West. I don't think they are going East. I feel they are going down. That's roughly where we are because of the economic problems," he said.

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