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Ukrainian president under pressure over Russian bailout

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[December 18, 2013]  By Gabriela Baczynska

KIEV (Reuters) — Ukraine's president faced calls to resign on Wednesday over a $15-billion bailout from Russia which the opposition and protesters said had sold the country out to its former Soviet masters in Moscow.

Tens of thousands of protesters gathered in Kiev on Tuesday after President Viktor Yanukovich secured financial assistance and a gas price discount at talks with President Vladimir Putin, and several hundred spent the night in the freezing cold.

Russia said it will buy Ukrainian bonds under a deal which keeps Kiev firmly in Moscow's orbit and out of the European Union's grasp but sowed doubts in some Ukrainians' minds about what Yanukovich might have agreed to in secret.

Many of the protesters are angry Yanukovich has spurned an offer of closer cooperation with Europe and look on Russia with suspicion after living for decades under Soviet communist rule.

"I think the people will eventually have it their way. We will sign up to Europe. That's why I'm here," said Snezhana, a factory worker who spent the night on Kiev's snowy main square.

Irina Litvinianko, a businesswoman, said: "It's hard to imagine it could end up in anything else but a change of power."


Opposition leaders have called for mass rallies over the holiday season on the central square occupied for weeks by protesters, who have pitched tents behind tall barricades.

"He has given up Ukraine's national interests, given up independence," Vitaly Klitschko, an opposition leader and heavyweight boxing champion, told the crowd on Tuesday.

Ukraine needs money to cover an external funding gap of $17 billion next year — almost the level of the central bank's depleted currency reserves — and avoid defaulting on its debts.

Underlining the depth of the problem, Russian Finance Minister Anton Siluanov said Moscow would buy $3 billion worth of Ukrainian Eurobonds as early as the end of this week, marking the first installment in debt purchases to total $15 billion.

However, the United States warned Kiev the deal would not satisfy the protesters and German Chancellor Angela Merkel said ties with Russia should not prevent Kiev from looking West.

"At the moment it seems to be an either-or proposition. ... We need to put an end to this," Merkel told ARD TV. "A bidding competition won't solve the problem."

Russian Foreign Minister Sergei Lavrov told parliament on Wednesday that the West was continuing to put "overt pressure" on Ukraine.

Putin wants to bring Ukraine's big, mineral-rich market into a Eurasian Union he plans to build with Kazakhstan, Belarus and other ex-Soviet republics to match the economic might of the United States and China. Without Ukraine, it looks much weaker.

Putin also seems determined to stop Ukraine, by far the most populous former Soviet republic after Russia, from building a new and close relationship with the EU.

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BANDAGE, NOT REMEDY

Sitting side-by-side in a gilded Kremlin hall, Putin and Yanukovich bumped shoulders and laughed while documents were signed on reducing trade barriers for Ukraine.

Moscow also offered relief on Kiev's gas bill. Russia's Gazprom has slashed the price Ukraine will pay for supplies to $268.5 per 1,000 cubic meters from about $400.

In an apparent dig at demands made by the EU under the deal it had offered Kiev, Putin said Russia's assistance was "not tied to any conditions" — including Ukraine's accession to a Russian-led customs union of former Soviet republics.

"Ukraine is our strategic partner and ally in every sense of the word," Putin said.

The deal boosted the price of Ukraine's dollar debt. Investors said it would stave off the immediate threat of default or a currency crisis but would put a heavy burden on Russia, whose own economy is stuttering.

"This is a rescue. Without that money, Ukraine would have defaulted some time before the middle of next year," said Chris Weafer, senior partner with consultancy Macro-Advisory.

One analyst, Lilit Gevorgyan of IHS Global Insight, described the assistance as a "bandage but no remedy" for an economy that is heavily dependent on steel and agriculture and has struggled to modernize since the end of the communist era.

Yanukovich has been seeking the best possible deal for his country of 46 million but has been criticized in the West after police used force against the protests in the heart of Kiev.


Moscow, accused by European officials of bullying Kiev into dropping the EU deal last month with the threat of economic retaliation, now has great financial leverage over Ukraine,

If it withdraws its money and alters the gas price, it could pull the plug on its neighbor. Putin appeared to stress this by saying the agreements on the gas price was temporary.

(Additional reporting by Lidia Kelly in Moscow, Gabriela Baczynska in Kiev, Justyna Pawlak in Brussels, writing by Alissa de Carbonnel; editing by David Stamp and Patrick Graham)

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