Ukraine’s finances would come under intense stress, if Russia ended a 15 billion dollars bailout and revoked cuts in natural gas prices.
In December 2013, Viktor Yanukovych, Ukraine’s former president, signed a controversial deal with Russia. Moscow agreed to invest 15 billion dollars from its national welfare fund into Ukrainian sovereign bond and cut prices for natural gas from 400 dollars per thousand cubic metres to 268.50 dollars (a 400-dollar natural gas supply agreement was brokered in 2009 by the government of Yulia Tymoshenko).
Mr Yanukovych praised a deal with Moscow for providing a financial lifeline to Ukraine’s ailing economy, but he didn’t reveal what he had agreed to offer in return for a gas price discount and a bailout. His decision inflamed anti-government protests in Kiev and other Ukrainian cities, because a Russian deal dashed hopes of integrating Ukraine more closely with the European Union.
If Ukraine had signed an association and trade agreement with the EU, the 28-member bloc would have lent Kiev up to 20 billion euro. The Yanukovych administration, though, claimed that an EU deal would have meant the implementation of painful economic reforms and decided to ditch it.
Russia bought 3 billion dollars of Ukrainian bond in late December. The purchase of further 2 billion dollars has been put on hold until a new government is in place and in control of the situation in the country.
The Ukrainian economy has been seriously damaged by the government’s mismanagement, corruption and cronyism. The EU and the US administration will have to endorse a package of financial help for Ukraine amounting to at least 20 billion dollars issued through the International Monetary Fund, to avoid bankruptcy.
Kiev has to redeem 1 billion dollar-denominated notes in early June.
photo: Oxlaey.com / CC BY 2.0
