Russia Offers Cash Infusion for Ukraine

MOSCOW — In a sharp rebuff to the West in the diplomatic wrangle over Ukraine, President Vladimir V. Putin said Tuesday that Russia would come to the rescue of its financially troubled neighbor, providing $15 billion in loans and a steep discount on natural gas prices.

It was a bold but risky move by Russia, given the political chaos in Kiev, the Ukrainian capital, where thousands of demonstrators remain encamped in Independence Square, protesting their government’s failure to sign political and free-trade accords with Europe.

For the moment, however, Mr. Putin seemed to gain the upper hand over Europe and the United States in their contest for Ukraine, a former Soviet republic of 46 million that Russia sees as integral to its economic and security interests. It is by far the region’s most populous and influential country that has remained outside the European orbit.

For Mr. Putin, the jousting over Ukraine is the latest of several foreign policy moves that have served to re-establish Russia as a counterweight to Western dominance of world affairs. This year, he defied Washington by granting temporary asylum to Edward J. Snowden, the former National Security Agency contractor, and deflected an American military strike on his longtime ally, President Bashar al-Assad of Syria, with a proposal to eliminate Syria’s chemical weapons.

There was no immediate quid pro quo for Russia — at least not in plain sight — as Mr. Putin announced the deal at the Kremlin with Ukraine’s embattled president, Viktor F. Yanukovich. Protesters in Kiev have been deeply worried that Mr. Yanukovich would cut a secret deal to join a customs union that Russia has established with Belarus and Kazakhstan. The union is essentially a free-trade zone across a large section of the former Soviet Union, allowing goods to cross travel through borders without clearing customs.

Over the weeks of protests, however, it became clear that the customs union was a nonstarter for Ukraine, and Mr. Putin said the subject did not come up in their discussions on Tuesday.

In Independence Square, where the large crowd was bolstered by people coming out of work, the initial reaction appeared to be a mix of fury and dismay, with people chanting, "Out with the crook!” But there was no call for drastic new steps.

Leaders of the three opposition parties who are coordinating the protest said the demonstrations would continue, and they voiced suspicions about what Mr. Yanukovich had offered in exchange for a Russian bailout.

"Free cheese is only found in a mousetrap,” Arseniy P. Yatsenyuk, the leader of the Fatherland coalition in Parliament, said in a speech. He asked for the patience of protesters.

The implications for the protest movement were not immediately clear, but Mr. Putin’s announcement, at a Kremlin meeting with Mr. Yanukovich, substantially alters the political landscape. It throws Mr. Yanukovich an economic and political lifeline that will spare him for now from negotiations with the International Monetary Fund, which was demanding significant changes to the government, judiciary and the economy in exchange for aid.

While Mr. Putin portrayed Russia’s assistance as a gallant move, requiring Ukraine neither to commit to the customs union nor to put in place any of the austerity measures demanded by the I.M.F., the rescue plan carries serious long-term economic and political risks. Experts say that unless Ukraine carries out overhauls, including increases in household utility rates, limits on government spending and pension increases, and improvements in the business climate, the country’s economic problems will continue, raising the likelihood that the aid will be wasted.

In addition, the political uncertainty raises the possibility of changes at the highest levels of government, perhaps even sooner than the presidential elections in February 2015.

Then there is the immediate investment risk. Russia’s rules for its national welfare fund require investments in countries with long-term bond ratings of AA or better; both Fitch and Standard & Poor’s rate Ukraine at B-.

Mr. Putin, sitting beside Mr. Yanukovich on Tuesday, said Russia was happy to help. "With the goal of supporting the budget of Ukraine, the government of the Russian Federation made the decision to issue in bonds from the Ukrainian government part of its own reserves from the national welfare fund in the amount of $15 billion,” he said.

Nodding to the demands in the West, he added: "I want to bring your attention to the fact that it is not connected with any conditions, not connected with the increase, decrease or freezing of any social standards, pensions, subsidies or salaries.

"And I want to calm everyone down. Today we did not discuss the question of Ukraine’s accession to the customs union.”

International financial experts have said those conditions were crucial to ensuring that Ukraine would be able to solve its economic problems and not need another bailout soon. Many of the conditions, however, were politically unappetizing to Mr. Yanukovich, who is expected to seek a second term.

Mr. Yanukovich, whose political fortunes have appeared bleak in recent days, praised Mr. Putin’s leadership. "I know that this work wouldn’t have been done at this optimal speed if not for the Russian president’s political will,” he said.

Ukraine has long been caught in the middle of battles between greater powers to the East and West. Mr. Yanukovich has repeatedly sought to play each side against the other, often infuriating both and coming across as an untrustworthy partner.

The country has been grappling with a deepening financial crisis that only worsened after Mr. Yanukovich announced abruptly last month that he would not sign political and free-trade agreements that had been in the works for years with the European Union.

Mr. Putin said that the money to aid Ukraine would come from Russia’s hefty reserve funds, and that the price of gas sold by Gazprom, the state-controlled energy behemoth, would be dropped to $268.50 per 1,000 cubic meters — less than the $380 Western Europe pays for Russian gas — from between $395 and $410, saving Ukraine $2 billion a year.

The Russian leader’s ability to announce a major bailout of Ukraine highlighted the contrasts with the West, where a rescue plan on such a scale would typically require protracted debate and negotiation. In Russia, it was a decision that Mr. Putin, in consultation with a close coterie of aides, could make himself.

The decision to help Ukraine, without immediately demanding a commitment to join the customs union or any other evident quid pro quo, secured Russia’s continued sway and positioned Mr. Putin to further chastise Western officials for their aggressive efforts to support antigovernment protesters.

Senior Western envoys, including Victoria Nuland, an assistant secretary of state; the German foreign minister, Guido Westerwelle; and Catherine Ashton, the European Union’s foreign policy chief, have all been in Kiev in recent days and expressed support for the demonstrators. They have urged Mr. Yanukovich to listen to their demands and revive talks with Europe.

On Sunday, Senator John McCain, the Arizona Republican whose strong views on what he has deemed Russian foreign policy aggression and human rights abuses draw close attention in Moscow, appeared onstage in Independence Square, where he told hundreds of thousands of demonstrators that the United States stood with them.

Russia had maneuvered aggressively to derail Ukraine’s accords ahead of a European Union conference in Vilnius, Lithuania, last month, where Mr. Yanukovich was expected to sign them. The Kremlin threatened draconian economic sanctions that could have devastated Ukraine’s already battered economy.

Mr. Putin and other senior officials, however, had insisted that they were merely pointing out necessary steps that Russia would take to protect its economic interests. They accused Western powers of interfering in Ukraine’s affairs after refusing to accept that Russia had won by making a persuasive case.

The unrest in Ukraine, which was further animated by a violent crackdown by the police on demonstrators on Nov. 30, has been driven largely by a sense of betrayal among protesters who had been assured by Mr. Yanukovich that their country was drawing closer to Europe politically and economically.

Mr. Yanukovich has insisted that Ukraine would ultimately move toward Europe and even consider signing the accords at a later date. But a senior European Union official has said those discussions have been cut off.

The New York Times