Ukraine: Russia increases economic pressure

(Vatican Radio) Russia has increased economic pressure on Ukraine by drawing a link between disbursement of the next tranche of its $15 billion aid package to Kyiv with repayment of a hefty natural gas bill owed to Russian firms.

The issue was revealed after talks between the Russian and Ukrainian presidents on the sidelines of the Winter Olympics, amid mounting concern over Ukraine's economy.


The Kremlin said Saturday that Russian President Vladimir Putin held private talks with Ukraine's leader Viktor Yanukovich in Sochi, where Russia hosts the most expensive Winter Games in Olympics history. Listen to this report from Stefan Bos:

Their meeting came amid what critics view as mounting pressure from Moscow on Ukraine to appoint a pro-Russian prime minister after the recent resignation of Mykola Azarov following massive anti-government protests.


Demonstrators also demand the resignation of President Yanukovich, after he refused to sign an assiciation agreement with the European Union, opting instead for Russia in exchange for a 15-billion dollar aid package.


Yet, Moscow is reluctant to disburse the next tranche of the package, with Finance Minister Anton Siluanov expressing concerns over Ukraine's outstanding natural gas debt to Russian firms of some 2.7 billion dollars.


Analysts say Ukraine urgently needs the next tranche of Russian loans, some $2 billion, as its ailing economy and hryvnia currency have been battered by more than two months of unrest.


The EU is also seeking Ukraine's attention. EU Foreign Policy chief Catherine Ashton, who visited Kiev this week, told reporters that the Union wants to offer economic support.


"As I have told many times in the cause of the last months about the importance of supporting the

economy in Ukraine. Not unconditionally. It is really important to see the sort of economic reforms that will be necessary," she noted.


"Because this is real economic support and investment. That means it is not only about the

short term but also about the long term. It is about about the capacity of the economy not just to grow in areas that are doing well already, but also to develop in other areas too," Ashton said.


Those comments came shortly before Ukraine's central bank imposed currency controls to try to prop up the hryvnia. It has limited private transfers of dollars out of Ukraine to some $5,700 a month and imposed a ban on purchases of foreign currency for overseas investment or for early repayment of loans.


That prompted the Fitch Ratings agency to slash Ukraine's credit rating two notches deeper into junk territory.


It gave Ukraine a triple C rating because of what it called continued political instability and deteriorating finances, following downgrades from two other major ratings firms.