Ukraine's Viktor Yanukovich meets with Putin to map out partnership

Ukrainian President Viktor Yanukovich met Russia's Vladimir Putin on Friday to lay the grounds for a new "strategic partnership" to shore up Ukraine's creaking economy in defiance of protesters back home enraged by his U-turn away from Europe.

Ukraine's president flew to Sochi to lay grounds for trade agreement as protests continue in capital

Supporters of Ukrainian EU integration sing and wave flags during a protest in front of the Ukrainian cabinet of ministers building in Kyiv on Friday while their president, Viktor Yanukovich met with Russian President Vladimir Putin to negotiate economic aid to shore up Ukraine's fragile economy. (Vasily Fedosenko/Reuters)

Ukrainian President Viktor Yanukovich met Russia's Vladimir Putin on Friday to lay the grounds for a new "strategic partnership" to shore up Ukraine's creaking economy in defiance of protesters back home enraged by his U-turn away from Europe.

The leaders met in the Black Sea resort of Sochi in Russia, after Yanukovich flew in for an unannounced stop on his way back from China to map out a new agreement on trade and economic cooperation, a statement on Yanukovich's official website said.

Prime Minister Mykola Azarov told journalists Yanukovich would visit Moscow at some point in the future and sign a large number of documents. "We are talking about a major agreement here," Azarov said though he gave no precise details of the outline deal.

Ukrainian President Viktor Yanukovich, left, met German Foreign Minister Guido Westerwelle in Kyiv in early October but last month he made an abrupt shift in policy and decided to abandon the trade and integration deal with the EU and shift Ukraine's alliances back to Russia. (Gleb Garanich/Associated Press)

Yanukovich faces turmoil in Kyiv, where protesters are massed on Independence Square and others occupy City Hall, furious at Yanukovich for walking away last month from a landmark pact on trade and integration with the European Union. Police have threatened to crack down harshly to enforce a court order that they disperse.

Ukraine needs help with $17 billion in debt repayments and Russian gas bills next year. While in Beijing, Yanukovich announced deals which may bring $8 billion in Chinese investment but these are unlikely to meet the economy's short-term cash needs.

Analysts say Yanukovich's government appears to have struck a bargain with Putin, including for supplies of cheaper Russian gas and possibly credits, in exchange for backing away from the EU deal which would have heralded a historic shift westwards.

Protests hurt economy

But the Sochi talks will lend ammunition to the Ukrainian opposition, which accuses Yanukovich of betraying the national interest by turning the clock back and forging closer economic ties with Ukraine's old Soviet master.

The standoff is taking a toll on the fragile economy. The central bank has twice been forced to support the hryvnia currency this week and the cost of insuring Ukraine's debt against default has risen further.

Ukraine's dwindling currency reserves have particularly sparked alarm among investors. Intervention to support the hryvnia, repayments to the International Monetary Fund and on treasury bills pushed these reserves further down by nine percent in November to $18.8 billion, the central bank said on Friday — less than that needed to cover two and a half months of imports.

Former economy minister Arseny Yatsenyuk, one of the opposition leaders, warned of even bigger protests if Yanukovich signed any agreement with Putin on the Russian-led customs union which Moscow wants Ukraine to join.

"If Yanukovich tries to sign anything with Russia about the customs union, it will lead to a bigger wave of protests," Yatsenyuk told journalists.

'We have an evacuation plan'

In Kyiv, several hundred demonstrators manned a protest camp on Independence Square as the opposition pressed for the resignation of the government, the release of jailed former prime minister Yulia Tymoshenko and the prosecution of the interior minister for being behind an earlier crackdown on protesters.

Opposition leaders, also including world heavweight boxing champion-turned-politician Vitaly Klitschko, urged people to turn out for another rally in central Kyiv on Sunday.

A separate, smaller, group of protesters milled around in the corridors and staircases of City Hall on Friday despite the strongly-worded threat from police of an imminent crackdown to eject them "harshly."

"We have an evacuation plan," said a 30-year-old trader, who was part of the protesters' security staff and gave his name only as Igor. "If they come at us, we will be able to hold them long enough to be able to get the women, children and the weakest men out of the building."

A 22-year-old Kyiv student also called Igor said the protesters won't let police take the building back.

"We will resist to the end," he said. "We are not hindering anyone. The employees here are working normally."

East-West divide

Hundreds of thousands of demonstrators, angered at Kyiv's Nov. 21 decision to abandon the trade and integration deal with the EU, poured onto the streets last Sunday after many people — a lot of them young students — were hurt in police action.

Though the government later apologized, Prime Minister Mykola Azarov returned to the attack on Thursday, labelling those holding public buildings like the mayor's office "Nazis, extremists and criminals."

Former prime minister Yulia Tymoshenko is in jail serving a seven-year sentence for abuse of office and is facing new charges related to the murder of a Ukrainian businessman. The Ukrainian opposition and Western governments have denounced her imprisonment as politically motivated. (Sergei Chuzavkov/Associated Press)

He has rejected calls for his dismissal and an opposition call for early elections. His first deputy, Serhiy Arbuzov, who appeared to say on Thursday he supported snap elections, denied this on Friday, saying his words had been "twisted."

The Ukrainian state and companies will struggle to repay the $7 billion of debt maturing next year, while doubts are growing as to how long the central bank's meagre reserves can stave off a currency collapse.

"We think that default risk is being seriously under-estimated," Timothy Ash, the head of emerging markets strategy at Standard Bank, said in a note to clients.

The IMF has suspended negotiations with Ukraine for a new bailout program, leaving the government to hunt for economic relief elsewhere.

The crisis has exposed a gulf between Ukrainians, many from the West of the country, who hope to move rapidly into the European mainstream, and those mainly from the East who look to Moscow as a guarantor of stability.

In the city of Kharkiv, a court hearing in a new prosecution against Tymoshenko — whom many demonstrators regard as their leader — was put off again because of her non-attendance due to back trouble.

The EU considers Tymoshenko, the peasant-braided politician who co-led the "Orange Revolution" protests of 2004-5, a political prisoner and campaigned in vain for her release before Kyiv broke off negotiations.


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