Author`s name Dmitry Sudakov

Will Ukraine appreciate Russia's assistance?

While the U.S. Congress is discussing sanctions against the Ukrainian authorities, the Russian government offered them unprecedented assistance. Experts agree that it is a noble gesture by Russia that poses significant risks. However, it would be worth remembering such Soviet concept as "assistance to the brotherly people."   

During the visit of President Viktor Yanukovych to Moscow an agreement was reached on Russia investing $15 billion of its reserves in the Ukrainian securities and lowering the price of gas for Ukraine by a third, from 400 to 268.5 dollars per thousand cubic meters. These measures have been taken at a critical for the Ukrainian economy moment when it was facing a threat of a default and bankruptcy debts. According to Finance Minister Anton Siluyanov, Russia will invest part of this amount in Ukraine's sovereign Eurobonds this year, and another part in the following year. $15 billion is a huge sum comparable to the amount of the funds allocated from the National Welfare Fund (NWF) to all Russian infrastructure projects. Siluyanov believes that the first tranche of $3 billion will support the hryvnia at least through February of 2014.

The supply of cheap gas will improve the balance of Ukraine's payments for another $2.5 billion. This means that Russia has provided $17.5 billion for urgent payments that Yanukovych will need in 2014. The price of gas under the contract with "Gazprom" signed by the Ukrainian government in 2009 is tied to the world oil price, which, contrary to predictions, is not falling, but rising. This is precisely why the price of gas for Ukraine has been higher than the price for Germany. "The acquisition of Ukrainian Eurobonds is an invaluable aid to Ukraine. This is not just a lifeline for Ukraine, this is something that will allow it to survive and even move from stagnation to growth," told Pravda.Ru Head of the Economy Department of the CIS Institute Aza Mihranyan.  

"Eurobonds are issued by countries and placed on the European market as obligations. Ukrainian Eurobonds today are not the most attractive security in the European market. Over the past two months, due to certain events, Ukraine's rating has dropped to "B -" and with some agencies even lower. Therefore, it is difficult to predict the yield of these securities (today it is 8-8.5 percent), and their purchase is a risky investment. The main issuers of Ukrainian Eurobonds are the government, public corporations, private corporations, and private sector. By buying their obligations, Russia is actually buying their debts and becoming their creditor and investor at the same time, as it finances the real and the financial sector," the expert explained.

Russia did not make the most profitable investment, but in the current situation of urgency this assistance was the right choice. The government-secured Eurobonds will be repaid first in the event of a disaster or default. "It is a less risky investment than direct lending. Furthermore, buying Eurobonds of corporations, Russia can count on their real assets as collateral for the reimbursement of the invested funds. But this is the only positive thing for Russia when lending through Eurobonds," said the expert. Mihranyan explained that all Western and Chinese lenders operate under a different scheme. They do not lend through the purchase of securities, but lend through investment projects, with most of the project implemented by the lender so that the invested money works for their economy. 

But Russia acted differently. There is a risk for the Russian Federation, as funds from the National Welfare Fund would be diverted, which is not safe from the point  of view of the state of the Russian economy. Although the officials say that there will be no negative impact because the funds will be taken from different sources. The expert does not believe that the allocation of credit and lowering gas prices is a turning point in the choice of Ukraine's integration preferences. "There is a certain convergence and formation of new forms of financial and economic relations. But knowing the political instability of the Ukrainian government, at this time we cannot say that the credit means a 100 percent change in the Ukrainian integration vector," told Pravda.Ru Aza Mihranyan.

"Definitely, Russia's gesture is more than noble. Russia is the only country that lent a helping hand after European partners refused to help Ukraine in such a difficult situation. But Ukrainian youth and certain political circles have a completely opposite trend. I do not think that they will properly appreciate Russia's gesture," she concluded.

Indeed, the Ukrainian opposition expressed fears that Russian assistance precisely means the choice of integration with the Customs Union. "15 billion plus billions obtained due to lower gas prices is too much money. We want to know what Ukraine has conceded in return," said the leader of the parliamentary faction of "Fatherland" Yatsenyuk.

"We must understand that there is a serious polarization in Ukraine. We cannot explain anything to the community we call the Maidan, it will stick to its irrational motivation and emotional plan," told Pravda.Ru an independent political analyst Sergei Mikheyev. "These people hate Russia and adore Europe. But there is another part of Ukraine that is able to think, and they will appreciate this move by Russia. As for the tipping point in the struggle for Ukraine, it may never come, because sitting on two chairs is its national idea. This is a product of the internal conflict, the product of an artificial statehood that is not whole or monolithic," the analyst said.

The Kremlin denied the reports that Ukraine promised something in exchange for the aid, and stated that the integration with the Customs Union was not discussed at the meeting between Putin and Yanukovych. It will be a while until a definitive conclusion on this issue can be made. It is obvious that the agreement is another strong step by Vladimir Putin as a world-class politician who knows how to handle a conflict and who does not consider the Ukrainian people to be a bargaining chip in the struggle for political influence.

Lyuba Lulko


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