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Ukraine Leader Warns Economy Near Collapse Amid Cabinet Talks

Feb. 23 (Bloomberg) -- Ukrainian lawmakers gave presidential powers to parliament Speaker Oleh Turchynov, who urged political parties to agree on a new government and warned of the “catastrophic” state of the nation’s economy.

The U.S., Europe and the U.K. said they would help with financial aid when a new cabinet is formed, a day after the assembly ousted Viktor Yanukovych from the presidency for his role in violence that killed at least 82 people last week. Border officials stopped him and members of his cabinet from fleeing Ukraine at an airport in the country’s eastern city of Donetsk yesterday. They were not detained.

“The situation in Ukraine, first of all in the economy, is catastrophic,” Turchynov told parliament today in Kiev. “There are no funds in the state Treasury account.”

With protesters in control of the capital and Yanukovych denouncing events from eastern Ukraine as a “coup d’etat,” the former leader’s opponents face a period of horse trading following the release from prison of opposition leader Yulia Tymoshenko. Jailed more than two years ago by Yanukovych’s government for abuse of power, she vowed an immediate return to a fractured political scene before an early presidential election on May 25.

Ukraine spiraled into crisis in November when protesters took to the streets to oppose Yanukovych’s rejection of a deal to deepen ties with the European Union. Violence crested last week in fighting on the capital Kiev’s Independence Square before a peace deal brokered by EU foreign ministers ended the clashes and triggered Yanukovych’s flight from Kiev.

Nation Divided

The peace agreement bolstered Ukrainian assets, with the yield on the government bond maturing in April 2023 falling 77 basis points, or 0.77 percentage point, on Feb. 21 to 10.33 percent.

With western nations and Russia tussling for sway over the country of 45 million people, the International Monetary Fund said it’s ready to help Ukraine “not only from a humanitarian point of view but also from an economic point of view,” IMF Managing Director Christine Lagarde told reporters in Sydney following a meeting of Group of 20 finance ministers and central bank governors.

Treasury Secretary Jacob J. Lew said the U.S. was prepared to help Ukraine return to a path of democracy, stability and growth. U.K. Chancellor of the Exchequer George Osborne agreed.

“We are here ready to help just as soon as there is someone at the end of the telephone,” Osborne said in an interview today in Sydney. “We should be there with a checkbook to help the people of Ukraine rebuild their country.”

Polarizing Dispute

Russia halted a $15 billion bailout for its neighbor after the unrest and talks on resumed financing may continue only after a new government is formed, RIA Novosti reported today, citing Russian Finance Minister Anton Siluanov in Sydney.

The dispute polarized sentiment in Ukraine largely between its western and central regions bordering ex-communist EU states Poland, Slovakia, Hungary and Romania and those in the south and east that are home to more Russian speakers and ethnic Russians.

Yanukovych’s departure is a blow to Russia, whose President Vladimir Putin wanted Ukraine, a key east-west energy route, to join a trade partnership of former Soviet states to rival the EU.

Yanukovych Flees

For a second day, police were absent from the streets in central Kiev, where protesters guarded key government buildings. Today, parliament temporarily gave presidential powers to Turchynov, who urged parties to agree on a new coalition cabinet by Feb. 25. Yesterday they also voted on measures aimed at bringing those responsible for the violence to justice, while Yanukovych’s Party of Regions blamed him for the violence.

“We condemn Yanukovych’s escape and cowardice,” the party said in a statement on its website today. It decried “criminal orders that led to victims, an empty treasury, huge debt, and shame in the eyes of Ukraine and the whole world.”

Border officials stopped Yanukovych’s plane in Donetsk yesterday and refused an offer from armed men of money in exchange for permission to depart, Oleh Slobodyan, head of the Ukriane Border Service media department, said by phone today.

Yanukovych left the airport in an armored car and hasn’t been seen trying to cross the border again. Former Interior Minister Vitaliy Zakharchenko, ex-Prosecutor General Viktor Pshonka and former Tax Minister Oleksandr Klymenko were also denied permission to leave at the same airport. The bodyguards of the latter two physically attacked border officials and then fled after warning shots were fired, Slobodyan said.

Boats, Hovercraft

Lawmakers also agreed to transfer ownership of Yanukovych’s sprawling residence in Kiev’s northern outskirts to the state. Thousands of people visited it for a second day today, with hundreds of cars thronging the entrance and people riding bikes and carrying children around the compound.

Previously closed to visitors, it boasted a man-made lake as large as several football fields with a life-sized galleon and a zoo with deer, ostriches, peacocks and other animals. Next to a towering mansion, a garage housed antique cars, motorcycles and at least seven limousines, according to images on website Censor.net.

Activists prevented people from entering the mansion. They recovered reams of documents that had been thrown into the pond and dried them in a building full of boats and a small hovercraft, according to images shown on Hromadske TV. The opening of the grounds dominated news broadcasts in Ukraine, where the average nominal wage is 3,619 hryvnia ($404) a month, according to December data from the national Statistics Office.

Tymoshenko Surprised

“We are obliged to bring Yanukovych back” to the capital, Tymoshenko said in a speech last night after leaving a prison hospital where she was receiving long-term treatment for a hernia in her back. She was jailed in 2011 for abuse of office on charges EU leaders have called politically motivated.

She spoke by phone with German Chancellor Angela Merkel and European Enlargement Commissioner Stefan Fule today. Both supported her return to politics as a stabilizing force, her party said in a statement on its website. After announcing to journalists yesterday that she would run for president in May, she was less definitive today and said she didn’t want to be considered for prime minister of the new cabinet.

“I was surprised by information that I am proposed for the post of prime minister,” she said in a statement on her website directed at lawmakers in parliament. “Thank you very much for respect, but I ask you not to consider my candidacy.”

‘No Coup’

In central Kiev, protesters directed downtown traffic in the absence of police. Parliament shifted Yanukovych’s powers to Turchynov, the deputy chairman of Tymoshenko’s Batkivshchyna party, after giving him temporary control yesterday over the outgoing cabinet. That administration has been depleted by lawmakers voting out the foreign, interior and other ministers.

Turchynov was head of the state security service following the 2004 Orange Revolution in which Tymoshenko overturned a Yanukovych presidential victory and he later became a first deputy prime minister when Tymoshenko led a cabinet from 2007 to 2010.

The opposition is following the lead of “armed extremists and thugs whose actions pose a direct threat to the sovereignty and constitutional order in Ukraine,” Russian Foreign Minister Sergey Lavrov said in a statement yesterday.

Polish Foreign Minister Radoslaw Sikorski, who helped negotiate the peace agreement signed by Yanukovych and the opposition, said there was “no coup in Kiev,” and that parliament is acting legally.

The U.S. urged “the prompt formation of a broad, technocratic government of national unity,” according to a statement issued yesterday by the White House Office of the Press Secretary. It said it was closely monitoring developments in the country and would work with allies and Russia to support a “strong, prosperous, unified, and democratic Ukraine.”

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