Russia will withhold loans to Ukraine for the time being

MOSCOW — Russia will withhold further loans and aid to Ukraine in the wake of the tumultuous leadership changes underway in the former Soviet republic until it becomes clear who will be in charge in the new interim government, Finance Minister Anton Siluanov said Sunday.

Siluanov also said Moscow believes Ukraine should turn to the International Monetary Fund for help averting bankruptcy and reforming its corrupt and massively indebted budget, a signal that the Kremlin may be unwilling to further extend loans and subsidies to a nation now under the sway of pro-Western opposition figures.

Russian President Vladimir Putin offered Ukraine $15 billion in loans and energy subsidies in December, in an apparent reward for President Viktor Yanukovich’s decision to reject an association agreement with the European Union that had been under negotiation for three years.

Yanukovich’s unilateral abandonment of the EU deal that would have boosted trade with Europe and eventually integrated Ukraine’s economy with Western countries outraged liberal opposition politicians and urban citizens who want closer ties with the West. Street protests against his rule began in late November and erupted last week into a deadly showdown in which scores of protesters and police were killed before a EU-brokered agreement brought a tentative calm and Yanukovich fled the capital.

Russia bought up $3 billion in Ukrainian bonds in December, helping the country avert default. Even 22 years after Ukraine became an independent country amid the collapse of the Soviet Union, its industries and trade remain deeply entwined with Russia. Moscow was loath to see its former subject turn to the West in shaping its economic future rather than join Putin’s rival Eurasian Union of former Soviet states.

But as the opposition gained force and international support after a bloody crackdown on demonstrators, the Kremlin froze further bond-buying, including a $2-billion purchase it had signaled just days earlier.

Siluanov was in Sydney, Australia, for a meeting of Group of 20 finance ministers over the weekend and told reporters there Sunday that he had talked about the Ukraine tumult and Russia’s assistance with his fellow treasury officials.

“We plan to wait until a new government is formed to understand its economic policy,” Siluanov said, according to the RIA Novosti news agency covering the G-20 summit.

Russia, in the meantime, supports the conditions laid out by the IMF for assistance with Ukraine’s fiscal woes, Siluanov said, indicating that the Kremlin may abandon the task of bailing out Ukraine to a broader international effort.

Any IMF assistance probably would be contingent on Ukraine committing to massive reforms of its budget and financing policies and an effective anti-corruption plan. Transparency International, the Berlin-based agency that monitors corruption worldwide, last year ranked Ukraine the most corrupt country in Europe and 144th among the 177 countries and territories it evaluated.

British Chancellor of the Exchequer George Osborne told journalists at the G-20 meeting that the international community should be prepared to offer Ukraine financial assistance once a legitimate transitional government is in place, as envisioned under the truce brokered by three EU foreign ministers Friday.

“The international community should be there with a checkbook to help the people of Ukraine rebuild their country and rebuild their economy,” Osborne told Bloomberg news in an interview.

In Washington, national security advisor Susan Rice also said the West stood ready to aid Ukraine in its time of crisis. “They need to reform and they need financing,” Rice said in an interview with NBC’s “Meet the Press.” “The United States will play a role, along with our partners in Europe.”

She also cautioned Russia against moving militarily to reinstate the deposed president. “That would be a grave mistake,” she said.

Sen. John McCain (R-Ariz.), a critic of Russia’s foreign policy, also called for aid to Ukraine, telling CBS’ “Face the Nation” that the country’s economy “is on the verge of collapse.”

Ukraine’s currency reserves are reported to be perilously low as billions in loans mature in the next few months. Ukraine has been importing natural gas from Russia at a 30% discount, part of the assistance offered by Moscow after November’s EU deal was scrapped, but already owes $2.7 billion to Moscow for past imports. Russian lenders are already exposed to the country’s fiscal instability with outstanding loan guarantees and downgraded bonds.

carol.williams@latimes.com