Kremlin Wades Into Ukrainian Turmoi

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Pressure from financial markets is also mounting. Standard & Poor’s cut its long- and short-term foreign-currency sovereign-credit ratings on Ukraine to triple-C-plus/single-C from single-B-minus/single-B, with a negative outlook, saying it now assesses Ukraine as exhibiting characteristics of a “distressed civil society with weakened political institutions,” diminishing the government’s capacity to maintain timely debt service.

As President Moves to Soothe Protesters and Premier Resigns, Russia Says Regime, Policy Shifts Could Affect Aid Deal

A protester shouts in Kiev’s Independence Square on Tuesday, when Ukraine’s premier resigned and Parliament repealed new antidissent laws. Nur Photo / Zuma Press

Wall Street Journal

By

ALAN CULLISON and
JAMES MARSON
Updated Jan. 28, 2014 8:08 p.m. ET

KIEV, Ukraine—Ukraine’s president tried to placate demonstrators on Tuesday by accepting his prime minister’s resignation and repealing new antidissent laws, but the heat remained on him as Moscow signaled it could review a massive bailout deal.

Moscow approved a $15 billion bailout last year when President Viktor Yanukovych agreed to drop a planned deal with the European Union that Russia bitterly opposed. But the Kremlin has viewed his weakening political position with growing alarm, and is watching to see if Kiev strays too far from its pro-Moscow course.

Pressure from financial markets is also mounting. Standard & Poor’s cut its long- and short-term foreign-currency sovereign-credit ratings on Ukraine to triple-C-plus/single-C from single-B-minus/single-B, with a negative outlook, saying it now assesses Ukraine as exhibiting characteristics of a “distressed civil society with weakened political institutions,” diminishing the government’s capacity to maintain timely debt service.

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President Vladimir Putin signaled that Russia may need to reassess its financial aid to Ukraine late Tuesday, hours after Mr. Yanukovych accepted his prime minister’s resignation.

Speaking at a European Union-Russia summit in Brussels, Mr. Putin denied that Russia would review its loans in response to a simple change of power in Kiev.

But he said Russia was concerned about Ukraine’s ability to repay its loans, which he said were conditional on structural changes that had been agreed upon with the departing prime minister, Mykola Azarov. Mr. Putin said the overhauls, which he had never mentioned before, weren’t written down, but agreed upon orally.

Minutes later, Mr. Putin’s first deputy prime minister, Igor Shuvalov, said the country may indeed revise its agreements with Ukraine if the new government changes policy and priorities, Interfax news agency reported.

Mr. Yanukovych’s opponents are demanding snap elections that would almost certainly end in his departure.

When protests erupted in Ukraine in recent months, Russia’s state-controlled media chastised Mr. Yanukovych for not cracking down hard enough. Kremlin officials blamed right-wing Ukrainian nationalist groups for the violence, and on Tuesday Mr. Putin criticized the West for meddling in Ukraine’s affairs.

Vice President Joe Biden’s office on Tuesday said Mr. Yanukovych had called him to update him on the situation in Ukraine. “The vice president welcomed the progress made today,” his office said. “He strongly encouraged President Yanukovych to continue to work with the opposition to find compromises critical to a peaceful solution.”

Canada’s Conservative government on Tuesday said it would restrict entry into the country of key Ukrainian government officials, calling their attempts to silence protesters unacceptable.

Mr. Yanukovych’s hold on power has been slipping even in predominantly Russian-speaking eastern Ukraine, where he usually enjoys support.

Ukrainian Prime Minister Mykola Azarov’s resignation was widely expected, sincePresident Viktor Yanukovych has lately used the prime minister’s job as a bargaining chip in negotiations with opposition leaders. Reuters
In addition to firing his cabinet Tuesday, Mr. Yanukovych’s allies in Parliament repealed laws that were passed to crack down on protests and stiffen penalties for creating disorder.

But the measures appear to be insufficient, as his opponents have seized control of some regions and continue to man barricades in the capital.

Mr. Azarov, a Russia-born hard-liner who has lately called protesters terrorists, has wielded limited actual power in the post under Mr. Yanukovych. His resignation was widely expected, since Mr. Yanukovych has lately used the prime minister’s job as a bargaining chip in negotiations with opposition leaders. On Saturday, he offered the position to Arseniy Yatsenyuk, which the opposition figure turned down.

“Azarov offered his resignation this morning in order to save face,” said opposition leader Vitali Klitschko.

This week, Parliament is expected to consider extending amnesty to protesters jailed during the unrest of recent weeks. But Mr. Yanukovych has called for his opponents to clear the streets and leave government buildings they have seized, a condition they have largely refused to accept.

Mr. Klitschko, a former world boxing champion, said authorities continue to attempt to suppress protests by detaining activists. He hailed a wave of protests in Mr. Yanukovych’s stronghold in eastern Ukraine in recent days as “a big step toward victory.”

Still, “the main idea of the protest was not a new cabinet,” said Viktor Zamyatin, an analyst at the Razumkov Center, a Kiev-based think tank. “The aim was to stop repressions, to punish the people responsible and for the resignation of Yanukovych.”

Write to Alan Cullison at alan.cullison@wsj.com and James Marson at james.marson@wsj.com

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