Russia holding economic leverage over Ukraine

 Ukraine delayed selecting a national unity government as Russia warned of a possible default days after President Viktor Yanukovych was ousted.

Acting President Oleksandr Turchynov pushed back a parliamentary vote to Feb. 27 from today as he attempts to win agreement with protest leaders who orchestrated the revolt. He indicated yesterday that a new administration should be formed quickly to secure as much as $35 billion in financial aid.

“Ukraine’s economy needs rescue and that adds pressure on the revolutionary political forces to create a truly national unity government,” said Lilit Gevorgyan, senior economist at IHS Global Insight in London, said by e-mail. “The large bailout plan that Ukraine currently seeks won’t be handed out by international donors to a weak and non-inclusive government.”

With Yanukovych on the run after weeks of anti-government protests turned deadly, Ukraine’s new leaders are grasping for a financial lifeline as Russia weighs the fate of a $15 billion bailout it granted in December. Russia’s deputy finance minister said there’s a high chance Ukraine will default. The U.S. and the European Union have pledged aid to the new administration.

While Ukrainian assets have benefited from the momentum for financial aid, government bonds snapped three days of gains. The yield on dollar debt due 2023 was up 30 basis points at 9.554 percent at 5:32 p.m. in Kiev. The hryvnia plunged 6.4 percent to a record 9.8 per dollar, data compiled by Bloomberg show.

‘Political Quotas’

The new government should be largely technocratic and should avoid “political quotas,” said Oleksiy Haran, a member of the Maidan Council, which represents the protesters whose three-month campaign toppled Yanukovych.

“It wouldn’t be right for the opposition to take upon itself all the responsibility,” said Haran, who’s also a professor of comparative politics at the Kyiv-Mohyla Academy.

Ukraine risks default without “significantly favorable changes” in its political crisis, Standard & Poor’s said Feb. 21 as it cut the nation’s credit rating to CCC, leaving it eight levels short of investment grade.

Russia’s Deputy Finance Minister Sergei Storchak echoed those concerns. Russia won’t be the party to declare default, though it’s under no legal obligation to disburse the remaining $12 billion of the bailout, he told reporters in Moscow today.

Bank Chief

Lawmakers yesterday moved quickly to appoint Stepan Kubiv, the ex-chairman of Lviv-based VAT Kredobank, to head the central bank after voting out Ihor Sorkin. Kubiv plans to invite an International Monetary Fund mission, the Unian news service reported, without giving details. The central bank imposed capital controls this month to stem the hryvnia’s slide.

“Talks are being held with all possible creditors,” Kubiv said today on the website of his party, Batkivshchyna. “We’re in talks with the IMF on changing the investment climate so investors come to Ukraine and believe in stability.”

Europe will support Ukraine in a “complex and difficult” financial crisis, French Foreign Minister Laurent Fabius said.

While a new government needs to be in place before Ukraine can receive aid, an EU proposal should come by the start of next week, Elmar Brok, the head of the European Parliament’s foreign- affairs committee, said today in Strasbourg, France.

Libor Roucek, a member of a European Parliament delegation to Ukraine, called forming a cabinet Turchynov’s “biggest task.” The country’s leaders estimated that Ukraine needs $4 billion by the end of the month to cover payments for wages, pensions and Russian gas shipments, he said.

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