Bloomberg News
February 26, 2014
By John Fraher, Daryna Krasnolutska and Nicole Gaouette

Arseniy Yatsenyuk won the support of Ukrainian protesters in Kiev to lead an interim cabinet and avert a default after the nation’s bloodiest unrest since World War II as the U.S. said it was working on a $1 billion rescue.

Lawmakers are set to approve Yatsenyuk as prime minister today ahead of a parliamentary ballot in four months, acting President Oleksandr Turchynov told thousands gathered yesterday on Independence Square, the site of a three-month uprising that culminated in last week’s ouster of Viktor Yanukovych.

“Ukraine is on the brink of bankruptcy and needs to be saved from collapse — Yatsenyuk has a strong economic background,” Ariel Cohen, senior fellow at the Washington-based Heritage Foundation, said by phone. “Ukraine faces difficult reforms but without them there won’t be a successful future.”

With Yanukovych on the run and facing murder charges, Yatsenyuk must seal a $35 billion financial lifeline as investors pull money out of Ukraine. While the U.S. and the European Union have pledged aid, Russia has questioned the new administration’s legitimacy and halted a $15 billion bailout. The hryvnia is at the weakest level since its 1996 introduction.

The U.S. is formulating a $1 billion loan guarantee for Ukraine and is also considering direct aid, Secretary of State John Kerry told reporters at a roundtable discussion yesterday in Washington. The U.S. guarantee may speed initial aid because past International Monetary Fund assistance proposals for Ukraine led to protracted negotiations, as the country’s leaders balked at austerity measures demanded by the lender.

‘Pretty Dire’

Kerry said it was important to move quickly. “We don’t know yet the full financial dilemma facing them, although we know it’s pretty dire,” he said.

“I don’t think it’s enough to be heralding the advent of democracy and not doing anything,” Kerry said. There is strong congressional support for providing aid to Ukraine, he said.

State Department spokeswoman Jen Psaki said later that no decisions have been made and an aid package would come together once Ukraine forms a new government.

The top U.S. diplomat also warned against any intervention by Russia in Ukraine, after Russian President Vladimir Putin ordered military exercises in the western part of his country that were described as a test of battle readiness.

“Any kind of military intervention that would violate the sovereign territorial integrity of Ukraine would be a grave mistake,” Kerry said.

Currency Weakens

Amid the political turmoil, Ukraine’s currency weakened 4.4 percent to 10.15 per dollar last night in Kiev, extending this year’s slump to 18.4 percent, data compiled by Bloomberg show. The central bank imposed capital controls this month to stem its decline.

Yatsenyuk, head of Yulia Tymoshenko’s opposition party in parliament, may be at the forefront of aid negotiations as the country prepares for presidential elections May 25. Other candidates to get backing from the protest camp included Oleksandr Shlapak for the role of finance minister.

The premier nominee has garnered support from U.S. President Barack Obama’s administration, which had approached him before yesterday’s announcement. Treasury Secretary Jacob J. Lew spoke with Yatsenyuk Feb. 23 and told him there’s broad international backing for a Ukrainian bailout, according to a Treasury official who spoke on condition of anonymity.

In January, U.S. Assistant Secretary of State Victoria Nuland voiced support for him in a phone conversation with the U.S. ambassador to Ukraine that was eventually leaked and gained notoriety for her criticism of the European Union.

Nuland’s Praise

“I think Yats is the guy who’s got the economic experience, the governing experience,” Nuland said.

The former central bank chief was one of three opposition leaders who held court with demonstrators angry at Yanukovych’s snub of European integration last November. While members of Vitali Klitschko’s UDAR party weren’t nominated for government posts, the ex-world boxing champion said he’d back Yatsenyuk. Oleh Tyahnybok’s Svoboda party stands to get three ministries.

After getting a law degree in 1996 in the western city of Chernivtsi, Yatsenyuk worked for Aval Bank, which was later bought by Raiffeisen Bank International AG. He went on to serve as economy minister, foreign minister and parliamentary speaker.

Yatsenyuk’s appointment means allies of Tymoshenko, who blamed her seven-year jail term for abuse of office on Orange Revolution adversary Yanukovych, are set to hold the positions of acting leader, premier and central bank chief.

IMF Talks

As politicians in Kiev rush to assemble a new cabinet, Stepan Kubiv, the new governor of the Natsionalnyi Bank Ukrainy, said yesterday that he’d invite the IMF to Ukraine as soon as possible.

The Washington-based lender will probably send a team to Ukraine as soon as the nation seeks aid, Managing Director Christine Lagarde said Feb. 25 in California.

“We are ready to engage,” Lagarde said. “We will probably shortly send some technical assistance support to the country because this is our duty to a member, if that member asks,” which is “clearly what is likely to happen.”

As well as staving off a default, Yatsenyuk will have to prepare the country for presidential elections scheduled for May, in which Klitschko has pledged to run.

Events in Kiev are rattling parts of Ukraine’s Russian-speaking east and south. In the city of Simferopol in Crimea, hundreds of pro-Russian protesters faced off yesterday against thousands of Ukrainian Tatars chanting: “Crimea isn’t Russia!”

‘Positive Sign’

The head of Crimea’s regional parliament, Vladimir Konstantinov, denied speculation that lawmakers would vote on splitting away from Ukraine and joining Russia, calling the reports a provocation to discredit the legislature.

In the capital, that tension wasn’t evident. At the square, or maidan, Vladimir Vinitsky, a locksmith, was pleased the urgency to form a new government was being addressed and that its members may include protesters themselves.

“It’s a positive sign that there are Maidan activists on the list as we’ve seen their actions here and believe them,” he said. “Maidan will back them.”

Before the cabinet announcement was made, the crowds in the square listened to more than an hour of speeches from the protest leaders ranging from the head of the volunteer militia to new central bank chief Kubiv. At one point, an official gave out a hotline phone number to appeal for any information about those still missing after clashes between riot police and protesters last week left more than 80 people dead.

Turchynov warned the new cabinet must take unpopular decisions to restore the trust among creditors and investors.

“Ministers will be criticized but they have to fulfill their duty,” the bearded Turchynov said in an appeal to those gathered in the square. “Ukraine should return to normality and its journey toward Europe.”