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Ukraine looks to China for money as debt crunch looms

Source: Reuters - Mon, 2 Dec 2013 05:05 PM
Author: Reuters
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* Ukrainian president to visit China despite crisis

* Big debt repayments loom in 2014

* President faces protests, calls for resignation

By Pavel Polityuk

KIEV, Dec 2 (Reuters) - Ukrainian President Viktor Yanukovich will head to China on Tuesday looking for loans and investment, despite the massive protests unleashed by his decision not to sign a trade pact with the European Union.

Protesters blockaded the main government building in Kiev on Monday and brought traffic to a halt, seeking to force Yanukovich from office, after hundreds of thousands demonstrated on Sunday against his decision to turn away from the EU towards Russia. Ukraine's currency and bonds came under pressure, along with share prices.

But the tug-of-war between Brussels and Moscow for influence in Ukraine has so far done little to alleviate its looming debt crisis, and Yanukovich confirmed on state television on Monday that the visit would go ahead.

"Yanukovich is trying to show that the European Union and Russia are not the only possible partners for Ukraine," said Volodymyr Fesenko of Ukraine's Penta think-tank.

However, he said Beijing may now demand assurances over Ukraine's political and economic stability, adding: "Ukraine is unlikely to secure direct financial aid (from China)."

Beijing has already provided the former Soviet republic with loans worth $10 billion, but the government must find more than $17 billion in 2014 to meet gas bills and debt repayments.

Including the private sector, Ukraine must make debt repayments of more than $60 billion next year, equivalent to a third of its gross domestic product.

Opposition leaders called on Sunday for Yanukovich and his government to resign. A pro-Europe rally of about 350,000 people, marred by clashes between protesters and riot police, was the biggest protest in the capital Kiev since the "Orange Revolution" of nine years ago.

"BAD TIME TO GO"

"It is a very bad time to go abroad. The president's absence may make talks with the opposition much more difficult," said another Ukrainian political analyst, Gleb Vyshlinsky.

Russia wants to draw Ukraine into a Moscow-led customs union and prevent it drawing closer to the EU, a move that would signal a historic shift towards the West and away from Kiev's former Soviet masters in Moscow.

Ukrainian Prime Minister Mykola Azarov, who backs closer economic ties with Russia, said at least 20 economic and trade agreements should be signed during the visit to China, including a treaty on friendship and cooperation.

Ukraine had a $15-billion standby agreement with the International Monetary Fund, but this was frozen in 2011 over Kiev's refusal to end subsidies and raise household gas and heating prices.

During a visit to Kiev last month, the IMF once more urged Ukraine to raise gas prices for domestic consumers and introduce a flexible exchange rate for the hryvnia currency, steps that the government has rejected.

A high-ranking Ukrainian government delegation visited China in September, when China's Export-Import Bank provisionally offered a $3 billion loan to help restore Ukraine's irrigation system.

The loan has to be repaid over 15 years. Agriculture Minister Mykola Prysyazhnyuk said the loan would be used to install and repair irrigation systems in southern Ukraine, with the aim of increasing grain output by 12 million tonnes, or around 50 percent.

Last year, China loaned Ukraine $3 billion for the agriculture sector and $3.7 for projects in the energy sector. As part of the deal, Ukraine exports around 4 million tonnes a year of maize to China.

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