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Economic battle over Ukraine heats up

Published on NewsOK Modified: March 4, 2014 at 12:32 pm •  Published: March 4, 2014

KIEV, Ukraine (AP) — The battle over Ukraine's future is also economic: on Tuesday, Russia cranked up the pressure by saying it would end discounts on its natural gas supplies, while the U.S. and European Union offered quick-fix aid to the beleaguered government.

To help Ukraine in the longer term, International Monetary Fund experts began work here on a plan to stabilize the near-bankrupt country's finances and failing economy. The IMF's help is expected to come with conditions that will be tough, but at this point unavoidable.

"Without the expected financial assistance from Western donors, Ukraine is likely to default," Lilit Gevorgyan of IHS Global Insight says in a research note.

Concerns over Ukraine's financial condition — whose treasury account is, by its own admission, almost empty — rose after Russian state gas company Gazprom said it would cancel a substantial discount on natural gas granted in December. President Vladimir Putin, meanwhile, noted Ukraine's state gas company Naftogaz will owe $2 billion for gas, including February's bill.

The Russian position is a shift from last year, when Moscow tolerated Ukraine piling up unpaid bills. The discount was granted under a $15-billion Russian bailout in December — but that was halted following the ouster of pro-Russian President Viktor Yanukovych by a protest movement by people who want closer ties with the European Union.

Putin said the decision to raise the gas prices for Ukraine was not political.

"There was an agreement," Putin said. "We give you the cash and a discount on gas, and you pay us on time. We have given them money, we have cut the price, but there have been no payments."

To counter Moscow's tougher stance, U.S. Secretary of State John Kerry, who was visiting Kiev on Tuesday, offered $1 billion in loan guarantees. The European Commission, the European Union's executive arm, will decide on a package of support measures on Wednesday, spokeswoman Pia Ahrenkilde Hansen told reporters in Brussels without providing details. Ukraine's parliament signed off on the terms of 610 million euros from an earlier EU aid package — but that money won't be paid until Ukraine seals a bailout deal with the IMF.

That short-term support is key because a full financial assistance program from the IMF may take time to conclude. Analyst Gevorgyan said that for the IMF to commit any substantial assistance the country would need a more stable government, which was only likely after a new president is elected May 25.

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