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5 November, 2013  ▪  Oleksandr Kramar

Dangerous Games

Postponed Association Agreement signing may become an effective tool to put pressure on Yanukovych, but will make Ukraine more vulnerable to Russia

At the time of the preparation of this issue, the Polish Minister of Foreign Affairs, Radoslaw Sikorski, stated that if Tymoshenko is not released, the signing of the Association Agreement will have to be postponed until next year. “This is possible”, he stressed, citing Moldova and Georgia, who are preparing to initial the Agreement in Vilnius and sign it next year. Thus, the EU is looking for an asymmetric response to Yanukovych’s attempts to play on the geopolitical confrontation between Brussels and Moscow and avoid the execution of previously undertaken obligations.

Previously, Yanukovych actually withdrew from earlier agreements with the Cox-Kwasniewski mission and instead of the supposedly “agreed” decision on the release of Tymoshenko, even if by means of a partial pardon, he prefers to limit it to her release to go abroad for medical treatment as is her right as a prisoner, with the subsequent continuation of her imprisonment on her return to Ukraine (should she indeed return). Moreover, the resolution of the issue, even in this format, was postponed after the disruption of the parliamentary session on October 24, as a result of the scandalous amendments to the Tax Code, which were seen as a threat to the participation in the election of the second most popular opposition candidate for the presidency behind Tymoshenko – Vitaliy Klitschko. Clearly, the government took this step, hoping for certain agreements with Putin in Minsk and later in Sochi.

READ ALSO: Klitschko Knocked Out?

Currently, government representatives have publicly and in unison opposed the possibility of a pardon for Yulia Tymoshenko, since there are “no grounds for this”. So there are two possible further scenarios: either, remaining convicted, she will go abroad for treatment, or will stay in Ukraine. Moreover, the second voting on the draft law for medical treatment of prisoners abroad will not take place before November 5, in other words, less than two weeks prior to the meeting of the Council of Europe on November 18. According to The Ukrainian Week’s sources, the procedure for passing the law and its signing by Yanukovych could be finalised on the eve of the summit, if not later. The President may thus be hoping to cover his back – he will only sign the document that has been approved by parliament after the Association Agreement has been signed by EU representatives. Otherwise, Yulia Tymoshenko will not leave the territory of Ukraine.

At the same time, the developments on the Russian side signal that as yet, Yanukovych has failed to get the desired credit-price bonuses from Putin without the obligation to become a member of the Customs Union. He can only get them in exchange for rejecting the Association Agreement with the EU. It appears that no agreements were reached either in Minsk, or in Sochi, where they had a tete-a-tete meeting lasting several hours on October 27. And Russia’s subsequent actions, such as the suspension of the import of Ukrainian carriages, restriction on the import of meat products, the issue of an overdue invoice for gas imported in August on the eve of an even bigger payment for gas already purchased in October, threatening of Ukraine with advance payment for fuel, the stirring up of a media war and so on, is evidence that the Kremlin’s only intent is to intensify pressure.

READ ALSO: Facing the Crisis of Democracy

In all likelihood, official Moscow is convinced that the Association Agreement will not be signed in November and that the situation in Ukraine will become so critical, that Kyiv will be forced to capitulate. Ukraine’s financial problems are increasing. In October 30 – November 15, the government and the NBU has to pay out USD 1.6bn of external debt, Russia has already raised the issue of the repayment of the debt for the gas imported in August, in the amount of almost USD 0.9bn. This does not cancel out the need to finance the import of gas in October – November by early December. In light of the start of the cold season, these payments will constitute more than USD 1bn per month.

Thus, by December - immediately after the Vilnius Summit - the Ukrainian government will have to find at least USD 4.5bn for external payments. This is on condition that Gazprom does not demand the above-mentioned advance payments. If it does, this amount will increase further by more than USD 1bn. Will it be possible to find the funds to pay these expenses, in view of the problems Ukraine has with access to international credit markets? The question is rhetorical. Payment of the relevant amount using the NBU’s gold and currency reserves will mean that the latter will be reduced from USD 21.6bn as of September 30 to less than USD 16-17bn. This does not even include significant interventions on the interbank market, which, by the way, constituted more than USD 0.5bn in September alone. At the same time, it should be remembered that the liquidity level of NBU reserves remain unknown. The lion’s share of its assets is in securities, which still have to be sold.

READ ALSO: Ukraine or Tymoshenko?

Clearly, in such a situation, the renewal of financing by the IMF and other international institutions will be the only possibility of avoiding capitulation to Moscow. Even Premier Mykola Azarov, who had long declared that “we shall survive without IMF loans”, is now talking about his readiness to come to a “sensible compromise” with this organization. The fact that this statement was sounded after the Ukrainian Premier explained that the delay in the payment of social benefits from the budget was caused by the “necessity to pay external debts” is telling. At the same time, the IMF is not demonstrating any optimism. It will be clearly futile to expect renewed financing if the Association Agreement is not signed.

Under the above-mentioned conditions, the threat of not rejecting, merely postponing the signing of the Association Agreement – and the renewal of cooperation with the IMF respectively - for three-four months is probably an attempt to find an asymmetric instrument of pressure on Yanukovych in response to his attempts to play on the geopolitical ambitions of Brussels and Moscow. Viktor Yanukovych will then have to dream up how to hold out until spring. But the EU is also taking a risk: by increasing pressure, the Kremlin can take advantage of the above-mentioned time lag, to already force Yanukovych into the Armenian scenario in winter. Neither Ukraine, nor the EU would benefit from this.

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