Russia Stands Fast on Crimea as Ukraine Drills Military

Bloomberg News

Russia showed no signs of yielding in the Crimea standoff as Ukraine's prime minister prepared to meet U.S. President Barack Obama and western nations threatened further repercussions if Russia failed to defuse tensions.

Ukraine is testing its military's combat readiness, the Defense Ministry said, while reiterating the government's desire for a peaceful solution. Russia, which has vowed to defend the ethnic Russians who dominate the Crimean peninsula, accuses Ukraine of ignoring radicals in the nation's east and said it rejects the legitimacy of the western-backed leadership in Kiev.

Ukrainians 'are hoping for the best but preparing for the worst,' said Arseniy Svynarenko, a lecturer at the University of Helsinki. 'If there's violence, they need to be able to put forces on the border and to move in quickly. The worst-case scenario is separatists trying to escalate the crisis.'

Russia is wresting Crimea, home to its Black Sea Fleet, from Ukraine following last month's ouster of the former Soviet republic's Moscow-backed president, Viktor Yanukovych. Ukraine says its neighbor has almost 19,000 soldiers in the region, which will vote on joining Russia on March 16. The confrontation is the worst between Russia and the West since the Cold War, with the European Union and the U.S. imposing sanctions.

As the standoff continued, the World Bank said yesterday it had received a request for aid from Ukraine and that it was ready to provide as much as $3 billion this year. World Bank President Jim Yong Kim said the Washington-based lender would help the new government 'undertake the reforms badly needed to put the economy on a path to sustainability.'

Western Pressure

Ukraine's interim prime minister, Arseniy Yatsenyuk, who meets with Obama in Washington tomorrow, said his country could hold a dialogue about more rights and powers for Crimea, but not 'under muzzles of Russian guns,' according to a statement on his government's website.

Western governments including the U.S. and U.K. are urging Russia to pull back troops and hold direct talks with Ukraine. U.K. Prime Minister David Cameron, who held talks with German Chancellor Angela Merkel on March 9 in Hanover, Germany, called on Russia to 'resolve the crisis diplomatically.'

Cameron told U.K. lawmakers yesterday that he and Merkel 'were clear that any attempt by Russia to legitimize an illegal referendum would require us to respond by ratcheting up the pressure further.' He said Britain is hosting a meeting today with officials from other western nations to compile a list of people who could be hit by sanctions including asset freezes and travel bans if Russia doesn't co-operate.

Russian Objections

Russian Foreign Minister Sergei Lavrov yesterday faulted a U.S. plan for easing the crisis that he said would have required recognizing Yanukovych's ouster.

'Our partners are proposing, it seems, that we take the situation that the coup d'etat has created as the starting point,' Lavrov said at a meeting with President Vladimir Putin in the southern Russian resort of Sochi.

Lavrov said U.S. Secretary of State John Kerry postponed a visit to Russia to discuss the standoff, while Russia has drawn up its own proposals in response to those offered by Kerry last week. The Russian ideas would take into account the interests of 'all Ukrainians without exception,' Lavrov said.

The U.S. is still awaiting a Russian response, State Department spokeswoman Jen Psaki said by e-mail. Kerry 'would welcome further discussions focused on how to de-escalate the crisis in Ukraine if and when we see concrete evidence that Russia is prepared to engage on these proposals.'

'Marshall Plan'

The yield on Ukrainian government Eurobonds due 2023 rose 20 basis points yesterday to 10.35 percent, the highest in five days. The hryvnia was little changed at 9.2325 per dollar. The currency has slumped 10.8 percent this year.

Former Yukos Oil Co. owner Mikhail Khodorkovsky, who spent 10 years in jail in Russia for tax evasion and fraud before being pardoned by Putin in December, yesterday urged the West to provide financial aid to Ukraine as security against Russia.

'What is needed is a Marshall Plan for Ukraine,' he said, referring to the post-World War II aid program intended to bolster economies and fight Soviet communism.

In Washington, the Senate Foreign Relations Committee delayed consideration of a Ukraine aid plan amid disagreement over whether it will also boost resources for the International Monetary Fund, as the Obama administration has proposed. The panel plans to take the measure up tomorrow instead of today.

'Very Close'

Senator Bob Menendez, a New Jersey Democrat and chairman of the panel, said yesterday lawmakers 'are very close' to an agreement at least in committee on a plan for Ukraine that would include the IMF funding. The bill also probably will include sanctions to rebuke Russia for its incursion into Ukraine.

Obama has proposed increasing the U.S. share at the Washington-based IMF by shifting about $63 billion from an existing credit line. The Treasury Department says the move would help bolster the Ukrainian government. The Republican-led House didn't include the IMF provision in a bill passed March 6 to provide about $1 billion in loan guarantees to Ukraine.

In New York yesterday, the United Nations Security Council held a closed-door session on the crisis. UN Under-Secretary-General for Political Affairs Jeffrey Feltman told members that 'there was no threat to the Russian minority' as Russia has asserted in justifying its intervention, U.K. Ambassador to the UN Mark Lyall Grant said after the meeting.

'In fact tensions had increased between the different communities in Crimea because of the actions of the Russian military,' Lyall Grant said.

Troops Dispatched

In Ukraine, the government dispatched troops yesterday to training grounds after alleging that Russian soldiers seized a missile unit at Chornomorskoe in Crimea. Ukraine's border service said Russian forces now control 13 border bases and the ferry crossing across the Kerch Strait to Russia.

Russian soldiers opened fire with automatic weapons in an attempt to capture a Ukrainian motorized battalion near the southern Crimean town of Bakhchisaray, Russia's Interfax news service reported, citing an unnamed representative of the Ukrainian battalion's command. There were no injuries, Interfax said. A Ukrainian Defense Ministry spokesman said a lieutenant colonel from a battalion in the town had defected.

Monitors from the Organization for Security and Cooperation in Europe have been denied entry into Crimea and shots have been fired to deter their movements, Lyall Grant said.

'At the same time as Russia claims to be concerned about the threats to Russian speakers in Ukraine and others in Crimea, they are not actually allowing in any international observers whose job is to report what is actually happening,' he said.

Crimea Vote

A sticking point is the referendum in Crimea. Residents there will be given the choice between Russian and Ukrainian passports if the peninsula votes to join Russia, Ria Novosti said, citing Crimean Premier Sergey Aksenov. The region will have two official languages, Russian and Crimean Tatar, he said.

In Crimea and Donetsk, Ukraine's most pro-Russian regions, 41 percent and 33 percent of voters respectively support union with Russia, Iryna Bekeshkina, the director of Ukraine's Democratic Initiative Foundation told a news conference in Kiev. About 12 percent of all Ukrainians want to join Russia, she said, citing a Feb. 8-18 poll of 2,032 people, with most of those in favor more than 50 years old. The poll had a margin of error of 2.2 percentage points.

While Russia probably won't invade eastern Ukraine, it may test the region's loyalties, according to Stefan Meister, an analyst at the European Council on Foreign Relations.

Russia's strategy on eastern Ukraine is 'not to split this region off but to make it more independent from Kiev so there's a possibility of closer links with Moscow,' Meister said by phone from Berlin. 'The only option Russia has, and we know they're discussing it, is to pressure Kiev into a stronger federalization of Ukraine.'

To contact the reporters on this story: Volodymyr Verbyany in Kiev at vverbyany1@bloomberg.net; Daryna Krasnolutska in Kiev at dkrasnolutsk@bloomberg.net Jake Rudnitsky in Kiev at jrudnitsky@bloomberg.net

To contact the editor responsible for this story: Balazs Penz at bpenz@bloomberg.net Michael Shepard, Larry Liebert

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