Russia ships troops into Ukraine, repeats invasion threat

by **Cals** Sat 15 Mar 2014, 00:52

Business & Markets 2014

Written by Reuters

Friday, 14 March 2014 19:11

SEVASTOPOL/DONETSK, Ukraine (Mar 14): Russia shipped more troops and armour into Crimea on Friday and repeated its threat to invade other parts of Ukraine, showing no sign of listening to Western pleas to back off from the worst confrontation since the Cold War.

Russia's stock markets tumbled and the cost of insuring its debt soared on the last day of trading before pro-Moscow authorities in Crimea hold a vote to join Russia, a move all but certain to lead to U.S. and EU sanctions on Monday.

The Russian Foreign Ministry, responding to the death of at least one protester in Ukraine's eastern city of Donetsk, repeated President Vladimir Putin's declaration of the right to invade to protect Russian citizens and "compatriots".

"Russia is aware of its responsibility for the lives of compatriots and fellow citizens in Ukraine and reserves the right to take people under its protection," it said.

Ukrainian health authorities say one 22-year-old man was stabbed to death and at least 15 others were being treated in hospital after clashes in Donetsk, the mainly Russian-speaking home city of Ukraine's ousted President Viktor Yanukovich.

Organisers of the anti-Moscow demonstration said the dead man was from their group.

Moscow denies that its forces are intervening in Crimea, an assertion Washington ridicules as "Putin's fiction". Journalists have seen Russian forces operating openly in their thousands over the past two weeks, driving in armoured columns of vehicles with Russian licence plates and identifying themselves to besieged Ukrainian troops as members of Russia's armed forces.

A Reuters reporting team watched a Russian warship unload trucks, troops and at least one armoured personnel carrier at Kazachaya bay near Sevastopol on Friday morning. Trucks drove off a ramp from the Yamal 156, a large landing ship that can carry more than 300 troops and up to a dozen APCs.

U.S. Secretary of State John Kerry was due to meet Russian Foreign Minister Sergei Lavrov in London later on Friday in a last-ditch effort to head off the referendum in Crimea, now seen as all but inevitable.

Russian troops seized the southern Ukrainian region two weeks ago as a pro-Moscow regional government took power there. The new regional authorities intend to secede from Ukraine and join Russia in a vote described in the West as illegal.

"What we would like to see is a commitment to stop putting new facts on the ground and a commitment to engage seriously on ways to de-escalate the conflict, to bring Russian forces back to barracks, to use international observers in place of force to achieve legitimate political and human rights objectives," a U.S. State Department official said ahead of Kerry's talks.

But Russia has shown no sign of veering from President Vladimir Putin's plan to annex Crimea.

Putin declared on March 1 that Russia had the right to invade its neighbour, a week after its ally Yanukovich fled the Ukrainian capital following three months of demonstrations that ended with about 100 people killed in the final days.

In further signs of Moscow's belligerent posture ahead of the Crimea vote, the Defence Ministry announced on Friday it would hold exercises with fighter jets and helicopters over the Mediterranean Sea. On Thursday it announced artillery drills near Ukraine's border.

U.S. and EU sanctions, including travel bans and asset freezes on Russian officials and their firms, are now seen as inevitable. The only mystery remaining is who will be on the lists of targets when they are agreed at the start of next week.

U.S. and European officials say the targets will not include Putin or Lavrov, but will include senior figures in the government and members of parliament in an effort to impose hardship on Russia's elite for backing Putin's policies.

The initial list would be just a start, with more individuals and companies to be added later, and further trade sanctions could follow. Germany's Bild newspaper said the initial EU list would include at least 13 officials including top ministers and people around Putin.

Shares fall, debt insurance costs rise

Russia's MICEX stock index was down 2.9 percent at 0930 GMT, having lost more than 16 percent of its value in the two weeks since Putin declared his right to invade. At one point in the morning it had fallen 5 percent to its lowest since 2009.

The cost of insuring Russia's debt against default for five years rose 18 basis points to 285 - a rise of nearly 7 percent - and is now up by half since the crisis began.

Although Russian public opinion, fed by overwhelmingly state-controlled media, is still solidly behind the plan to annex Crimea, Western countries believe sanctions could undermine support for Putin among the wealthy elite.

Goldman Sachs lowered its prediction for Russian economic growth for this year to 1 percent from 3 percent on Thursday, blaming the Ukraine crisis for sparking capital flight that will destroy investment.

Former Finance Minister Alexei Kudrin told Russian media that the threat of Western sanctions was already imposing higher borrowing costs on Russian businesses and that further sanctions would push capital flight to $50 billion a quarter.

Renaissance Capital estimated capital outflow in the first quarter would exceed $55 billion, compared with $63 billion for the whole of 2013.

The rouble has declined only slightly despite the rout in share prices, held aloft by a central bank that raised its lending rates on March 3 and has been spending reserves to keep the currency from falling.

Putin's March 1 declaration of the right to invade was accompanied by demonstrations across the south and east by groups who raised Russian flags, seized buildings and convened regional legislative sessions demanding secession, in what Kiev called Kremlin-orchestrated bids to repeat the Crimea scenario.

The most persistent pro-Moscow agitation has been in Donetsk, where the Russian flag was flown above the regional government headquarters for nearly a week and pro-Russian protesters occupied the building for days. Their leader, who had declared himself "people's governor" and demanded police report to him, was finally arrested last week.