Russia to await new Ukraine government before fully implementing rescue-Putin

Putin repeated a promise to honor the lifeline agreement with Ukraine in full, but left open the timing of the next aid installment as Kiev struggles to calm more than two months of turmoil since President Viktor Yanukovich walked away from a treaty with the European Union.

A day after Prime Minister Mykola Azarov resigned on Tuesday, hoping to appease the opposition and street protesters, Russia tightened border checks on imports from Ukraine in what looked like a reminder to Yanukovich not to install a government that tilts policy back towards the West.

Ukraine's new interim prime minister promised to try to limit the economic damage inflicted by the sometimes violent street protests, and said he expected Russia to disburse a further $2 billion aid installment "very soon".

Putin had less of a sense of urgency. "I would ask the (Russian) government to fulfill all our financial agreements in full," he said, repeating a promise made on Tuesday after the government resigned in Kiev.

However, he signaled that the latest installment was on hold in remarks he made during a meeting with senior government officials, extracts of which were broadcast later on Russian TV.

"Let's wait for the formation of a Ukrainian government," he said, before telling the meeting: "But I ask you, even in the current situation, not to lose contact with our (Ukrainian) colleagues," adding that discussions should continue before a new government is formed.

Putin agreed the aid package with Ukraine in December, throwing the ex-Soviet state a lifeline in what the opposition and the West regard as a reward for scrapping plans to sign political and trade deals with the EU and promising to improve ties with Russia.

Alarm about Ukraine is growing in the West. German Chancellor Angela Merkel telephoned Putin and Yanukovich on Wednesday, urging a constructive dialogue between the government and opposition in Kiev. "The situation must not be allowed to spiral again into violence," a German government spokesman quoted her as saying.

NATO Secretary General Anders Fogh Rasmussen was more forthright, blaming Russia for Kiev's failure to sign the EU deals. "An association pact with Ukraine would have been a major boost to Euro-Atlantic security, I truly regret that it could not be done," he told the French newspaper le Figaro. "The reason is well-known: pressure that Russia exerts on Kiev.

Lawmakers loyal to Yanukovich offered an amnesty to people detained in anti-government protests - but only if activists first vacate occupied public buildings in Kiev and elsewhere, a condition they have previously rejected.

Ukraine badly needs the Russian money. Figures compiled by UniCredit bank before the bailout put its gross external financing requirements at $3.8 billion in the first three months of this year alone, including $2.29 billion for gas which is covered by the deal with Moscow.

That rises to $5.5 billion in April-June, including repaying a $1 billion bond which matures then. Altogether the government would need $17.44 billion this year to pay its foreign bills, including for Russian gas.

The EU's foreign policy chief, Catherine Ashton, called for sincere discussion during Ukraine's crisis. "The dialogue which has happened from time to time needs to become a real dialogue. We hope to see real progress in these coming days. Time is really of the essence," she said after meeting Yanukovich.

In an apparent sign of further pressure from Moscow, the Ukrainian association of producers said Russia had started extra border checks, backed by demands for increased duties, on cargoes of food and machinery being shipped into the country by road and rail.

Russia took similar action in August in what was seen as part of Moscow's campaign to dissuade its neighbor from signing the association and trade agreements with the EU.

Ukraine has been gripped by mass unrest since Yanukovich walked away from the EU deals last November.

Leonid Kravchuk, the first president of independent Ukraine, stressed the depth of the crisis on Wednesday.

"The state is on the brink of civil war. We must call what is happening by its proper name. What is happening is revolution because we are talking about an attempt to bring about a change of power," he told parliament.

With Yanukovich and loyalist deputies in parliament now making concessions to defuse the crisis and with Azarov, a Russian-born hardliner, gone there had been speculation that Moscow might slow or even halt the stream of aid.

But acting prime minister Serhiy Arbuzov appeared to have been cheered by Putin's promise on Tuesday to extend the $15 billion in credits and cheaper gas.

"We have already received the first tranche of $3 billion and expect to receive the second tranche of $2 billion very soon," he said, chairing his first cabinet meeting. Russia is offering the funds by buying Ukrainian government bonds.

In Kiev opposition deputies and Yanukovich loyalists were in back-room talks on Wednesday over the wording of a draft law under which protesters detained by police would get amnesties.

In an unusual move, Yanukovich himself went to parliament to intervene in the debate. There was no immediate response from protesters to the late-night passing of a law that would amnesty detainees if occupied buildings were first cleared. The opposition in parliament had abstained on the vote.

Though the unrest began because of Yanukovich's U-turn on policy towards Europe, it has since turned into a mass demonstration, punctuated by violent clashes between radical protesters and police, against perceived misrule and corruption under Yanukovich's leadership.

Several hundred people camp round-the-clock on Kiev's Independence Square and along an adjoining thoroughfare, while more radical activists confront police lines at Dynamo football stadium a few hundred meters away.

Anti-Yanukovich activists have also stormed into municipal buildings in many other cities across the sprawling country of 46 million. Hundreds of protesters in Kiev have occupied City Hall and the main agriculture ministry building.

Opposition leaders, including world champion boxer-turned-politician Vitaly Klitschko, have resisted demands by Yanukovich's Regions Party for barricades to be removed from roads and for protesters to leave occupied buildings as a pre-condition for an amnesty for detained activists.

Klitschko, in a comment which also highlighted the tenuous control the opposition leaders have over sections of the protest movement, said: "For us to simply say to people 'you have done your job, now go home' is now not possible."

In a big concession to the opposition and the protest movement, pro-Yanukovich deputies voted on Tuesday to repeal a series of sweeping anti-protest laws which they brought in hastily on January 16 in response to increasingly violent clashes.

But opposition leaders, who also include former economy minister Arseny Yatsenyuk and nationalist Oleh Tyahnibok, have won a mandate from protesters on the streets to continue to press for further gains from Yanukovich.

The opposition also wants a return to the previous constitution which would represent another significant concession since it would reduce Yanukovich's powers.

Speculation that Russia might cut the financial lifeline it has offered prompted the Standard & Poors agency to cut Ukraine's credit rating to CCC+ on Tuesday.

Arbuzov said the central bank was ensuring stability on the financial markets and he made no mention of any changes to his predecessor's policy of keeping the hryvnia currency pegged close to the dollar and maintaining subsidies for domestic gas - both criticized by the International Monetary Fund.

(Additional reporting by Natalia Zinets and Pavel Polityuk in Kiev, Thomas Grove in Moscow and Nicholas Vinocur in Paris; Writing by Richard Balmforth and Jack Stubbs; Editing by David Stamp and Alastair Macdonald)