(Updates with analyst comment in fifth paragraph, EU sanctions in eighth, U.S. comments starting in ninth.)
May 7 (Bloomberg) -- President Vladimir Putin called on separatists in Ukraine to postpone a vote for autonomy and said he’s pulled Russian troops from the country’s border after weeks of tension, as the U.S. said there’s no sign of a withdrawal.
The Donetsk and Luhansk regions should delay referendums planned for May 11 in order to help “create the necessary conditions for dialogue” between pro-Russian forces in Ukraine and the government in Kiev, Putin said today in Moscow. He said Russian troops “are not on the Ukrainian border, they are in places where they conduct their regular drills.”
Ukraine’s border service said it wasn’t able to confirm the pullback, and that military drills near the frontier continued. Pentagon spokesman Army Col. Steve Warren told reporters today that “we have seen no change in the Russian force posture along the Ukrainian border.”
Ukraine’s government and its U.S. and European allies have accused Russia of fomenting separatist unrest in eastern Ukraine, and warned that Putin may follow his annexation of Crimea with another land grab against his neighbor. The Russian leader’s speech today may ease those tensions, and it sparked a rally on Russian and Ukrainian financial markets.
“He is seemingly moving off the brink,” said Martha Brill Olcott, a senior associate with the Russia and Eurasia Program at the Carnegie Endowment in Washington. “It still doesn’t defuse the situation in Ukraine unless Russia signals to the separatists that it won’t support their activities.”
Russia’s Micex equity index jumped 3.4 percent, the most in seven weeks, and the ruble added 1.3 percent to 34.942 per dollar at 10:30 p.m. in Moscow. Ukrainian markets also climbed, with the yield on government bonds maturing in April 2023 falling 50 basis points to 10.22 percent, the biggest drop since March 27.
“What Putin has said today confirms our baseline that Russia is unlikely to invade Ukraine, which is clearly positive,” said Vadim Khramov, chief Ukraine economist at Bank of America Merrill Lynch, by phone from London. “It sounds like Russia’s general attitude has slightly changed towards the understanding that they don’t want to be in this military conflict.”
The U.S. and European Union have imposed sanctions on Russian companies and individuals, and threatened to tighten them if Putin doesn’t end his support for the separatists. The EU agreed today to expand the legal basis for sanctions, and foreign ministers will discuss adding more names to the blacklist next week, an EU official said.
The U.S. plans to make Russia ineligible for preferential tax rates on exports that it has enjoyed in the past, according to a White House statement today.
The government in Kiev, which took over after the pro- Russian President Viktor Yanukovych was toppled by protesters in February, opposes the referendums that separatist leaders plan to hold in eastern Ukraine. It has sent troops into the region to quell uprisings by pro-Russian activists who seized control of some government buildings.
Putin said today violence in Ukraine must stop for any dialogue to begin, and voiced support for the presidential election Ukraine plans to hold on May 25, which Russia has previously opposed. Foreign Minister Sergei Lavrov said yesterday it should be delayed because of Ukraine’s internal unrest. The U.S. and EU say the vote should go ahead.
Putin said the presidential election will be “a step in the right direction,” though he also said that it “won’t solve anything if all citizens of Ukraine will not understand how their rights will be guaranteed after these presidential elections.”
The Russian position has been that a new constitution for Ukraine, which would address concerns such as the status of the Russian language, should be drawn up before the presidential vote.
U.S. State Department spokeswoman Jen Psaki called Putin’s comments about the election “a helpful step.” She said Russia must also “refrain from any interference with election preparations” and support the right of all Ukrainians to vote. Psaki also said that Russia didn’t fulfill a previous pledge in March to withdraw troops.
All Putin has done “is buy a little time,” Olcott said. “May 25 comes pretty soon and it’s hard to imagine how you hold the election in this situation in the east.”
--With assistance from David Lerman in Washington and Natasha Doff in London.