The War in Eastern Ukraine. Analytical issue.
Analytical issue #11
SECTION 1: The War in Eastern Ukraine
Nowadays, the EU, the Russian Federation, Ukraine and the so-called “DPR” and “LPR” continue to emphatically declare the commitment to implement the Minsk-2 agreements (10/02/2015). None of the parties are interested in clearly violating these agreements. At the same time, they are trying to change these agreements by new interpretations and amendments.
Ukrainian government, with the support of the western countries, attempts to lobby adoption of a decision to deploy peacekeepers in the territory of eastern Ukraine; it should be done without the participation of Russia. Thus, the Ukrainian government wants to “freeze” the conflict in eastern Ukraine, so that they occupy with solving the complex economic and political problems in the other regions.
The European Union insists on the implementation of the Minsk Agreement and operates on the principle – “a bad peace is better than a good war.” Overall, the European Union continues to provide maximum political and economic pressure on the conflict parties to intensify implementation of the Minsk Agreement.
The Russian Federation is not currently interested in the deployment of peacekeepers because it does not aim at localization of the conflict and stabilization of the current Ukrainian authorities. At the same time, it is ready to discuss the deployment of peacekeepers with the participation of Russia or with other members of the Collective Security Treaty Organization (CSTO).
Ukrainian parliament has already decided to appeal to the UN and the EU on the possibility of deploying peacekeepers and international police missions in Eastern Ukraine. However, at the last meeting of Normandy Format (14.04.2015) deployment was not considered relevant, only the issues of extension of the OSCE mission and implementation of the Minsk Agreement were brought to the focus.
Europe fears that any changes in the Minsk agreement could lead to the total destruction of the Minsk platforms and restore the military phase of the conflict, its escalation in the east, which certainly could hit the economic and energy interests of the EU.
In addition, the decision of the US Congress to address to US President Barack Obama with the requirement to begin deliveries of the lethal weapons to Ukraine was important. Although this decision has no binding force and is observed in the context of the domestic American struggle between Republicans and Democrats, yet it can significantly affect the position of the parties in the Ukrainian crisis. After all, it can act as a kind of detonator for further military developments in Ukraine. In addition to the diplomatic level, a very important element in the relations between Ukraine and the EU about the prospects of Ukraine’s integration into the EU and the external course of Ukraine overall is the possible decision to refuse visa-free regime to Ukraine at the Riga summit (21-22.05.2015), which, of course, will also be used in Ukraine as an information tool.
On the military level of conflict, we continue to see the lack of full armistice, although heavy weapons have been withdrawn, but their use is observed by all conflict parties. Skirmishes, conflicts with the use of armored vehicles and light weapons continue to take place throughout the confrontation line every day, the soldiers continue to be killed on both sides. At the same time, the degree of confrontation dropped significantly compared to February. Both sides: DPR / LPR with the support of Russia and Ukraine with the support of western countries continue to accumulate military capabilities in the conflict zone. 11 countries have sent military and technical assistance to Ukraine. Ukraine has also already received Humvee armored vehicles from the US, as well as British armored vehicles, Saxon. While this aid does not change the balance of power in the region, it is still tantalizing to the Russian Federation.
At the same time, official manpower losses of Ukraine have got closer to the mark of 2 thousands killed – and, according to the UN, this number reaches 4 thousand. Red Cross records that almost 2 million civilians from Eastern Ukraine have become internally displaced persons.
SECTION 2: Elite Conflict in Ukraine.
March and April in Ukraine were marked by a decently serious internal conflict of elites, and the conflict between the President and an individual financial-industrial group, which today controls a bulk of the Ukrainian economy and political elite. This conflict became apparent vividly in a split between financial-industrial group “Privat” of Kolomoiskiy and the elites supported by President Poroshenko.
In fact, the trigger of the conflict was the publication of the new ratings of Ukrainian political parties on January-February. Especially sharp and unexpected drop in ratings was the one of Prime Minister Yatsenyuk (drop to 5-6% of personal rating) and the fall of support for his political force “Popular Front” from 24% to 3-5%. “Popular Front” and Yatsenyuk are often associated with a financial-industrial group “Privat” of Igor Kolomoisky. Once the ratings of this party fell and they lost their influence in Ukrainian politics, they have become a kind of “lame duck” of Ukrainian politics. “Popular Front” and Yatsenyuk lost the opportunity to be an effective political cover for FIG “Privat”.
Therefore, we have observed an active attack on the FIG “Private” made by other financial-industrial groups in Ukraine with the support of the current authorities and the Western lobby. FIG “Privat”, until recently, has been concentrated on the east and south of Ukraine, its leader held the position of governor of the Dnipropetrovsk region, which borders the war zone. This group controls huge assets; it has actively financed many volunteer military units, including the “Praviy Sector”. “Privat” has very serious economic levers of influence on the national economy, controlling the energy sector, oil refining, the sale of petroleum products on the territory of Ukraine, the largest private bank in Ukraine – “Privatbank”.
As a result of the confrontation, which has still not resulted in a public war, the conflict was narrowed. Position of the President of Ukraine, Poroshenko, have strenghtened significantly, while the position of Prime Minister of Ukraine and his political party has weakened – its impact on some energy assets has waned and Igor Kolomoysky was forced to leave the position of governor of the Dnipropetrovsk region. The group “Privat” temporarily left the political arena of Ukraine, retaining a significant economic impact on the situation.
Simultaneously, a big corruption scandal took place in the government. The former head of the State Financial Supervision issued a report of Financial Supervision Authority, on the basis of which the government was accused in stealing 7.5 billion hryvnias. This attack on the government, in fact, was supported by not only the rightist deputies, but by the president’s faction and the presidential forces; for example, the Office of Public Prosecutor of Ukraine partly confirmed the results of the state financial inspection, saying that the government is guilty of stealing 685 million UAH according to their data. It is likely that, in the end of these attacks and the corruption scandal, the government can change up to 30% of their members in the near future. Resignation of the Prime Minister of Ukraine is also possible, and the current head of the parliament Vladimir Groisman is already preparing to replace him. Other candidates for replacement are Minister of Finance Yaresko and Yulia Tymoshenko.
SECTION 3: ECONOMIC SITUATION IN UKRAINE
The situation in the Ukrainian economy remains difficult. Ukraine’s foreign debt reached 1.6 trillion hryvnia, or 103.0% of GDP (88 000 hryvnias per Ukrainian worker). Russia demands return of $3 billion of debt in December 2015, originally taken by previous government. Such external debt, of course, creates the conditions in which large foreign investments are not possible, that`s why the country actually falls into absolute dependence on internal resources on the one hand and, on the other hand, into dependence on external donors.
Exports from Ukraine have contracted by on 9 billion USD in 2014. In particular, exports to the EU increased only by 300 million USD, resulting in a negative impact on trade balance.
Ukrainian budget deficit increased 1.7 times (in January-February – 8,743,1 billion UAH, including the deficit of the general fund of the state budget – 9,957.8 million UAH). The consolidated budget is executed with a deficit of 272 million hryvnia by January-February 2015.
At the same time, there are some stabilizing trends: 1) agreement on gas has been reached with Russia for the next 3 months. Ukraine will receive gas at a price of 247$ 18 per 1,000 cubic meters. 2) The planned large-scale privatization, as the government approved the list of state-owned enterprises which are to be privatized this year, totaling in 342 objects. They include local electric power and gas companies and several mines. We did not see a railway and any objects of oil and gas industry among these objects; the question of free land market has not been raised as well.
As a result, the international rating agencies have once again downgraded Ukraine. Moody’s Investors Service downgraded the sovereign credit rating of Ukraine from Caa3 to Ca with a negative prognosis. International rating agency Standard & Poor’s downgraded the rating of Ukraine from CCC- to CC. The rating prognosis is negative. Ukrainian market has long been located in the zone of imminent default. And under which scenario this default will take place: that of Argentine or Iceland – remains the main question.
UNIT 4: SOCIAL POLICY AND PROTESTS
Sociologists state that about 80% of Ukrainians are opposed to government’s social policy. They regard it as a failure or negative. Moreover, for the first time in the last 10 years, from 10 to 15% of Ukrainians are ready to go to the streets to protest. This is an extremely high level. For comparison, in a period of Maidan the level was about 7-8%.
At the same time, unsuccessful government policy appears in the shifting economic blunders and lack of effective public policy in the public sphere. This results in a critical growth in tariffs. Since 1 April in Ukraine gas tariffs haveincreased (from 1.09 to 3,6-7,2 UAH per cub. m., depending on consumption – the more used, the more expensive), light (from 6 to 21 kopecks. Per kW -h, depending on consumption), heating (72% or 6.10 USD per sq. m, depending on the region), hot water (55-57%, or 40 USD or more per cu. m ).
At the same time, Ukrainian authorities attempts to compensate for the deterioration of living standards by humanitarian advertising steps in the internal politics of Ukraine . These decisions include the adoption of laws on decomunisation, admission the members of nationalist organizations of the twentieth century, the transfer of the archives of the security forces in the USSR Institute of National Remembrance. The Verkhovna Rada adopted the Law “On the condemnation of the Communist and National Socialist (Nazi) totalitarian regimes in Ukraine and on the promotion of their symbols” on April 9. The bill proposes to condemn the Communist and National Socialist (Nazi) totalitarian regimes in Ukraine as a criminal, to prohibit public denial of the criminal nature of the totalitarian regimes, as well as publicity and promotion of their symbolism. Parliament also opened the archives of the KGB and other secret agencies of the USSR. A law was passed, which provides for the opening of all archives of repressive organs of the USSR in Ukraine from 1917 to 1991. These laws are disconnecting and irritable for some parts of society on the historical and ideological grounds. After all, according to opinion polls center “Social Monitoring” 90% of Ukrainians believe that there is a need to celebrate Victory Day in Ukraine. Only 8% of the population believe that it is not necessary to celebrate it. Of course, these laws may be an additional tool for destabilization of internal situation in Ukraine, which is sought by many external and internal forces.