Fidest – Agenzia giornalistica/press agency

Quotidiano di informazione – Anno 31 n° 259

The second scenario – that of a frozen conflict – seems the most plausible

Posted by fidest press agency su mercoledì, 4 novembre 2015

ukraineIt may also be the best we can hope for. Russia already has a string of similar dependencies, from Nagorno-Karabakh in Azerbaijan, to Abkhazia and South Ossetia in Georgia, to Transnistria in Moldova. Adding the Donbas region to the list may seem logical, but the choice is fraught with complications for Russia.It is extremely unlikely that the Kremlin would be ready to annex another region of Ukraine, as it did with Crimea, or even to recognise the Donbas as independent, as it did with Abkhazia and South Ossetia. The industrial and mining region’s devastation is so profound that some have actually argued that Kiev should simply cede the territory and force Russia to foot the bill for reconstruction.Even assuming that the Donbas region remains part of Ukraine, the status quo cannot be sustained. The local population is in dire straits. Unless a solution can be found to allow for a resumption of social services, as well as for the return of refugees and internally displaced persons, the risk of a socio-economic catastrophe will continue to grow, and with it the risk of resumed violence.In the third scenario, a negotiated settlement, would require four main elements to work. It must: 1) compartmentalise Crimea, 2) find a constitutional solution on federal status for the Donbas region, 3) shore up the Ukrainian economy and 4) begin reconstruction in the east. Above all, striking a deal with Russia would require that there should be something in it for the Kremlin, too – and that may prove the real killer.On Crimea, it should be pointed out that downgrading the conflict to a bilateral issue between Russia and Ukraine would not be tantamount to recognition of the annexation. The US and Europe, after all, never recognised the Soviet occupation of the three Baltic states, but still saw no obstacle to trade or commercial ties with those republics while they were part of the Soviet Union. As tensions mount over Russia’s presence in Syria, simply putting Crimea on the shelf may be a way forward.The next element, the federalisation of the Donbas, was one of the Kremlin’s original demands. After the fighting erupted, the very idea of any form of concession to the separatists became anathema to the Ukrainian side. Now that the weapons have fallen silent and the Minsk accord appears to be holding, it may be possible to return to talks on the region’s status. The government in Kiev is cautiously optimistic, but wants to see more evidence that fighting will not continue.Making an agreement stick would be a tall order for both sides. The Kremlin would have to let the authorities in Kiev assume full control over all border crossings, which would effectively block the separatists’ supply lines. In return, Ukraine would have to grant a high degree of autonomy to local authorities in the Donbas that are beholden to Moscow. As those bodies would have a say in federal decision making, the Kremlin would get a de facto veto power over matters such as Nato membership.If Kiev refuses to accept those terms, it risks triggering a resumption of hostilities in the east. If it accedes, it risks triggering rebellion in the centre and the west of the country. Although parties of the far right, such as Svoboda and Samopomich, do not poll more than 5 or 10 per cent in national elections, they cannot be ignored. When Ukraine’s parliament, the Rada, held a first reading of a bill on decentralisation on August 31, violent protests left three dead and dozens wounded. A right-wing rebellion, driven by accusations of treachery and betrayal, could well sweep President Petro Poroshenko from power and even break up Ukraine or turn it into a failed state.The only real safeguard against such an outcome is to strengthen Ukraine’s economy, which is a tremendous challenge. The World Bank is hopeful that economic growth will resume in 2016, but it also recognises that this year’s contraction may come to 12 per cent, considerably worse than its April projection of a 7.5 per cent drop.
Ukraine’s first taste of economic success could be easily undone. The current account has been balanced mainly through reduced imports, which became unaffordable as the country’s currency, the hryvnia, plummeted. If economic growth resumes, the external deficit will widen again. Ukraine’s budget surplus has been achieved by harsh austerity programmes reminiscent of those in Greece. Salaries and pensions have been frozen amid rampant inflation, which peaked at 60 per cent in April. It is fair to question the wisdom of such methods during a severe recession.The deal with foreign bondholders is also less than meets the eye. Originally, the savings for Ukraine was supposed to be much larger. The IMF calculated that a ‘debt operation’ entailing a write-down and rescheduling of debt held by private credits would free up the equivalent of US$15.3 billion, on top of US$17.5 billion in direct IMF assistance to Ukraine. During the debt talks, Ukrainian Finance Minister Natalie Jaresko had insisted that foreign bondholders would have to take a 40 per cent ‘haircut,’ even as the IMF made it clear that its continued support was contingent on a deal being reached.The question now is whether the 20 per cent debt reduction is enough ­– especially because there are big bills waiting. Russia is demanding that Ukraine repay its US$3 billion Eurobond coming due in December, and it is estimated that a further US$1 billion will be needed to secure Russian gas for the winter season. Ms Jaresko commented after the debt deal that the US$3.6 billion savings was ‘an enormous amount for us.’ Next month, Kiev may have to prepare an even bigger amount to pay its Russian debts.Meeting its current debt obligations effectively requires Ukraine to keep its budget in surplus. But running a budget surplus voids all hope of achieving economic growth of 2-4 per cent over the next few years, a level which the IMF views as essential to make the bailout work. This means Ms Jaresko was right to insist on a bigger write-down, and that a second ‘haircut’ can be expected.By far the greatest obstacle to economic revival is corruption. Last year, Ukraine ranked 142nd of 175 countries surveyed by Transparency International in its Corruption Perceptions Index. Before a recent meeting with Ukrainian Prime Minister Arseniy Yatsenyuk, Chancellor Angela Merkel said that German companies stand ready to invest, but only if the right conditions are in place. In plain language, that means Ukraine will have to tackle corruption and roll back the influence of the country’s notorious oligarchs.Before a recent meeting with Ukrainian Prime Minister Arseniy Yatsenyuk, Chancellor Angela Merkel said that German companies stand ready to invest, but only if the right conditions are in place. In plain language, that means Ukraine will have to tackle corruption. Rebuilding the Donbas region will be the most taxing of all. Output in the region has fallen precipitously since the conflict started, largely due to a 70 per cent drop in trade with Russia. Before the conflict began, Ukraine traded as much with Russia as with the EU; now the volume of trade is about half. The conflict in east Ukraine has claimed over 8,000 lives, including civilians. More than 1.4 million people have been displaced, many of whom had been employed in factories and mines that have now shut down.
If the constitutional issue can be resolved – which looks iffy indeed – it is possible to envision a process in which Russia and the West join hands to rebuild the Donbas. Since the bulk of the region’s industries were built for trade with Russia, Moscow must play a significant role. The prospect of resuming cooperation with Ukrainian defence suppliers could give the Kremlin an extra incentive. For Western firms, there are tantalising prospects for infrastructure projects and the consumer goods industry.Will any of this happen? The difficulties seem endless, not least the impossibility of scaling back sanctions while Russia is bombing Western-backed rebels in Syria. The most plausible outcome is that of frozen conflict, which in the industrial Donbas would inevitably lead to economic collapse and a resumption of violence. This would threaten the economic recovery and political stability of Ukraine as a whole.One gauge of severe ‘Ukraine fatigue’ is that the EU has given the country only US$2.5 billion in non-loan economic aid. That compares with billionaire philanthropist George Soros’s estimate that US$50 billion is needed to put the country back on its feet. While the lull in the Donbas has granted Ukraine some breathing space, the country is still facing a ‘now or never situation.’ As Mr Soros rightly noted, doing nothing would be a tragic mistake. (ukraine)


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