Ukraine Gains Against Rebels as Diplomacy Intensifies

(Bloomberg – bloomberg.com –  Daryna Krasnolutska, Anton Doroshev – August 20, 2014) Ukraine’s armed forces said they continue to push back separatists in fighting in the country’s east ahead of a possible face-to-face meeting of the Russian and Ukrainian leaders next week.

Soldiers from Ukraine’s National Guard captured the city of Ilovaysk, leading separatists to counter-attack using tanks and artillery, the National Guard said in a statement today on its website. Nine Ukrainian servicemen have been killed and 22 wounded in the past 24 hours, military spokesman Andriy Lysenko said in Kiev. Thirty-four civilians have been killed and 29 injured in Donetsk in the past 24 hours, the regional administration said in a statement.

“It’s a question of the next month for the rebels to either be defeated or for Russia to send in far larger forces to stop their defeat,” Joerg Forbrig, senior program officer for central and eastern Europe at the Berlin bureau of the German Marshall Fund of the U.S., said by phone.

European leaders are pushing to halt the conflict that’s killed more than 2,000 people and fractured Ukraine since Russia annexed Crimea in March. The war, which Ukraine and its allies say is being fueled by Putin’s support for the insurgents, has led to sanctions that have hurt trade and threatened to send Russia’s $2 trillion economy into a recession. Russia denies it’s involved.

Minsk Summit

Russian President Vladimir Putin will have talks with Ukrainian President Petro Poroshenko on the sidelines of an Aug. 26 Customs Union meeting in Minsk, the Kommersant newspaper reported today, citing unidentified sources. This follows a planned visit by German Chancellor Angela Merkel to Kiev for talks with Poroshenko on Aug. 23. Poroshenko is due to join an Aug. 30 European Union summit in Brussels and a Sept. 4 NATO summit in the U.K.

“Ukraine’s government is very clear: they want to end this by defeating the rebels,” Forbrig said.

The Micex Index (VTBMICX) was little changed at 1,437 by 1:23 p.m. in Moscow, giving a loss of 0.5 percent since Feb. 28, the day before Putin’s Ukraine intervention started. The yield on local-currency bonds due February 2027 was unchanged at 9.37 percent, keeping the increase since the incursion at 101 basis points. The ruble, which is down 1 percent since February, weakened 0.2 percent to 36.2595 per dollar.

Truce Terms

Ukraine’s government says it will declare a truce only if the pro-Russian rebels lay down their arms and Russia stops supplying them with weapons. Russian Foreign Minister Sergei Lavrov, meeting with his Ukrainian, French and German counterparts in Berlin, repeated calls on Aug. 18 for an unconditional cease-fire.

German Foreign Minister Frank-Walter Steinmeier said he believes Russia and Ukraine have shifted their positions and are both looking for a way to reach a cease-fire.

“We are in a phase where we begin new approaches to bring forward the talks between the conflict partners — and I have the impression that it’s not totally without success,” Steinmeier, who hosted the meeting between the Russian and Ukrainian foreign ministers, said in a ZDF television interview.

Forbrig said he doubts Kiev wants a cease-fire due to fears that east Ukraine “will end up as a frozen conflict just like the Transnistria region that will be a problem for decades.” Transnistria, on Ukraine’s southwestern border, declared independence from Moldova in 1990. It’s supported by Russia yet isn’t recognized as a state.

Missile Tests

Russia’s Defense Ministry said yesterday it began a military drill test-firing surface-to-air missile systems. The exercises in Russia’s southern Astrakhan region on the Caspian Sea involve S-400 and S-300 surface-to-air systems, ministry spokesman Igor Klimov said by phone.

The conflict has cost Ukraine $8 billion, Prime Minister Arseniy Yatsenyuk was quoted as saying by the Unian newswire. Ukraine’s central bank raised its overnight refinancing rate to 17.5 percent yesterday from 15 percent as it seeks to support the hryvnia.

Government forces recovered 17 bodies from where a column of civilian vehicles fleeing the fighting in the Luhansk region were attacked on Aug. 18, Lysenko said.

Lysenko said that the International Committee of the Red Cross is still awaiting safety guarantees on Russian aid for Ukraine halted at the border. The Foreign Ministry in Moscow said today that Russia and the Red Cross reached “general understanding about the convoy’s readiness to start moving.”

Article ©2014 Bloomberg L.P. All Rights Reserved.  Article also appeared at bloomberg.com/news/2014-08-19/ukraine-says-forces-make-gains-against-rebels-in-luhansk.html