FPI Bulletin: Russia Turns Up the Temperature in Ukraine

August 26, 2015

By FPI Policy Director David Adesnik and Summer Analyst Alexander Augustine

The recent surge of violence in Ukraine serves as a potent reminder that the Russian war against that country continues unabated. While a period of relative quiet followed the signing of the “Minsk II” agreement in February, the extensive presence and activity of Russian armed forces in eastern Ukraine remains a wholesale violation of the pact.  Meanwhile, the elected government in Kiev is working to navigate a deep recession and enact reforms designed to purge the corruption and bloat of the old regime.

The apparent objective of the most recent attacks by Moscow-backed separatists is the port of Mariupol, located in Ukraine’s far southeast. Possession of Mariupol would enhance the economic viability of separatist territories by serving as an outlet to the Sea of Azov, a body of water bounded on the east by Russia and on the west by Russian-occupied Crimea. In addition, capturing Mariupol is necessary in order to complete a land bridge linking all of the territories that Russia or the separatists it backs have seized since March 2014. 

The U.S. has unequivocally blamed Russia for the upsurge in violence while imploring Moscow and its proxies to abide by the February ceasefire. According to State Department spokesman John Kirby, “it is the combined Russian-separatist forces and not Ukrainian forces who are initiating aggressive activities. Ukraine’s military posture continues to be defensive. We firmly reject Russia’s efforts to point to Ukraine as the aggressor.” European leaders have demonstrated sympathy for Ukraine while insisting that the full and effective implementation of Minsk II remains the route to peace. Like President Obama, they firmly oppose any effort to arm Ukraine, citing the risk of escalation. Only the U.S. Congress advocates that course of action, with Democrats as well as Republicans pressing Obama to use the authority granted by the Ukraine Freedom Support Act.

It remains possible that recent attacks are a prelude to the full-scale offensive that many Western observers have expected since early spring. After visiting Ukraine in March, General Wesley Clark, the former NATO commander, projected the onset of a Russian backed offensive in late April or early May. while the current NATO chief, Air Force General Phillip Breedlove, said that separatists appeared to be “preparing, training and equipping” for a potential offensive. It remains unclear why such a full-scale offensive has so far failed to materialize. One hypothesis is that Vladimir Putin may be content with the leverage he already has over Ukrainian policy. The weakness of the Russian economy may also be limiting Putin’s options. After a 4.6 percent contraction in the second quarter, the Russian economy is now officially in recession. 

Economic conditions in Ukraine are far worse. The country’s GDP plunged by a stunning 16.7 percent in the second quarter, after a similar decline in the first. The Ukrainian currency, the hryvnia, now trades at more than 20 to the dollar, up from 15 last fall and just 8 hryvnia before the crisis began. Meanwhile, negotiators continue to wrestle with creditors over restructuring more than $70 billion of debt. Ukraine was seeking reduce its debt by as much as 40 percent, but recent reports suggest that Kiev will only be able to write down 20 percent of its bonds’ face value. In July, Kiev made a critical payment of $120 million and is now preparing to pay $500 million in September for its next installment.

Looking toward the future, Kiev is also attempting to implement widespread reforms designed to rationalize its economy and stamp out corruption. In April, the government cancelled expensive subsidies, tripling the price of gas for consumers and raising the cost of electricity by 50 percent. Taxes have gone up and pensions become less generous.  The driving force behind many of the economic reforms is the leverage of the IMF, which is coordinating a four-year, $40 billion bailout plan for Kiev. The current feud between the IMF and the Ukrainian parliament over legislation that could jeopardize the bailout reflects the many challenges to reforming Ukraine’s economy.

The rule of law has been another focal point of reform efforts. In July, Kiev graduated the first 2,000 recruits for a new police force intended to replace its corrupt predecessor. In April, the country also set up a new national Anti-Corruption Bureau, whose chief says he is still “the early stage of organizing [his] team.” For their part, the people of Ukraine remain skeptical. A recent poll showed that 40 percent believe the country is not changing while another 32 percent say it isn’t changing fast enough. Only the war is a more immediate concern than corruption, followed by unemployment and inflation.

If the recent outbreak of violence doesn’t escalate into a full-scale Russian offensive, the next potential turning point for Kiev will be local elections in October. According to the Minsk II agreement, Ukraine will begin to resume control of its eastern border following the elections. This all depends, however, on whether the Kremlin’s proxies are satisfied with the level of autonomy that Kiev grants to the newly-elected local governments. In July, parliament gave preliminary approval to a bill that would allow the occupied regions of Donetsk and Luhansk to administer their own elections and police forces, a plan whose constitutionality was quickly affirmed by the country’s high court.

It seems likely, however, that Moscow-backed forces may not be satisfied unless they completely control the outcome of elections, allowing them to install pliable governments that will consolidate Putin’s de facto control of the occupied regions. Whether Kiev or the Ukrainian public would accept such an outcome is uncertain. Similarly, it remains unclear whether the Obama administration and its European partners would consider such an outcome to be a fulfillment of Minsk II or a fundamental violation of its purpose.  For now, the bloodshed will continue.

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The Foreign Policy Initiative seeks to promote an active U.S. foreign policy committed to robust support for democratic allies, human rights, a strong American military equipped to meet the challenges of the 21st century, and strengthening America’s global economic competitiveness.
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