Petro Poroshenko and his team execute the ‘Bosnian scenario’ in Ukraine

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2014/09/16 • Politics

Article by: Denys Oleynikov

I will abstain from political, military, social evaluations of the recently passed ‘Donbas laws.’

The evaluations below are my opinion as an investment consultant:

1. Starting today, not only the short- and mid- but also long-term investment attractiveness of Ukraine is not just equal to zero. It is negative.

And this will be the case until Donbas stops being financed by Ukraine’s state budget.

2. The hryvnia will continue devaluation. The half-year ballpark is 20-22 UAH per dollar by mid-spring of the following year.

3. The newly-declared government of Donbas will successfully channel financial flows directed from the center. The field commanders will need palaces, yachts, a lot of weaponry, equipment etc. When there is not enough money, the field commanders will set up provocations at the border. In order to placate them, the state will have to collect more taxes. You wanted liberalization? Forget it.

4. I think default is possible. However, it is most likely we can manage to avoid it. But the draconian limitations, especially in the sphere of currency circulation and early deposit extraction, including those in hryvnia, will already be seen this winter.

5. Sooner or later Donbas will be allowed (de-jure according to law and de-facto by providing the functioning of electoral committees and polls) to the Verkhovna Rada elections. They will not constitute the majority, but they will be able to easily form a faction of 60-80 people.

This is enough to fully block economic reforms, lustration, practical (and not declarative) movement towards the EU and the NATO.

6. As such, Petro Olexiyovych Poroshenko and his team, consciously or stupidly, executed the ‘Bosnian scenario’ in Ukraine. And though from a political standpoint it presents certain benefits, economically the ‘Bosnian scenario’ is a complete lack of certainty.

Recommendations:

  1. Make assets solvent (cash, foreign stocks, obligations).
  2. Extract or transfer deposit investments to current accounts.
  3. Decrease real investment projects in Ukraine.
  4. Minimize taxes to the state budget of Ukraine (because it is illogical to give money to the army through volunteers and pay taxes using which the separatists will buy their own ammunition).
  5. Continue participation in reanimating Ukraine, strictly through volunteer and non-governmental organizations.
  6. Vote at the elections for the political force which will stop financing Donbas, governed by separatists, from our pocket. While this is happening, no reforms in the world are able to help Ukraine.

Translated by: Mariya Shcherbinina
Source: Ukrayinska Pravda

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  • Murf

    Ugly, but true.
    I am an american with no real skin in the game.
    That said,I am looking at this from a “what is best for Ukraine in the long term.” perspective.
    Say good riddance to Crimea and occupied Donbas. They a total drag on UA politically,economically and militarily. Putin’s long game was never to conquer UA but to subvert it to his will and a special zone for the occupied areas was the key. every ting else has been orchestrated to bring about this out come. All the death, destruction, and social chaos were merely a cold blooded means to and end.
    The association agreement being delayed is unimportant. As a practical matter it would take months before UA business practices and quality control are up to European standards.
    What is important is foiling Putin’s agenda.
    As a military and political matter the occupied areas are lost. Kyiv will have almost zero control.
    Imagine Streklov as a MP and you will get the idea
    ALL elections in the areas however will be bought and paid for by Moscow. But they will be ina position to disrupt the course modernization of UA. In time UA will be a banana republic poor, corrupt and lead around by the nose by Moscow. All the struggle of the last year will be nothing but bitter memory of what might have been.
    Let Donbas go!

    • rgb

      Many Ukrainians have given their life trying to keep the east with-in their hold. I admire the loyalty, strength and dedication shown by the volunteer groups and the military. Is that to be all for not? Agreed the east would be a drain on the western economy, (a thorn in the foot of the lion) and letting the east go would be the easiest direction to follow.

      Remember there are some cities in the two Oblast that loudly and publicly stated they wish to stay with-in Ukraine. Mariupol, with-in the Donetsk Oblast, being the loudest and taking the most positive action to refrain from being sucked into the DNR.

      Redrawing the Oblasts in eastern Ukraine would take time. And, who really knows what cities in that area really would like to be part of DNR and LNR. It would be very difficult to hold an honest referendum in those areas even with OSCE presence.

      Do you think Putin would allow any cities to separate from those areas most important to him? Putin has to let those terrorist have something to call their own with little stroke to their egos. Putin’s finances are too small to take on the burden of repairing the area’s he helped destroy, or retroactive pay to the retirement community.

      Part of Putin’s plan is the land bridge to Crimea, and keeping Ukraine in the negative financially, therefore more difficult for Ukraine to meet the requirements needed to fully comply with the EU agreement. It would be less expensive to support his (Putin) hand puppet terrorists and contracted military going than to build a Kerch Strait Bridge. Also, Putin wants all the port cities in order to hinder Ukraine’s shipping trade.

      Apologies for writing an essay and having a better remedy for this mess elude me.

    • Sue’n Bob Koshman

      When you’re heart is not in it…..it is easy to give something away. Eastern Ukraine has historically been occupied by Ukr Cossacks for centuries. (And which today also includes a lot of land , now in roosya) Now , imagine for a moment.. The US has no historical or ethnic ties to Alaska. Would you be so eager to give Alaska away? I think Alaska should belong to , say, Canada. Not so pleasant , when the shoe is on the other foot.!
      Ukrainian blood runs deep in these lands…and the land has been soaked with it……….this prescious land , is not about to be given away; because a madman vlad,
      thinks its his.

      • Murf

        Don’t think for a moment I am happy about the outcome.
        But it is what it is.
        As long as Putin is in charge Crimea and the occupied areas are lost. He is to powerful and no matter what you throw at him he will always throw more.
        Nothing lost is that essential to UA’s future. most of it your well rid of.
        Nothing lost can’t be regained. Putin will not last forever. Ukraine will.
        Political unity is far more important than holding restive, economically depressed territory.
        Living well and prosperous is the sweetest revenge. Send home 10K full body bags and they will get all morose and Russian. Live like kings and will hurt worst than a bullet in the chest.
        Focus on that.
        Best regards from the US.

    • dok

      It is unfortunate but I think you are correct Murf. Ukraine has lost Crimea and probably Donbas. They gave up Crimea without a fight. They lost Donbas after putting up a good fight but in the end were outsmarted by Putin. Hopefully they will learn some lessons from this. It is better to build a strong united Ukraine from what is left of Ukraine rather than to hold on to a cancer like Donbas. It breaks my heart to write this because I am Ukrainian but what is most important is the survival of Ukraine right now.

      • Murf

        I agree the reality is not pleasant but it is what it is.
        About loosing Crimea don’t be to hard on UA. Thanks to Yanuko the army was in such bad shape it couldn’t even drive out the main gate, no batteries for the vehicles. That’s about as bad as it gets.
        Over all I think UA is coming out of this in pretty good shape.
        They control the most important parts of the region and none of the resource sucking ones.
        Luhansk is the poorest Oblast in a poor country. They still own half.
        In Dontsk they have Mariupol which is an important shipping port for the eastern Black Sea including Russia. They also retain the northern part with the future gas shale fields
        As for Crimea, It was always a money pit, strategically indefensible with a restive and disloyal majority, except for the poor Tarters. UA is well rid of the place.
        UA’s stature in the world has gone from a corrupt mere Russian autonomous zone to a world player. Heroically fighting the resurgent Evil Empire.
        As a society Ukraine has finally become a nation. Not just a self governing part of Russia.
        Caner is a great way to describe what has been lost. The loss is regrettable but necessary. Social unity is far more important than controlling a restive territory. Look at Ireland small and fairly poor but their per capita GDP twice that of massive Russia, which is below Croatia

        As the great wise men say “Always look on the bright side of life!”
        (Monty Python’s “Life of Brian” Hay not every thing has to be so grim!)

  • dok

    I totally agree. Firstly sending any funds from Kyiv to the separatists in Donbas is outrageous and crazy. They are trying to destroy Ukraine. And giving the separatists in Donbas any seats in the Verhovna Rada is insane. They will continually try to sabotage Ukraine politically and economically. I am disappointed in Poroshenko’s moves to date.

    • Dave Ralph

      Poroshenko is trying to please the radicals who, for nationalist ideological reasons, want to keep the Donbass in Ukraine. But the radicals are stupid, because they don’t understand that if the Donbass stays, they will just send another big pro-Russian faction to the Verkhovna Rada, and all the BS of the last 20 years will continue.

  • 2mek99

    The solution of Ukraine is liberalization in economy and access of foreign investors. Basically no tender should be allowed to be won by local or Russian companies. It will always end in mafia taking over economy. Allow big corporation to do business in Ukraine. They are more transparent and less corrupted than unknown persons.

  • Christopher Atwood

    I remember during Maidan, Ukrainian Pravda used to be a half-decent journal. Now the propaganda machine is producing this speculative drivel. There’s no actual information in this article. It’s just wild predictions with no supporting arguments.

    Stop financing part of your country. Brilliant. The solution is so simple. Let’s further alienate the people who distrust the new Ukrainian government. I’m not saying that Ukraine should finance to Donbass, but that the question is much more complex than the article presents it.

    • Dave Ralph

      So you are in favor of continuing to channel Ukrainians’ money to the Donbass pro-Russian mafia?

      • Christopher Atwood

        Did you not read my comment? I said, “I’m not saying that Ukraine should finance Donbass.”

        My problem is that people are making a complex situation seem simple. It’s not simple. There are no easy answers. The answer isn’t as easy as “don’t fund Donbass!” To turn the tables on you: Are you suggesting abandoning the 70-80% of the Donbass population who don’t support separatism and are pro-unity? What gives the author — or you — the moral authority to just sweep those people aside and present the complex situation as a simple one?

  • C Monk

    I have a feeling the writer has no idea where the money comes from so is ill-equiped to say Kyiv supports Donbas. Donbas has shale gas reserves and mineral deposits that are valuable resources to any country.