Oleksandr Klymenko Official website
Articles | 1524 | 21.01.2015

5 economic attacks on Donbas

How does prolonged ATO affect the country?

Klimenko called 5 economic decisions the Government of Ukraine, which aggravated the situation in Donbas

I’s hard to be objective when it comes to Donbas. It is difficult for me because the war is destroying my house, killing thousands of my fellow citizens, breaking down the future of generations.

On the other hand – I will never get rid of the habit of seeking economic background in any process or phenomenon. Even in the war. Especially in the war.

The armed conflict in one of the most industrially developed regions of Ukraine, which produced a significant portion of domestic export, affected the whole country. The government was searching for anticrisis solutions.  People will judge later, whether these decisions were fair in regard to millions of Ukrainian citizens, who are residing in ATO zone today. However, the consequences of the first steps are perceptible. All over the country.

Here is the list of the top 5 economic decisions of the Ukrainian government about Donbas and evaluation of its consequences both for the region and the whole country.
Carrying out the Anti-terrorist operation

Perhaps originally the Ukrainian government was planning to complete the ATO at short notice. Let me remind that initially it was stated that it would take no more than 48 hours. It did not happen. By today, we have protracted conflict with the full-scale fighting.

Nowadays, we can conclude that the bet on a military resolving has debilitated the economy of Donbas and the whole Ukraine. First of all, there are direct military expenses. According to representatives of the Ukrainian government, each day of ATO costs UAH 100 million. Its duration is more than half a year…

Secondly, the budget in 2014 did not get about UAH 18 billion due to the war (according to the Ministry of Finance). It concludes taxes and contributions of business, as well as the forgone payments from unexecuted external contracts with Russia. Trade volume between Ukraine and Russia declined by a third. For many reasons. One of the reasons is that Ukrainian manufacturers objectively had no opportunity to execute their obligations due to the hostilities. Two-thirds of companies in ATO area terminated its operation, including major engineering, metallurgical and chemical enterprises. The companies, which were not damaged, turned off its production due to the fact that foreign contractors refuse to work with it in this area, even on a prepaid basis.

In addition, more than 85% of small and medium-sized business have stopped its work in ATO area.

Meanwhile, it is about exporters. Their stoppage has reduced the foreign currency revenues by a long chalk. Among other things, it has increased the devaluation of hryvnia.

ATO area became a territory of mass unemployment. This fact threatens of conflict’s protraction: there are «workplaces» only in military forces in plethora cities of Donbas.

Financial blockade

Banks, other financial institutions and post office in ATO area terminated its functioning. Nowadays, there is not even a system of non-cash payments, the access to the State Treasury is blocked and all the registries are cancelled. It means that companies, which are working there, have no opportunity to pay taxes, have no current assets and drifting into the bankruptcy. In addition, it has caused panic among the population. People massively withdrawn deposits from bank and cash out all the funds, which were on their cards: social payments, savings and other incomes. We are talking not only about the residents of uncontrolled territories. There is a chain reaction.

At the same time, the National Bank does not allow banks to write off losses in the loan impairment to the borrowers in ATO area (although, borrowers have an opportunity not to repay loans before the end of hostilities). This only aggravates the complicated situation in the banking sector.

Finally, the necessity of crossing the demarcation line in order to visit the bank and state institutions is dangerous for civilians. Most of the passengers of the bus, which came under fire in Volnovakha, were «pension tourists»…

The termination of funding of social payments and budgetary institutions, suspension of hospitals, courts, offices of the Pension Fund and the social security authorities

The war has not been officially declared. Therefore, these steps are illegal. Donbas people did not abandon Ukrainian citizenship. Ukraine itself did not deprive them of citizenship and did not declare Donbas region to be outside of its jurisdiction.

ATO area remains a part of the country. People, who live there – are the citizens of this country. They are the citizens with the limited rights.

The cynicism of the situation is that this step will save UAH 15 billion per year. It is about subsidies to state-owned enterprises, public institutions, plus UAH 6 billion of salaries and social payments.

This decision led to the humanitarian catastrophe. In Donetsk region, 210,000 people did not reschedule their payments, and 30,000 state employees left without livelihood due to the liquidation of establishments.

By the way, if any of them sues to the international courts, he/she will win the case. Ukraine will lose not only the direct costs (payment of compensation), but also its reputation and money. International reputation – is not an empty sound. It is indicators in the world ratings. The fall of the country in the ranking means the outflow of investments.

Termination of financing of state-owned mines in ATO area

This option is part of the previous one. However, it should be examined by itself. The blocking of coal enterprises work has provoked rolling blackouts of the electricity, that is, obviously, affected Ukraine immediately.

More than 80 Ukrainian mines (60% out of the total number) are located in ATO area, including 17 enterprises – in the zone of active hostilities (these companies, probably, will never renovate its functioning). 200,000 people were working here; 150 000 people were working in the public sector.

Termination of state support of the led to the shortages of fuel for Ukrainian power plants. In former tines, the right decision was made: in order to strengthen energy independence, it is necessary to transfer all thermal power plants with gas on the local fuel – anthracite and lean coal.

A blockage of the state mines in ATO area has turned this proper construction against Ukraine. “Coal” electricity takes about 40% in the energy balance of the country, for normal operation of the stations, there must be more than 3 million tons of coal per month. There is 5 million tons in warehouses in ATO zone- six-week stock. Ukraine has unified energy system. Disconnection of any block will affect all consumers. It is impossible to insulate oneself by blockade here.

There are three ways out of the situation

First one – is to buy coal in other countries. There are ten countries in the world, the closest – is Russia.

The second one – is to find a way to resume the supplies to ATO area. This coal is the cheapest.

Third one – is to transfer thermal power plants to the so-called “gas” coal, which is produced in Ukrainian territory (not in ATO area).

Many years and enormous costs are not suitable for the anti-crisis solutions.

In addition, there is problem that some stations, which are functioning of such coal are located in zone of hostilities. While consumers of inaccessible anthracite are in safety, but without fuel.

Termination of railway transportation

Nowadays, cargo and passenger transportation was almost stopped not only in the “DNR” and “LNR”, but also in some other parts of Donbas.

Of course, this threatens with termination of the operation to industrial giants, such as Alchevsk Iron and Steel, Yenakiyevo Steel Plant, Avdeevka Coke Plant, which are located in the zone of hostilities. In addition, Mariupol metallurgical plants and mining and concentrating combines in Krivoy Rog could be stopped too.

Donetsk railway was a blood artery of the whole MMC in Ukraine. In case of concluding relevant agreements, it will be necessary to take out the coal from the mine warehouses.

In my opinion, the results of the decisions, clearly demonstrated the economic irrationality of war as an instrument of state policy in regard to Donbas.

And the question is not are these decisions fair in regard to more than 6 million Ukrainian citizens living in Donetsk and Lugansk regions. The question is whether they are fair in regard to all Ukrainian citizens, regardless of their place.

All of them have felt its consequences this winter.

That is why the government should sink into a reverie: is it really all means are good in war?

Link to source: Forbes

Photo: Ukrainian Photo