Mish's Global Economic Trend Analysis

7,000 Trapped Ukrainian Forces; IMF to Fund Ukraine Wars?

Posted: 24 Aug 2014 10:17 PM PDT

IMF to Fund Ukraine Wars?

Ukraine is bankrupt. It accepted an $18 Billion IMF Bailout in March, allegedly with strict conditions.

Do those conditions allow war funding?

I have to ask because Ukraine's President Warns of 'Constant Military Threat' along with more military spending and a military parade.

Ukraine's pro-western president announced $3bn in additional defence spending on Sunday as he warned the war-torn country faced a "constant military threat" for the foreseeable future.

Petro Poroshenko flexed his might by holding a military parade during commemorations of the former Soviet republic's 23rd year of independence.

Things are going so well for Ukraine's military that it needs to come up with $3 billion when it is flat broke.

Ukraine Conflict Draining Economy, Hampering Reforms

Ukraine' prime minister Arseny Yatseniuk noted last Wednesday that Ukraine Conflict Draining Economy, Hampering Reforms.

Ukraine's conflict with separatist rebels is draining the economy by the day and hampering efforts to implement reforms as required by an IMF bailout programme, Prime Minister Arseny Yatseniuk said on Wednesday.

According to the terms of a $17 billion International Monetary Fund loan package, Ukraine must implement set reforms, but the country, which is virtually bankrupt and running wide external deficits, has had to divert substantial funds in its fight to contain the pro-Russia insurgency.

The economy contracted by 4.7 percent in the second quarter compared with the same period last year. With industrial output plummeting 12 percent in July, the economic outlook for the third quarter is not promising.

In June, Yatseniuk asked the IMF, which decides on the disbursement of the second tranche of $1.4 billion on Aug 29., to take into account the extra financial burden of fighting the insurgency.

Military Spending Math

Ukraine wants to spend $3 billion out of a $1.4 billion tranche. How exactly does that work?

While pondering that question, please note that Ukraine's currency plunged to a fresh new low today.

7,000 Trapped Ukrainian Forces

On Sunday, I reported Rebels Launch Counteroffensive: 4,000 Ukrainian Forces Trapped. That may have been an understatement.

Please consider a translation from Komsomolskaia Pravda "Donetsk On the Offensive" by Jacob Dreizin, a US citizen who speaks Russian and reads Ukrainian.

Meanwhile, the intensiveness of the Ukrainian forces' advance had somewhat diminished. And immediately, the militia went over to a counterattack. Large units of the National Guard got caught. Within the encirclement are 8th Army Corps headquarters, the 28th and 30th Mechanized Brigades, as well as the 95th Airmobile Brigade of the Ukrainian armed forces. And with them, the Aidar, Donbass, and Shakhtersk [Ukrainian volunteer militia] battalions. All in all, around 5000 men and more than 300 pieces of equipment, including tanks, "Grad" and "Uragan" launchers are trapped.

Another roughly 2000 National Guardsmen from Azov and Dnepr (battalions) have found themselves boxed up in the vicinity of Olenovskoe.

Equipment seized during the counterattack [perhaps in reference to the past few weeks of successful operations] includes 2 tank battalions, 3 MLRS batteries, 2 self-propelled howitzer batteries, 3 towed artillery batteries, and 8 mortar batteries.

The militia's strategic aim is an exit to the Sea of Azov, after which the blockade of the Donetsk Peoples' Republic will be definitively lifted. The preparation for this "maritime campaign" was going on for a long time. Even when Slaviansk was still holding out, militia recon teams were destroying border posts on the shore.

Which Side is In Trouble?

If these reports are accurate, not only are the western media reports of "rebels on the run" blatantly inaccurate, but rather it is the Ukrainian forces that are in serious trouble.

By the way, you may wish to click on the previous link to see shelling of hospitals and civilian areas by Ukrainian forces.

This is not how you win the hearts and minds of the citizens of Donetsk.

March to the Sea

Finally, please consider a map of the area around the Sea of Azov.

"The Sea of Azov, a northern extension of the Black Sea, is located on the southern coastlines of Russia and Ukraine. Though somewhat difficult to navigate because of its shallowness, significant levels of freight and passenger traffic do flow through the port cities of Berdyans'k, Mariupol, Taganrog and Yeysk."

If the rebels can capture and maintain a corridor between Donetsk and Mariupol, this war is not ending any time soon.

Let me ask again: Which side is in trouble? If the above reports are even close to being accurate, the answer is Ukraine.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Rebels Launch Counteroffensive: 4,000 Ukrainian Forces Trapped; Federalism to Save Ukraine?

Posted: 24 Aug 2014 12:36 PM PDT

If you believe mainstream media then you believe the rebels are surrounded, on the run, and a victory party for Kiev is on the way.

Other reports tell a far different story. If you believe pro-Russia news sources, the rebels are on the march, headed towards the Black Sea, and a counteroffensive in Donetsk and Lugansk is underway.

In this version of the story, the Ukrainian army is stretched way too far, support lines are cutoff, and the army is suffering huge losses of men and equipment.

"Donbass Donetsk - We Are Advancing"

To a cheering crowd, Donetsk Peoples' Republic leader, Aleksandr Zacharchenko, announces the counteroffensive.

In the video, Zacharchenko announces "My dear ones, my dears, dear brothers and sisters. Yesterday we began a counteroffensive. As of today, Amvrosievka, Kuteinikova, Blagodatnaya are totally surrounded. Around four thousand men (of the Ukrainian forces) are trapped. Now there are battles in the direction of the town of Elenovka. I hope we will liberate it by evening."

Translation above provided by Jacob Dreizin,Jacob Dreizin, a US citizen who speaks Russian and reads Ukrainian.

Dreizin comments ... Zakharchenko is referring to a rapid advance yesterday that took the Donetsk forces from Ilovaisk (where they had been fighting three Ukrainian volunteer militia battalions for several days) to points over 15km south, or possibly as much 50km if we count today's advances.

Rebel Tanks Advancing

The translated YouTube headline reads Battle in Zeleniy and Grabskoe near Ilovaisk. Unit of the Donetsk militia commander "Senia"

Dreizin comments "The rebel tanks appear to be T-64s with applique / ERA armor plates. These are the most common tanks in the Ukrainian army and may have been seized from the Ukrainians."

Lugansk Front Video

Here is some footage of a Ukrainian "Grad" battery that was destroyed near Lugansk in the last few days.

The translated YouTube headline published August 23, says Militias destroyed column MLRS "Grad".

More Comments from Dreizin

The rebels have advanced north of Lugansk city, and their recon units have reportedly reached as far as the suburbs of Severodonetsk (which they had evacuated roughly a month ago.) Hence, the remaining positions of the Ukrainian army near Lugansk are looking increasingly hopeless.

In the Donetsk region, and in addition to the main battles in and south of Ilovaisk, yesterday the rebels reported that they had advanced south directly along the Russian border and reached the outskirts of Novoazovsk on the Sea of Azov.

If this is true, it shows that the Ukrainians had essentially no forces south or southwest of Amvrosievka with which to block this rapid advance. This would confirm what I told you about the Ukrainian rear being "hollow." That is, the entire Ukrainian army is at the front or close to it, and there are essentially no strategic reserves or combat-capable units in the rear echelons.

In general, the Ukrainians will have to organize new defensive lines, but the further the rebels advance, the longer the stretch those lines would have to cover, and the easier it will be for the rebels to maneuver around the strong points, provided that they have sufficient forces.

Germany's Vice-Chancellor Backs 'Federalization' in Ukraine

Meanwhile, the story out of Germany is rather interesting where Germany's Vice-Chancellor and economy minister Sigmar Gabriel came out in support of 'Federalization' in Ukraine.

Chancellor Merkel immediately claimed Gabriel did not mean what he said.

Germany's vice chancellor has spoken out for a "federalization" of Ukraine once fighting between Ukrainian and Russian separatist forces in the eastern part of the country has ended.

"The territorial integrity of Ukraine can only be maintained if an offer is made to the areas with a Russian majority," Gabriel was quoted as saying.

"A clever concept of federalization seem to be the only practicable way," he said, adding that a ceasefire was the first step and that still appeared to be a long way away.

His comments raised eyebrows because of his use of the word federalization, which is a sensitive term in Ukraine.

During a news conference with Ukrainian President Petro Poroshenko, Merkel said what Germans understood by federalism was seen very differently in Ukraine where it was linked to a greater degree of independence "that we don't want at all".

Pro-Russian media have in the past called pro-Moscow separatists supporters of federalization.

"What we call federalism is decentralisation," said Merkel, when asked about Gabriel's remarks. She said she supported Poroshenko's plans to give more responsibility to local authorities as part of a diplomatic solution to the conflict.

Choose Federalism to Keep Ukraine Together

Flashback May 15, 2014: The Globe and Mail says Choose Federalism to Keep Ukraine Together

Chancellor Angela Merkel of Germany is right to be nudging Ukraine toward a federal structure. That is the best hope for bringing restive provinces such as Donetsk and Luhansk back into the fold of democratic politics, and the best way of accommodating those who may feel themselves somehow both Ukrainian and Russian, or somewhere in between. It's the best hope for removing disputes from the hands of masked men with guns, and back into the realm of politics.

Already in March, Ms. Merkel's spokesman, Steffen Seibert, spoke of "federalizing solutions." Accomplishing this, he said, would be a major part of "the political redirection of Ukraine."

The country would be much better off if, instead of appointed governors, it had the equivalent of Canadian provincial premiers and legislatures, with all their imperfections. It would be best if those opposing the new government in Kiev were encouraged to take the argument off the streets and into elected bodies. Those favouring greater regional autonomy, and even closer ties with Russia, might win some local elections. That would be far better than their winning gun battles.

Would Russia favour a federal Ukraine? Yes. Would some of the splittists in Eastern Ukraine support it? Surely. That is no reason for Kiev to be opposed. Federalism does not mean debilitating decentralization. It means the possibility of stopping violence and restarting politics. And it's the most plausible way of keeping Ukraine intact.

The US does not want "federalism" for Ukraine, it prefers scorched earth. Unfortunately, scorched earth is precisely what we have.

Independence Rally in Donetsk

Question of the day: Do those look like terrorists?

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

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