(Updates with Poroshenko comment in 12th paragraph. For more on Ukraine, see EXT2.)
May 28 (Bloomberg) -- Ukraine’s government said it will press on with military operations against pro-Russian rebel fighters after its forces retook Donetsk airport and inflicted “significant” losses on the separatists.
Troops killed “dozens” of rebels in Donetsk without suffering any losses, Interior Minister Arsen Avakov said yesterday, while the mayor’s office in the eastern city said 40 people died and 31 were wounded.
President-elect Petro Poroshenko has vowed to wipe out the rebels and re-establish order across Ukraine after winning office May 25. He must stabilize a shrinking economy and confront separatists who’ve captured swaths of the Donetsk and Luhansk regions. They’ve declared themselves independent and are fighting to join Russia, which annexed Ukraine’s Crimea peninsula in March.
“The elections showed that the voters are tired of ongoing violence, giving the new president a mandate to act in a forceful way to put an end to this,” Arkady Moshes, head of the European Union’s Eastern Neighborhood and Russia program at the Finnish Institute of International Affairs, said by phone. Ukraine has the “resources to deal with a local insurgency, and its security services are getting better organized.”
The government’s “anti-terrorist operation is in an active phase,” First Deputy Prime Minister Vitaliy Yarema told reporters in Kiev. “We’ll continue this operation until there are no terrorists on Ukraine’s territory.”
The violence weighed on Russia’s Micex stock index, which lost 2.2 percent in Moscow, the steepest decline since April 24. The ruble slid 0.5 percent against the central bank’s target basket of dollars and euros, and the yield on 10-year government ruble bonds jumped 18 basis points to 8.80 percent.
Ukrainian Eurobonds, though, are set for the best monthly rally in four years. The yield on debt due April 2023 fell 23 basis points to 8.79 percent.
President Barack Obama called Poroshenko yesterday to congratulate him and offer “the full support of the United States as he seeks to unify and move his country forward,” the White House said in an e-mailed statement. They agreed to continue talking when Obama visits Europe next week, it said.
EU leaders meeting in Brussels last night decided to put off further sanctions on Russia after President Vladimir Putin showed a willingness to work with Ukraine’s new leader and pulled back some troops from the Ukrainian border.
“The possibility of de-escalation is here, finally,” French President Francois Hollande told reporters early today after the summit ended. “But we still need this strict reminder.”
In their final statement, the leaders said the EU was working on “possible targeted measures” and agreed “to continue preparations” in case further steps are needed.
“No one will opt to impose new sanctions right away but we should unanimously say that Europe is ready for further sanctions if Russia doesn’t give up its policy to support separatists,” Polish Prime Minister Donald Tusk, whose country shares a border with Ukraine, told reporters before the talks.
Poroshenko said in an interview with the German newspaper Bild published today that Putin can personally end the conflict and that he’s seeking direct talks with the Russian leader. Poroshenko said Ukraine isn’t seeking to join NATO immediately, though the country needs new military agreements with the U.S. and the EU, according to Bild.
Ukraine will intensify operations to defeat the separatists, Poroshenko said two days ago, adding “they won’t last two or three months; they’ll last a few hours.”
Putin told Italian Prime Minister Matteo Renzi in a phone call yesterday that the military operation must stop, the president’s office said in a statement.
Streets in Donetsk were virtually empty yesterday. Stores around the city were closed and stalls at the usually bustling Radio Rynok, a central market, were shuttered. Few drivers ventured out on Artema Street, the city’s central avenue.
“The airport is fully controlled” by government forces, Avakov told journalists in Kiev. “We did not have any casualties among our troops, while the terrorists lost dozens.”
Separatists abandoned a road block on the highway between Donetsk and Krasnoarmiysk to the northwest as fighting continued in the city for a second day. Government forces blocked all major roads heading north of Donetsk to the rebel stronghold of Slovyansk as fighting went on there and in the port of Mariupol.
Donetsk Mayor Oleksandr Lukyanchenko urged citizens to stay home and go out only if absolutely necessary. He said on his website the authorities in Kiev had assured him that there were no plans for air strikes on residential areas of the city.
“It’s extremely important for Kiev now to regain control over eastern cities like Donetsk, Mariupol and most importantly Slovyansk as soon as possible,” Volodymyr Fesenko, the head of the Penta Political Analysis Center in the Ukrainian capital, said by phone. “That’s why I expect the offensive by government troops in the east to intensify.”
The government will send a second battalion of the volunteer National Guard to join the operation in the east, Deputy Interior Minister Serhiy Yarovy said, according to the Interfax news service.
The U.S. is monitoring the situation in eastern Ukraine and is “concerned” about the actions of the separatists, State Department spokeswoman Jen Psaki told reporters in Washington yesterday. She wouldn’t rule out the possibility that the Obama administration would still apply industrywide sanctions against Russia.
Commenting on the offensive against rebels in the east, Psaki said “Ukrainian authorities have every right to certainly take steps to maintain calm and order where they see fit.”
The Organization for Security and Cooperation in Europe said it lost contact two days ago with four monitors from an international team based in the city. The team was on a routine patrol east of Donetsk, the OSCE said in a statement.
“A mounting death toll in the conflict in eastern Ukraine may yet provoke a more forceful response from Russia,” Tatiana Orlova, a senior economist at Royal Bank of Scotland Group Plc in London, said in a research note. “The fighting also reduces the chances of President Putin recognizing Poroshenko as Ukraine’s legitimate president.”
Poroshenko said May 25 he’d seek to end the “war, chaos and disorder” by visiting the east and working with Russia.
“The Kremlin hope that the east would rise against the center, against the interim government in Kiev and now Mr. Poroshenko, has proved to be a false hope because the people of eastern Ukraine want to be part of a unitary Ukraine, they do not want to be part of Russia,” John Herbst, a former U.S. ambassador to Ukraine and now director of the Eurasia Center at the Atlantic Council in Washington, said on a conference call.
“As long as there’s not major collateral damage in a military operation against these people, I don’t see Mr. Poroshenko having a problem with the people of the east,” Herbst said.
--With assistance from Kateryna Choursina and Volodymyr Verbyany in Kiev, Olga Tanas in Moscow, Terry Atlas in Washington, Ewa Krukowska and James G. Neuger in Brussels and Ott Ummelas in Tallinn.