Ukraine Pushes Back Separatists as Diplomacy Intensifies

Aug 20, 2014 4:33 am ET

(Updates with fighting in second paragraph. For more on the conflict in Ukraine, see EXT2.)

Aug. 20 (Bloomberg) -- Ukraine’s armed forces said they continue to push back separatists in fighting in country’s east ahead of a possible face-to-face meeting of the Russian and Ukrainian leaders next week.

Forces from Ukraine’s National Guard captured the city of Ilovaysk, leading separatists to counter-attack using tanks and artillery, the National Guard said in a statement today on its website. Nine Ukrainian servicemen were killed in the operation amid “fierce resistance,” Anton Heraschenko, an adviser to Ukraine’s Interior Minister, said in a Facebook posting.

Russian President Vladimir Putin will have talks with Ukrainian President Petro Poroshenko on the sidelines of an Aug. 26 Customs Union meeting in Minsk, the Kommersant newspaper reported today, citing unidentified sources. This follows a planned visit by German Chancellor Angela Merkel to Kiev for talks with Poroshenko on Aug. 23. Poroshenko is due to join an Aug. 30 European Union summit in Brussels and a Sept. 4 NATO summit in the U.K.

European leaders are pushing to halt the conflict that’s killed more than 2,000 people and fractured Ukraine since Russia annexed Crimea in March. The war, which Ukraine and its allies say is being fueled by Putin’s support for the insurgents, has led to sanctions that have hurt trade and threatened to send Russia’s $2 trillion economy into a recession. Russia denies it’s involved.

Ruble Falls

The ruble fell 0.2 percent versus the dollar as of 11:43 a.m. in Moscow. The yield on 10-year local-currency bonds was unchanged at 9.3 percent after the government yesterday canceled its fifth auction in a row. The Micex Index of 50 stocks rose a ninth day, adding 0.1 percent.

“Ukraine’s armed forces have been beating the separatists for weeks now and are moving deeper into the east,” Karl-Heinz Kamp, academic director at the German government’s Federal Academy for Security Policy in Berlin, said by phone. “Something must have happened that’s boosting their fighting skills. My gut feeling -- and I don’t have any concrete evidence -- is that the Ukrainian forces are getting support from the outside.”

Truce Conditions

Ukraine’s government says it will declare a truce only if the pro-Russian rebels lay down their arms and Russia stops supplying them with weapons. Russian Foreign Minister Sergei Lavrov, meeting with his Ukrainian, French and German counterparts in Berlin, repeated calls on Aug. 18 for an unconditional cease-fire. Russia says it’s not aiding the rebels.

German Foreign Minister Frank-Walter Steinmeier said he believes Russia and Ukraine have shifted their positions and are both looking for a way to reach a cease-fire.

“We are in a phase where we begin new approaches to bring forward the talks between the conflict partners -- and I have the impression that it’s not totally without success,” Steinmeier, who hosted the meeting between the Russian and Ukrainian foreign ministers in Berlin on Aug. 17, said in a ZDF television interview.

Russia’s Defense Ministry said yesterday it began a military drill test-firing surface-to-air missile systems. The exercises in Russia’s southern Astrakhan region on the Caspian Sea involve S-400 and S-300 surface-to-air systems, ministry spokesman Igor Klimov said by phone.

Conflict’s Cost

The conflict has cost Ukraine $8 billion, Prime Minister Arseniy Yatsenyuk was quoted as saying by the Unian newswire. Ukraine’s central bank raised its overnight refinancing rate to 17.5 percent yesterday from 15 percent as it seeks to support the hryvnia.

Government forces recovered 17 bodies from where a column of civilian vehicles fleeing the fighting in the Luhansk region were attacked on Aug. 18, military spokesman Andriy Lysenko said in Kiev. He told reporters yesterday that separatists shelled the column, killing “dozens of people.” There was no independent confirmation.

“The $1 million question is whether a defeat of the separatists would be accepted by Putin who might decide he’s fed up and has got what he wanted by grabbing Crimea,” Kamp said. “Or Putin could say that Crimea is too costly without a land bridge and with my reputation ruined anyway I can now send the little green men into eastern Ukraine.”

Fighters wearing unmarked uniforms, who appeared in Crimea before Russia annexed it, were dubbed “little green men.” Putin later confirmed they were Russian soldiers.

--With assistance from Scott Rose and Ilya Arkhipov in Moscow, Leon Mangasarian in Berlin and Volodymyr Verbyany in Kiev.