CIPE’s Frozen Conflicts blog series looks at the current situation in seven breakaway regions of the former Soviet Union, with a particular focus on the economic dimension. To learn more about frozen conflicts and what can be done about them read CIPE’s Economic Reform Feature Service article on the subject.
In May 2014, not long after the EuroMadian demonstrations toppled Ukraine’s former President Yanukovych, pro-Russian separatists in two Eastern Ukrainian regions, Donetsk and Luhansk, held referenda – unrecognized by Kyiv and the West – and declared their independence as “people’s republics.”
According to a September report from the UN, an estimated 8,000 people have been killed and almost 18,000 wounded in the ensuing war in Eastern Ukraine – the area known as the Donbas – as the new government in Kyiv has tried to regain control over its territory. The UN High Commission on Refugees (UNHCR) estimates that the conflict has created 1.5 million internally displaced persons. While the Kremlin long denied its military involvement, the Russian business magazine Delovaya Zhizn revealed the number of Russian casualties: 2,000 dead, 3,200 wounded.
Of the three million who are left in the region, about two million are children and pensioners. This leaves only one million working-age adults to support them and do the fighting. For around two months, between the beginning of September and November 2015, fighting in Donbas subsided, and some Ukrainian news outlets were speculating that the war could be coming to an end. But just as some IDPs were starting to return to the region, reports of ceasefire violations emerged. In September, UN agencies and a number of humanitarian NGOs were expelled from Luhansk by the forces in control of the area.
While the military aspect of the situation has been extensively covered, less well known is how the occupied region is managing economically. At first, the Kyiv government paid social benefits to the separatist region, despite not receiving any of its tax revenues. But since November 2014, when Kyiv cut the region off, the separatist authorities have been supporting residents with pensions paid out in rubles. They claim that these funds derive from tax collections, not support from Moscow, but this assertion seems questionable given a sharp economic decline. Interestingly, in June 2015 the authorities paid out pensions in U.S. dollars.