22-28 December 2014 Weekly Highlights by "Digests and Analytics - Ukraine" News Agency
In emergency session Verkhovna Rada pushed through a number of laws needed for shaping a budget and approved the state budget for 2015. The powers of the presidential National Security Council significantly expanded. Ukraine cancelled its non-aligned international status. The economic situation remains permanently difficult in the absence of new loans from IMF. Transport links between Ukraine and Crimea are cut off. "Silent mode" and the exchange of prisoners are major developments in Donbass region.
The epic battles for the state budget
During the week MPs and the government have repeatedly tried to agree on the key parameters of the budget, which was subjected to merciless criticism from economic experts and the public, and to adopt a legislative package to form the spending and the revenue parts of the budget. Batch vote was rejected, and on December 28 the project and related laws were submitted for voting to MPs. It took the intervention of President Poroshenko, who exerted pressure on the deputies of his faction to pass the necessary laws.
On the night of December 29, slim majority of deputies of the Verkhovna Rada approved the budget for 2015. MPs of the "Fatherland", "opposition block" and some members of the faction "Block Poroshenko" did not vote. Amendments to the draft budget were adopted without compliance with legal protocols. The deputies voted for the project without examining the final texts of the budget and laws.
Experts are doubtful on the positive outcome of the negotiations with the IMF regarding the allocation of the next tranche of stabilization loan as the budget is so imperfect that it would require changes in the next month. The IMF mission is expected to start work in Kiev on January 8.
The situation in the economy
According to the President Poroshenko up to 20% of the Ukrainian industry is located on the occupied territory of Donbass and half of it is actually destroyed. Metallurgical association of Ukraine reported that industry losses increased by almost 50% compared to 2013 - up to 14.5 billion USD, sales fell by 15%.
The deficit of energy is still a serious problem. Fuel and Energy Minister Demchishin announced its readiness to purchase electricity in Russia on its terms.
Hryvnia exchange rate against major currencies has not changed, petrol prices declined slightly.
The official unemployment rate in Ukraine reached 9.3%, that is 1.78 million unemployed people. Economic experts predict a prolonged decline in the economy if the government and the parliament will not start immediate radical reforms aimed at providing more freedom to small and medium-sized businesses that would lead to increase in the total tax base and consequently to easing the burden on the budget through reduction in unemployment.
On the last day of the session the Verkhovna Rada deputies adopted a law on pricing transfer that ties the tax on profits of large corporations to world market prices as well as the law on recapitalization and refinancing of banks.
The introduction of separate VAT (GST) accounts was delayed, but not canceled, despite a warning from economists that these will destroy small and medium businesses.
A law on the tax compromise, providing for voluntary reporting of underpaid income tax and value added tax at the reduced rate has been adopted.
A new model of relations between the regional and the state budgets was introduced, and the defense spending is increased. The government obtained the right to change the size of defense spending in case of martial law. Caps on salaries of civil servants and state employees were introduced.
Single social contribution will be reduced under certain conditions, the number of groups of single tax payers will be decreased, number of taxes will be reduced through their merging. The rate of rental payments for mining natural resources will increase, real estate tax is introduced, excise taxes on tobacco and alcohol increased, almost all social benefits were cancelled, including travel benefits for retirees. Despite warnings from experts about possible problems in trade with the EU and the violation of the WTO principles, taxes on passive income will be raised; an additional import duty on almost all groups of goods will be introduced .
The Verkhovna Rada has introduced a moratorium on the eviction of borrowers who took mortgages in the foreign currency and determined the conditions for the repayment of such loans.
Experts believe that the legislative package proposed by the government is not the reforms required by the West. Instead of the full liberalization of the economy those laws are aimed at plugging the holes and increasing the pressure on business.
Anti-Corruption Bureau
President, the Cabinet and the Verkhovna Rada approved the list of members of the Commission to elect the head of the Anti-Corruption bureau. Lawyers, human rights activists, the ECHR judge and journalist are among the Commission members. Anti-Corruption Bureau is given broad powers to investigate corruption in all government bodies, but the law is not clear whether the bureau can investigate the activities of senior government officials, and what is the procedure of bringing corrupt officials to justice. According to the amendments to the tax legislation approved by the Parliament, the maximum salary of the Bureau staff may exceed 10 times the minimum wage.
Government will re-open access to the state registry of property rights from 1 January 2015 year.
New powers given to the National Security Council
The bill expanding the powers of the National Security Council did not get the required number of votes in the first passing, but after follow-up discussions in the Committees was again introduced and adopted by MPs without any changes on December 25. Speaker Groysman signed it immediately and sent it for approval to the President. Some MPs were protesting against violations of the Parliament procedure. They intend to challenge of adoption of the law in the court.
Experts point to the danger of control over the activities of the Anti-Corruption Bureau by the National Security Council, which is enabled with not only coordinating, but also controlling functions. In fact, The Secretary of the National Security Council is empowered Vice-President status, which can cause imbalance in the distribution of powers between the branches of government.
Canceling of non-aligned status and taking a course to join NATO
Verkhovna Rada overwhelmingly canceled the neutral status of Ukraine, paving the way for NATO membership.
Ukraine and NATO are already working on a joint program, the President Poroshenko approved the list of Ukrainian participants in the joint working group on defense reform.
The Kremlin has threatened dire consequences in the resolution of internal Ukrainian crisis because of this decision of the Verkhovna Rada to waive non-aligned status. Russian Prime Minister Medvedev said that the decision turns Ukraine into a potential military adversary to Russia.
Russian President Putin introduced a new Russian military doctrine based on the lessons of the war in Ukraine. The main threats identified are conflicts in Ukraine, in North Africa, Syria, Iran, Afghanistan; military build-up and the eastward expansion of NATO.
State Department spokesman Harf said that the United States fully supports the policy of "open doors" to NATO and membership applications will be considered by all members of the Alliance. NATO spokesman said that the Alliance is not a threat to either Russia or any other country. NATO has a defensive purpose and aimed to ensure the safety of its members. Russian aggressive actions in Ukraine violated international and threaten European security.
A new round of ceasefire negotiations in Minsk
Contact group negotiations to resolve the situation in eastern Ukraine were held in Minsk in the closed mode with the participation of former President Leonid Kuchma, the OSCE Representative Tagliavini, Russian ambassador to Ukraine Zurabov and self-proclaimed representatives of Donetsk and Luhansk "republics". Results of the negotiations are not announced. Continuation of negotiations planned on December 26 did not take place though there was an exchange of 222 militants for the 154 Ukrainian soldiers and civilians.
Ukraine faced a wave of terrorist attacks
The terrorist threat is increasing In Ukraine. There was an explosion in Odessa near the office of Euromaidan activists. Sabotage group blew up a railway bridge in Mariupol, the explosions of two bridges were prevented. Grenade was launched into the house of the Lviv mayor. Two terrorists blew up on their own explosive devices in Odessa and Kherson. Oil pipeline "Druzhba" was damaged in Transcarpathia, oil pumping was stopped to prevent environmental disaster in case of an oil leak. The military stepped up security of strategic facilities in Mariupol and blocked the eastern exit from the city.
President Poroshenko instructed to strengthen the protection of strategic infrastructure and vital objects based on the outcomes of the military-economic drill "Concentration-2014".
Security Service of Ukraine detains terrorists and subversive groups on the daily basis, but the situation requires urgent adoption of the package of measures to strengthen security by the government.
The fight for the Crimea
Due to blackouts imposed by UkrEnergo, the Crimean authorities have imposed energy restrictions to save the power distribution network and declared that the power outages in the "peak" hours will be systematic.
International payment systems Visa and MasterCard followed the decisions of the EU and US to sanction companies operating in Crimea and disconnected several dozen Russian banks conducting operations there from card services.
Ukraine halted the rail freight and passenger traffic with Crimea from December 26 for "security reasons." Trains will proceed up to Novoalekseevka and Kherson stations. Transport companies were ordered to stop selling tickets and terminate bus services to Crimea.
As explained at the headquarters of anti-terrorist operation, transport links to Crimea are suspended to prevent the infiltration of saboteurs masking as civilians in the Ukraine.
The problem of internally displaced civilians and the population in the occupied territories
The number of temporary migrants registered with the Ministry of Social Policy has exceeded 730 thousand. Food situation is close to critical in some towns in Luhansk region, especially in nursing homes and hospitals, in large part due to theft of humanitarian aid by the militants.
The first part of Ukrainian humanitarian aid was delivered to the occupied territories in Donbass. Humanitarian aid from Poland was delivered to Ukraine as well.
The head of the Moscow branch of the International Red Cross Trunov called Russian "convoys" sent to Donbass as the invasion of Ukraine. He stressed that, in comparison, the humanitarian aid provided through the Red Cross, is delivered with all necessary procedures and the aid distribution is transparent.
An increasing number of suicide attempts is taking place among temporary migrants from Donbass who can not find work and housing.
Truce in Donbass
Militant attacks, shelling the populated areas and positions of the Ukrainian army did not stop, their intensity increased after arrival of another "humanitarian" convoy from Russia. Ukrainian soldiers and civilians are killed and injured daily. Exchange of prisoners took place during the truce.
Spy and sabotage activities of Russian troops and insurgents using UAVs has increased. Under the cover of silence regime, russian troops and militants carried out regrouping and concentration of forces in preparation for possible offensive strikes. Recruits and military equipment arrived from Russia were used to reinforce front military units, field hospitals were deployed. It is estimated that Russia has concentrated up to 8 thousand troops on the occupied territory of Donetsk and Lugansk regions as well as 500 tanks and self-propelled artillery, hundreds of units of field artillery and howitzers, MLRS "Grad" and "Hurricane", a minimum of 4 missile launchers complex "Tochka-U”, radio intelligence and jamming devices, advanced air defense and fire control systems.
Front line in Donbass remained unchanged. Units of the Russian army withdrew from the Chongar peninsula back to Crimea. The peninsula came under control of Ukrainian troops.
NSDC Secretary Turchinov denied reports on joint patrolling of front line in the Donbass, but the OSCE mission confirms that such negotiations took place.
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