Ukraine to shut offices in occupied Donbas, may ban banking operations

Макроэкономика 17.11.2014 Ukrainian President Petro Poroshenko issued an order on Nov. 15 requiring that Cabinet of Ministers to determine in one week a mechanism to stop the activity of all state administrative bodies in the occupied territories of Donbas and their relocation, as well as to stop the activity of all state enterprises and the evacuation of their equipment and those employees who wish to do so. He also ordered all the courts on the occupied territories to be evacuated. The president also ordered the central bank to stop within one month servicing all bank accounts that have been opened on the occupied territories. Alexander Paraschiy: The president’s order is logical, given that Ukrainian officials cannot currently administer the occupied territories, nor can they control the distribution of financial resources to the occupied regions. The implementation of this order will enable Ukraine to avoid the risk that the money that Kyiv is directing to the occupied territories will be used by terrorist groups to finance their activity. It will also enable the state budget to save about UAH 25 bln annually, we estimate. A large portion of the saved money, however, can be spent by the government to accommodate and employ all those who leave the occupied territories once all the initiatives are implemented. Clearly, an important drawback of such a move will be a radical deterioration of the financial standing of those still living on the occupied territories of Donbas, many of them pensioners and the marginalized, which may increase their hostility to Kyiv. This means it might become much more difficult for Ukraine to re-establish its governance in these locations. Moreover, it raises the risk that Russia could consolidate its control over these territories, under the pretense of helping the residents who remain there. A possible ban on all banking operations in the occupied territories might harm the business of some Donbas-exposed banks, like PUMB (PUMBUZ). Though, it’s clear that such a ban will only add stability to the bank, whose Donbas outlets are under constant risk of terrorist attacks there. Indeed on the same day as the president’s order, news media reported that one of PUMB’s branches located in Donetsk was attacked.