Ukraine Clashes Ease as Envoys Ready Rebel Talks on Deescalation

Clashes in Ukraine’s easternmost regions abated further as the government saw fewer rebel attacks and a three-party envoy group prepared talks with pro-Russian insurgents on deescalating the yearlong conflict.

Rebel “provocations” with small arms and mortars continued, though no artillery fire was recorded for several days, National Security Council spokesman Andriy Lysenko said on Tuesday. A contact group made up of former Ukrainian President Leonid Kuchma, Russian Ambassador to Ukraine Mikhail Zurabov and Heidi Tagliavini of the Organization for Security and Cooperation in Europe plans to speak with the separatists in the Donetsk and Luhansk regions on Wednesday.

“They will discuss a deescalation of the situation in eastern Ukraine and also the issue of exchanging hostages and illegally detained individuals,” Kuchma’s spokeswoman Darka Olifer said on Facebook.

As casualties have waned following a cease-fire signed last month in the Belarusian capital, Minsk, Ukraine is now focusing on securing a deal with bondholders to curb its debt. The government in Kiev is also facing the task of fixing the economy devastated by the fighting, stabilizing the world’s worst-performing currency and cracking down on corruption.

While there have been signs of “decreasing tension” on the Ukrainian currency market in recent weeks, “risks of destabilization are there, as well as high inflation and devaluation expectations,” the central bank’s monetary policy committee said in a website statement on Tuesday.

‘Expensive Hryvnia’

The central bank should continue an “expensive hryvnia” policy by keeping interest rates high, it said.

The currency, which has lost 33 percent to the dollar this year, was 0.7 percent stronger at 23.45 against the greenback as of 3:05 p.m. in Kiev. The government bond maturing July 2017 gained 0.2 cents to 39.62 cents on the dollar, extending its advance over four days to 1.9 cents.

Finance Minister Natalie Jaresko urged Ukraine’s creditors on March 24 to back a debt overhaul or risk bigger losses. The probability the negotiations will fail and lead to a disorderly default is about 30 percent, according to the median estimate of 21 analysts surveyed by Bloomberg on March 20-26.

Ukrainian forces and rebel groups have accused each other of violating the cease-fire since it took effect on Feb. 15. The separatist-run DAN news service on Monday cited the Defense Ministry of the self-declared Donetsk republic as reporting 13 truce breaches by government troops.

On the same day, German Chancellor Angel Merkel said the annexation of Crimea by Russian President Vladimir Putin was undermining the basis of peace in Europe. Putin has rejected accusations by the U.S. and the European Union of backing the Ukrainian insurgents with supplies of cash, fighters and weapons.

“We’re not deluding ourselves, we’ll need a long time” to resolve the conflict, Merkel said at Helsinki University on Monday. Ukraine has the right to determine its own fate, and unity among EU members in maintaining sanctions against Russia showed the bloc’s strength, she said.

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