East Ukraine slips out of Kiev’s grasp as militants widen attack

Kiev: Ukraine’s east is slipping out of the government’s grasp as separatists expand their takeovers of official buildings and the US and its allies warn of additional sanctions if Russia doesn’t ease tensions.

Armed men stormed the Donetsk regional prosecutors’ office on Thursday, throwing stones and stun grenades. Rebels in nearby Slovyansk said they’d begun talks to swap international monitors abducted last week, the Interfax news service said. The US and Europe accuse Russia of stoking the turmoil in Ukraine, which won the International Monetary Fund’s (IMF) approval for a $17 billion loan.

“The government doesn’t control the situation in Donetsk as well as part of Donetsk region,” said acting president Oleksandr Turchynov in Kiev on Wednesay. “Because there is real threat of Russia starting a continental war, our army is on full combat alert.”

The unrest in eastern Ukraine has worsened even after the US and the European Union (EU) ratcheted up sanctions to target Russian interests and persuade the government in Moscow to de-escalate tensions. The confrontation has emerged as the worst in two decades between Russia and its former Cold War adversaries. Russia says Ukraine’s rulers must listen to the complaints in the east and wants the government to cede powers to the regions.

1,000 Gunmen

As many as 1,000 gunmen have seized buildings in more than 10 cities in East Ukraine, according to the interior ministry, while Gennady Kernes, mayor of Kharkiv city, is in hospital in Israel after being shot.

On Thursday, rebels in Slovyansk released two hostages, though they still have 50 more, including eight observers from the Organization for Security and Cooperation in Europe. Vyacheslav Ponomarev, the city’s self-appointed mayor, said that he’s in discussions with the government in Kiev to swap the OSCE monitors for his captured allies, according to Interfax.

German Chancellor Angela Merkel spoke to Russian President Vladimir Putin by phone and urged him to help free the hostages, according to a German government statement. Putin told Merkel the most important thing now is for Ukraine to remove its troops from the nation’s southeastern regions, the Kremlin said.

US and European officials on Thursday pressed criticism of Russia’s commitment to an accord that sought to defuse the situation following the expansion of sanctions against people and companies linked to Putin’s inner circle. Putin has warned further penalties may trigger a response against foreign companies in Russia’s energy and other industries.

IMF boost

As the crisis strains Ukraine’s shrinking economy, the IMF approved an aid package under which the government will get an immediate $3.2 billion disbursement to help pay its debts. The gross domestic product (GDP) fell 1.1% from a year earlier in the first quarter as industrial production and the hryvnia slumped amid deadly protests and Russia’s annexation of Crimea. With the currency down 29% this year, the government has pledged to stabilize the nation’s accounts.

“Authorities have developed a bold economic programme to secure macroeconomic and financial stability and address long-standing imbalances, structural weaknesses to lay a firm foundation for high and sustainable growth,” IMF managing director Christine Lagarde said in an e-mailed statement.

Ukraine’s dollar-denominated bonds due 2023 rose on Thursday, pushing the yield down four basis points to 10.35%, retreating from the highest level since 19 March.

‘Provocative behaviour’

“Russia is also suffering. Its economy is in a recession and may only expand 0.2% this year,” Antonio Spilimbergo, the IMF’s mission chief for Russia, said on Wednesday. Ruble is down 7.6% against the dollar this year, the second-worst among 24 emerging-market currencies tracked by Bloomberg. As it downgraded Russia’s outlook, the IMF cited tension with the US and Europe, which are threatening industries such banking and energy if Putin doesn’t calm the crisis.

“We will escalate the costs to Russia as Russia, if it does, escalates its provocative behaviour,” White House press secretary Jay Carney told reporters in Washington.

The EU has been reluctant to impose broader sanctions because of the potential harm to its member states, which rely on Russia for energy imports. Germany, Europe’s largest economy, had $89 billion in trade with Russia in 2012.

Merkel said she didn’t see any problem at all for Group of Seven industrial countries to take more steps against Russia. “If the current measures don’t work, then we should not be afraid that further sanctions are necessary,” Merkel told a news conference on Wednesday in Berlin.

Border pressure

“Russian forces, estimated by NATO to number about 40,000, continue to mass on Ukraine’s border,” Turchynov said. The government has fired the heads of state security in areas where the unrest was taking place, he said, calling on patriots to sign up to serve as police in those regions.

Premier Arseniy Yatsenyuk said on Wednesday Ukraine is ready to offer additional guarantees for Russian speakers, which the government in Moscow says are at risk after Putin-backed President Viktor Yanukovych was ousted in February.

Along with the US and the EU, Ukraine says Putin has infiltrated its eastern regions with agents and covert military forces to create unrest, allegations Russia denies.

“Ukraine has detained and plans to expel a Russian naval attache, accusing him of violating diplomatic conventions,” the Ukrainian foreign ministry said by e-mail. Bloomberg