New ceasefire agreed in Minsk

The successful talks in Minsk should lead to a de-escalation of the situation in Eastern Ukraine, which will remove some of the pressure on the national currency and ease access to capital markets for Ukraine. Coupled with a staff-level agreement of the Ukrainian government with the IMF on the new program, envisioning USD 17.5 bn of funding over the next four years, we believe that this could move the Ukrainian equities and bonds higher. However, we are not out of the woods yet, as parties are likely to disagree on the specific details of the implementation of the new ceasefire.

After 15 long hours of talks in Minsk, the leaders of Ukraine, France, Germany and Russia have agreed on a new ceasefire in Eastern Ukraine starting from February 15, 2015. According to Ukraine’s President Petro Poroshenko, the key terms include the withdrawal of foreign troops from Ukraine by the end of 2015, the release of all hostages from both sides in 19 days (by the end of February), and the withdrawal of heavy artillery from the frontlines in 2 weeks. Among other things, Mr Poroshenko stated that an agreement was reached on the need in the constitutional reform in Ukraine, "which should consider the legitimate rights of the people living in the territory of Donbass", but noted that what is at issue here is not an autonomy or a federalization of Ukraine.

Simultaneously, the trilateral contact group (with the representatives of Ukraine, Russia and the so-called “Donetsk People’s Republic” and “Luhansk People’s Republic”) has reportedly signed a document on the implementation of the Minsk agreements containing 13 separate provisions. In addition to the ceasefire, the withdrawal of heavy weapons, and the exchange of prisoners, the document also stipulates that Kyiv should renew the “special status” of the Donetsk and Luhansk regions, provide an amnesty by the enactment of a law prohibiting the prosecution and punishment of persons in connection with the events that took place in rebel-held area, and resume social transfers to the region. Additionally, the document envisages local elections in the Donetsk and Luhansk regions, which should be held in compliance with the relevant standards of OSCE, and in consultation with the representatives of individual areas of Donetsk and Luhansk in the framework of the trilateral contact group.

We believe that the views of the parties about the future development of situation in Eastern Ukraine differ too much to ensure the full implementation of the ceasefire agreement. Russia is obviously pushing for more autonomy for the rebel-held area, and will not move out its troops unless it feels that Kyiv won’t try to recapture the lost territory. Essentially, the Kremlin is trying to “legitimize” the so-called “DNR” and “LNR” to gain more control over the area. On the other hand, such terms are unacceptable for Ukraine. Thus, we believe that the new ceasefire will at best provide a short-term de-escalation of the situation, which is still positive for the country as it could mean more time for the government to stabilize the economic situation, and higher chances of receiving the financial support from international lenders. Another point is that time works against Russia, as existing sanctions are unlikely to be lifted from the country and are already causing an economic downturn, which could cause Putin to rethink its geopolitical strategy later this year.