Ukraine takes economic swing at rebels – but might hit pensioners instead

President Poroshenko canceled a 'special status' law for Donetsk and Luhansk, effectively cutting off the regions' hospitals, schools, and pensioners from state money. Many worry that it will hurt defenseless locals.

The conflict between Kiev and pro-Russian rebels in eastern Ukraine has opened a new economic front that will force civilians to leave rebel-held areas or lose government funding and services.

Amid a steadily evaporating two-month old cease-fire, President Petro Poroshenko over the weekend ordered the cancellation of a previous law on "special status" for those territories. That means that all government offices must be shut down, including a full halt in funding for pensions, hospitals, schools, and other services. Ukraine's Central Bank is instructed to close all banking services, invalidating any banking cards held by the population.

"Our authorities have decided to play all-or-nothing," says Vadim Karasyov, director of the independent Institute of Global Strategies in Kiev. "This is a transition from military to economic competition for the east; it's an attempt to knock the wind out of the [rebels]. Either these republics will survive, or they won't. The Kiev authorities obviously hope rebel authorities won't be able to cope, and that Moscow will refuse to feed them."

No one is sure how many people are still living in the territories of Luhansk and Donetsk where rebels hold sway. The two territories are coal-mining and industrial enclaves thrust up against the Russian border, but lacking in working airports or seaports. The area was home to more than 6 million people before the fighting began last April, but more than a million have since fled to Russia and hundreds of thousands more have sought refuge in government-held areas of Ukraine.

"There are probably about 4 million people still in those territories, and it would be impossible for Ukraine to feed them anyway. So, they have a choice: They can move to Ukraine, where they can find jobs and receive their pensions. As for those who voted for rebel authorities in those [unsanctioned Nov. 2] elections, they shall just have to understand that there are consequences," says Mr. Karasyov.

Rebel authorities have denounced Mr. Poroshenko's move as a "war crime" that will condemn large numbers of vulnerable people, especially pensioners who cannot move, to starvation.

In remarks to journalists before leaving the Group of 20 summit on Sunday, Russian President Vladimir Putin described it as an "economic blockade" that will be understood by the local population as abandonment by Kiev. Mr. Putin argued that during its two long wars to crush a separatist movement in Chechnya, Moscow never stopped paying for state services in the rebel region, because to do so could amount to conceding Russia's sovereignty.

Sergei Chepik, director of the independent Agency of Social and Political Monitoring in rebel-held Donetsk, says the new measures will be extremely painful for many local residents who have already been bracing for a tough winter ahead.

"Ukraine says that pensioners and disabled people might move to Ukraine and receive their benefits there, but that turns out to be an extremely complicated thing for most people to actually do. They must leave their homes, travel through a war zone to a new city, find a new home, register with the pension fund, and then wait for it to be processed. This basically condemns a lot of people to die in their homes this winter," he says.

Mr. Chepik says most experts in Donetsk see Poroshenko's decree as an ultimatum: Either surrender to Kiev, or ask Moscow to take over governance of their regions.

"The mood here is very defiant," he says. "A lot of people have lost relatives and friends in the fighting, a lot of homes have been destroyed by Ukrainian shellfire. Nobody's in the mood to surrender. The only way out of this is peace negotiations. If that doesn't happen, then the Red Wheel [meat grinder] will just keep turning, and claiming more victims."

But Olexiy Haran, a political scientist at Kiev-Mohila Academy in Kiev, says that government funds haven't been reaching their intended recipients in Donetsk and Luhansk for quite some time anyway.

"How can Ukraine go on paying money if it has no control over how that money is spent? People have been robbing banks over there, stealing millions," he says. "The insurgents don't want to subordinate themselves to Ukrainian law. It's a totally abnormal situation in every way."

All indications are that it will only get worse, as winter weather starts to bite, and fighting around the two rebel territories surges again.

"At the very least, the gap between the rebel territories and Ukraine will grow wider still as the Kiev government disengages from that population in the most basic ways," says Fyodor Lukyanov, editor of Russia in Global Affairs, a leading Moscow foreign policy journal.