Accessibility links

Breaking News

Which Residents Are Prospering In Occupied Donbas?

By Stanislav Aseyev for RFE/RL's Ukrainian Service

(July 6, 2015) A new social hierarchy has formed among those who, one year into the occupation of parts of the Donetsk Region, have not struggled economically in the “DPR,” but, on the contrary, are doing pretty well -- unlike ordinary doctors, teachers, retirees, and other less protected layers of the population.

Strangely enough, one of the primary categories of this social “cream of the crop” consists of people working in the trade sector, mainly food trading. However, there is also a “privileged” group of non-food product traders, who mainly supply retail goods, like construction materials and animal feed. In other words, those who some time ago could hardly make ends meet due to stiff competition, are now monopolists in their business sectors and are doing well.

With the deepening of the trade blockade from Ukraine, space for financial speculation and price increases has expanded on an incredible scale -- products imported from Russia without any sort of custom duties are sold at inflated prices and without any alternatives from Ukraine. To this we must also add an objective market component to price formulation – the costs of transportation from Rostov, Kursk or even Moscow directly impacts the final price tag. Even so, the situation with food quality, especially sausage products, is often catastrophic, which is explained by the following context.

Suppliers from Russia understand the brittle financial atmosphere in the “DPR,” and assess quite adequately the purchasing power of the local population. As the same high-quality products are much more expensive in Russia than in Ukraine, plus additional transportation expenses, it all leads to a simple calculus -- in order to sell the same sausage, the price cannot be significantly higher than the price would be in Ukraine, that people are used to. Therefore, imported products are often of deliberately low quality, and after accounting for transportation and supplementary price increases from local businessmen, products are sold at a more-or-less familiar price, but dramatically lower quality.

More confusion arises when purchases are made in Russian rubles versus the Ukrainian hryvnia. Most products found at local markets are from nearby Ukrainian towns and villages, which is why local sellers are reluctant to exchange goods for Russian rubles. At the same time, one can observe a typical scene where, next to a Ukrainian price tag of 80 hryvnia ($2.90) there is a price tag of 200 rubles ($3.20) for the same product, even though the official exchange rate of the “republic” is 1 [hryvnia]:2 [rubles]. Most people view this as a willful attitude of the sellers, but in reality, because of transactions in rubles, and currency exchange difference in Ukraine and the “DPR,” in order to make any profit, sellers need to multiply by 2.5 instead of 2; and because of complaints from residents, the “DPR” recently adjusted Ukrainian prices, listing what might previously have cost 80 hryvnia at 100 hryvnia ($3.70).

The situation in the non-food industry is even more complicated. The main array of products is still sourced from Ukraine, and, as most everyone knows, corrupt schemes at roadblock checkpoints “hang up in the air,” most of the time because of the fighting, as happened in Maryinka. A massive shortage is created when those who need animal feed offer “any amount” to get one of the “treasured sacks.” Naturally, when this “sack” slips into the “Donbas ghetto,” enterprising local businessmen immediately impose sky-high prices until the next time the combat situation stabilizes, thereby extracting financial benefit from the patriots of the “People’s Republics.”

Another class of local tycoons are the owners of various unofficial currency exchange stalls, credit card traffickers, as well black market pawn brokers, and in general all who promise the unfortunate inhabitants of the “republics” an escape from these “republics” by withdrawing everything they have from the bank to obtain a refugee certificate or a pass to depart the ATO [anti-terrorist operation] zone.

Because of the implicit prohibition to sell hryvnia in exchange for rubles at the so-called “Republican Bank,” as well as in a number of local “yellow exchangers,” the only way to buy Ukrainian currency is directly from “money-exchangers” [illegal currency exchangers] in small markets and squares, who trade currency for much more than the 1:2 exchange rate called for in “DPR legislation.” In fact, one would sell you Ukrainian hryvnia at the rate of 1 to 4.7-4.8 rubles, and possibly even higher, depending on the amount needed. Naturally, Ukrainian cash currency is brought into the “DPR” from Ukraine, providing an incredible income for all financial tourists, who earn a living and buy products with rubles exchanged at a rate of 5.0 [rubles to 1 hryvnia].

Approximately the same scheme is at play with the courteous females who are found in various buildings and market stalls in Makeyevka, Donetsk and Khartsyzk and offer cash advances on Ukrainian bank cards. It is worth noting that when the business was just getting under way, the cashing would be done for a 10 percent premium, but when the business came under pressure from those selling checkpoint passes, as well as the increasing number of people exiting the “zone” on their own, the premium for a cash advance has dropped to 0 percent for significant amounts, such as 5,000 hryvnia (approx. $185). The trick here is that the advance would be exchanged at the official rate of 1:2; therefore, a client would receive 10,000 rubles in exchange for 5,000 hryvnia. The fate of Ukrainian currency withdrawn from a person’s account is also not difficult to predict: it “drops” into an account located somewhere in Dnipropetrovsk, after which it miraculously transforms from 10,000 rubles to 11,000 or 12,000, depending on the difference in exchange rates between the “DPR” and separate locations in Ukraine. Afterwards, the operation is repeated over again. Considerable amounts are still being levied on less well-off customers, for whom it is still more profitable than spending the same amount trying to get out of the “DPR” in order to withdraw the same 1,500-2000 hryvnia on their own.

Another “gold mine” of the “republic” is issuing crossing passes and refugee certificates, so to speak, in a way that a client does not even have to leave their home. Retirees who still have not found a way to get onto Ukrainian territory to receive their pension are offered all sorts of necessary services: for approximately $70, in fifteen days one can become the happy owner of a physical address somewhere in Kramatorsk and recipient of a Ukrainian pension, which, however, will still have to be withdrawn via the scheme described earlier. But all of this can be accomplished without having to step outside of one’s home.

However, there are a few nuances. Once the “DPR” established a more-or-less stable payment system for retirement pensions, the number of those willing to receive their money in such a roundabout way significantly decreased, and only those who want to get their pension in both the “DPR” and Ukraine use the above-mentioned services to register as refugees. Such cases are not very prevalent, but due to a snafu in the “DPR pension fund” back in April, many retirees have been receiving their pension at twice the regular amount, and hope that this pleasant surprise lasts indefinitely. As of today, the issuing of crossing passes, including the electronic ones, remains one of the most profitable businesses in the “republic,” providing its owners no less income than a small market stall.

Passenger transport is addressed within the sphere of military business, in which a carrier who enjoys a monopoly on the business raises prices for exiting the anti-terrorist operation zone, and operators extract additional profit by transporting passengers who do not have the necessary papers to cross at Ukrainian checkpoints. In general, at demarcation line crossings – where people are forced to cross the border literally on foot and to stand in long queues under the hot sun – it was once possible to strike a deal with a driver on your required route, who for a certain sum would pick up someone lacking the proper documentation, paying a portion of their earnings at the Ukrainian checkpoints. But with the introduction of "simplifications" at the demarcation line crossings, some of that business has migrated to private transportation and taxis, which are now gaining momentum by parasitizing on the new bureaucratic mistakes of the country's leadership.

Few analysts covering events in Donbas have focused their attention on this aspect of the inner life of the “republic.” But the “DPR” is not only a paradise for the speculators and smugglers, but has also become a Mecca for fugitive criminals, who can join the ranks of the “DPR” or just lay low without fear that Ukrainian law enforcement can reach them here. These people often join the ranks of the “militia” or simply “protect” local business, having so-called connections with local criminals. Without fear of being extradited to the “enemy” state, anyone who has debt or tax obligations to Ukrainian banks, enterprises or state institutions can escape to the “DPR” and enjoy a more comfortable life.

Another layer of society that has received a peculiar dispensation for a happy life in the “republic” are the clergy of the Orthodox Church of the Moscow Patriarchate, which has long been a de facto official religion of the “DPR” and an inspiration for militia fighters engaged in “military exploits for the glory of the Fatherland.” There is a huge demand for the services of this particular confession in the occupied territories, and following Zakharchenko’s statement that the “DPR” will only have four official religions -- Orthodoxy (represented by the Moscow Patriarchy), Roman Catholicism, Islam and Judaism, the small congregations of other religious denominations will withdraw entirely from the “competitive market” in the face of the increasingly dominant Moscow Church and its clergy.

The list of the “lucky people of the republic” concludes with the “militia” itself and everyone who is somehow connected to the structure of the “DPR”: there is no need to speak about the privileges of these people, while ordinary citizens, especially pro-Ukrainian patriots still remain at the bottom of the public hierarchy of the “people’s republics."

[return to main page]