Ukraine takes first step toward giving rebels self-rule

Ukraine's parliament took the first step Thursday toward granting temporary self-rule to pro-Russian rebels under a change to the constitution the West hopes can end one of Europe's deadliest wars in recent years.

The divisive issue came to the floor on the day lawmakers also backed several belt-tightening measures needed for the quick release of a $5-billion (4.6-billion-euro) IMF payment that could spare cash-strapped Kiev from slipping into default.

The sudden flurry of activity led visiting US Assistant Secretary of State Victoria Nuland to call Thursday "yet another historic day" in a war-torn country that has seen 6,500 people killed since the overthrow of its Russian-backed leadership in February 2014.

Nuland will meet Ukrainian President Petro Poroshenko later on Thursday to reassure him of Washington's backing and continued focus on the government's 15-month fight against separatists in the shattered industrial east.

- Special status -

The idea of granting autonomous status to rebel-run parts of Ukraine's east for the coming three years has struck a note of disquiet among many lawmakers and much of the Kiev media.

But it was inscribed in a truce agreement that Poroshenko and Russian President Vladimir Putin signed off in February

Lawmakers on Thursday voted by a commanding 288-57 majority to ask Ukraine's constitutional court to rule whether such changes to the basic law were legal.

The official request triggers the start of a process that should see Kiev cede some of its powers to all regions -- and assign especially broad ones to pro-Russian lands -- in the weeks or months to come.

Both Washington and its EU allies believe that partial self-rule could satisfy the insurgents and remove any arguments Russia may have for arming and funding their campaign -- support Moscow firmly denies ever giving.

But Leonid Yemets of parliament's pro-government People's Front party said he and other top lawmakers had told Nuland her logic was flawed because it failed to take ongoing hostilities into account.

"First we must end the war... and only then conduct (local separatist) elections and make corresponding changes in the constitution," the lawmaker said.

Poroshenko himself told parliament that a decision to give the militias partial self-rule was "difficult" but necessary because it was a condition being sought with increasing urgency by both Brussels and Washington.

"We cannot create a situation in which we end up facing the aggressor (Russia) on our own," the Ukrainian leader said.

- 'Technical default' -

The constitutional amendments now under discussion have been denounced as insufficient by the rebels and are unlikely to make any immediate impact on the ground.

But support for the IMF-prescribed austerity measures should help cushion the financial blow of a crisis exacerbated by Ukraine's effective trade war with Russia and the loss of much of its industry in the eastern war zone.

The three bills approved Thursday includes one to partially privatise Ukraine's inefficient and highly indebted natural gas industry.

Another law strengthens state guarantees of private bank accounts -- a measure of particular importance to IMF managers who want Kiev to merit the release of emergency assistance.

Poroshenko's government is running up against a July 24 deadline to make a $120-million payment on a $2.6-billion Eurobond that comes due in July 2017.

That sum is small in comparison to the $500 million Kiev must cover by late September on another maturing note.

The IMF rescue package requires Kiev to restructure those and nearly $15 billion in other repayments in order to focus its resources on investments that could finally put the east European nation on the path back to growth.

Ukraine is asking its private creditors to take a 40-percent cut to the value of their holdings and accept a delay in interest payments for several years.

Such terms have been rejected by the lenders and neither side has shown a willing to budge.

Ukrainian Finance Minister Natalie Jaresko warned that Kiev may now skip next week's coupon payment and declare a "technical default" aimed at putting more pressure on the bondholders to compromise.

Such a freeze "is theoretically possible," Jaresko told reporters after holding her first direct meeting with the lenders in Washington.