Ukraine's other crisis: an economy in freefall

The threat of war with Russia has dominated Ukraine's agenda in recent days, but its economic predicament is nearly as urgent.

|
Emilio Morenatti/AP
A Ukrainian man wearing camouflage uniform yawns as he asks for donations to support the Ukrainian military with the slogan on box reading 'collecting money for Cossacks' needs,' at Independence Square in Kiev, Ukraine, on Tuesday.

As the threat of a Russian military intervention looms over the future of Ukraine, its economic solvency is posing just as big a test to the country's integrity.

Ukraine's needs are so dire that its transitional authorities, who are seeking billions in aid, have vowed to meet any demands that lenders place on it, even as previous attempts to do just that have failed. And that may result in significant short-term pain to Ukrainians, via unpopular measures like cuts in subsidies for utilities.

"The biggest problem at the moment is the threat of war,” says Joerg Forbrig, an Eastern Europe expert at the German Marshall Fund of the US in Berlin. But "the second most pressing problem is how this country is equipped financially, and the financial equipment is way below what you would consider sufficient. They are within months of default.”

Ukraine's hard currency reserves have fallen to less than $18 billion, and it owes some $8 billion, including a gas bill to Russia and payments to the International Monetary Fund. This January's industrial production was down 5 percent from January 2013.

"There has long been a need for an immediate cash injection, which is what the EU did not offer, and where Russia stepped in with $15 billion,” says Mr. Forbrig, of the EU’s trade and association agreement that Ukraine rejected in November, leading to three months of protest.

Now countries are scrambling to offer money to the cash-strapped nation, in an effort to move it away from dependency on Russia, which has only disbursed $3 billion of the $15 billion it promised in aid after Ukraine rejected the EU offer.

A team from the International Monetary Fund (IMF) arrived in Kiev Monday and were scheduled to begin consultations today to put together a package that might prove unpopular with Ukrainians.

The US and the European Union are working on funding programs that could provide immediate stabilization funds to Ukraine, but have suggested that they will do so alongside the IMF. "No member state will move without the IMF evaluating Ukraine's financial needs," a European source told Agence France-Presse Monday. 

An IMF loan would obligate Ukraine to make unpopular reforms, including cutting energy subsidies. But deep structural change – such as reforming the court system and ending various monopolies in the economy – is needed to root out corruption and return the country to growth, says Adrian Karatnycky, an expert on Ukraine with the Atlantic Council of the United States. “Otherwise you’ll stabilize and then bad habits will [emerge] again in six months.”

The White House did announce today that it is providing Ukraine with a $1 billion loan package to help soften the pain of ending energy subsidies, reports the Associated Press. And the US said it plans further aid to Kiev to reduce Ukrainian dependence on Russian energy imports.

This will not be the first time the IMF has worked with Ukraine. It has provided several loans to Kiev since the 1990s, after Ukraine won independence. And the IMF agreed to loan $15 billion in 2010, but the deal ended after Ukraine failed to implement reforms.

This time, however, authorities have said they are willing to make unpopular decisions because, quite simply, they have no choice.  “[We] will meet all IMF conditions,” said acting Prime Minister Arseniy Yatsenyuk to the Financial Times Monday, “for a simple reason ... we don’t have any other options.”

You've read  of  free articles. Subscribe to continue.
Real news can be honest, hopeful, credible, constructive.
What is the Monitor difference? Tackling the tough headlines – with humanity. Listening to sources – with respect. Seeing the story that others are missing by reporting what so often gets overlooked: the values that connect us. That’s Monitor reporting – news that changes how you see the world.

Dear Reader,

About a year ago, I happened upon this statement about the Monitor in the Harvard Business Review – under the charming heading of “do things that don’t interest you”:

“Many things that end up” being meaningful, writes social scientist Joseph Grenny, “have come from conference workshops, articles, or online videos that began as a chore and ended with an insight. My work in Kenya, for example, was heavily influenced by a Christian Science Monitor article I had forced myself to read 10 years earlier. Sometimes, we call things ‘boring’ simply because they lie outside the box we are currently in.”

If you were to come up with a punchline to a joke about the Monitor, that would probably be it. We’re seen as being global, fair, insightful, and perhaps a bit too earnest. We’re the bran muffin of journalism.

But you know what? We change lives. And I’m going to argue that we change lives precisely because we force open that too-small box that most human beings think they live in.

The Monitor is a peculiar little publication that’s hard for the world to figure out. We’re run by a church, but we’re not only for church members and we’re not about converting people. We’re known as being fair even as the world becomes as polarized as at any time since the newspaper’s founding in 1908.

We have a mission beyond circulation, we want to bridge divides. We’re about kicking down the door of thought everywhere and saying, “You are bigger and more capable than you realize. And we can prove it.”

If you’re looking for bran muffin journalism, you can subscribe to the Monitor for $15. You’ll get the Monitor Weekly magazine, the Monitor Daily email, and unlimited access to CSMonitor.com.

QR Code to Ukraine's other crisis: an economy in freefall
Read this article in
https://www.csmonitor.com/World/Europe/2014/0304/Ukraine-s-other-crisis-an-economy-in-freefall
QR Code to Subscription page
Start your subscription today
https://www.csmonitor.com/subscribe