Foreign lenders continue to strangle Ukraine
Foreign lenders continue to burden Ukraine with billions of dollars in debt, even as experts predict the country’s GDP will fall by 45-50% this year. While massive amounts of weapons and money to buy weapons are flooding Ukraine for free, the funding kyiv needs to stay afloat and repair major infrastructure damage is only a fraction of what is needed. , primarily intended to pay off current debts and frequently coming in as relatively short-term loans.
In early March, the International Monetary Fund (IMF) announced a $1.4 billion bailout package for Ukraine. Since the invasion, the EU and the World Bank have respectively pledged financial support of $1.2 billion and $3 billion, with funds being released in stages.
The IMF has also created an international account through which other states, including Canada, Poland and the Scandinavian and Baltic countries, can channel money to Kyiv in the form of “loans and grants”. The World Bank has also set up a “Multi-Donor Trust Fund” which attracts funding from the UK, Japan, Austria, Switzerland and elsewhere. Ukraine is also tapping into a $2.7 billion tranche of IMF funds released at the end of last year.
The promises of these institutions and foreign governments pale in comparison to Ukraine’s needs. Experts expect the cost of damage to Ukrainian infrastructure to be between $220 billion and nearly $600 billion. The capital’s School of Economics estimates that about $4.5 billion in destruction occurs every week. In mid-April, the Zelensky government declared that without receiving $7 billion each month during the summer, it could no longer function.
Kristalina Georgieva, managing director of the International Monetary Fund (IMF), told the BBC: “We found [the money] for the first and second months”, but not yet for the following months, because the lending agency is banking on an economic recovery in parts of Ukraine outside the war zone and “remittances from those who are now working elsewhere are starting to come in”.
In other words, the millions of refugees fleeing Ukraine – mostly women, children and elderly men because adult men under the age of 60 cannot leave the country – have, having become a labor force low-wage workers in the EU, supposed to bear the cost of destroying the already impoverished country in a war provoked by the United States and NATO.
Even before the Russian invasion, Ukraine was already carrying a massive foreign debt. It was built over three decades of endless borrowing, with each new cycle necessitating the imposition of austerity measures that plunged millions into misery and opened up new profit opportunities for foreign investors.
According to World Bank data, the country owes external lenders $129 billion in pre-war debt, equivalent to 78.8% of its GDP. Kyiv plans to repay $16 billion this year. Apart from outstanding loans and accrued interest, Ukraine also faces various penalties and fees for not meeting the criteria set by international lenders. In 2022, Ukraine is expected to disburse over $178 million in IMF loan surcharges.
In an April 20 article by Deutsche Wellethe Ukrainian economist Oleksandr Kravchuk objected to the fact that the “sums [from international lenders] are clearly not enough for financial stability,” noting that “the country’s debt dependence and debt burden will only increase,” even if interest rates are low. He called, like other Western politicians and commentators, for the cancellation of Ukraine’s debts. No such measure has been announced.
The terms of the current IMF agreements with Ukraine clearly state that all loans are subject to the requirements of “Precautionary and Liquidity Lines”, “Stand-By Arrangements”, “Financial Credit Lines” and other restrictions and obligations. These include an escalating series of financial penalties when the debtor exceeds certain dollar thresholds and deadlines. In short, interest rates increase as the loan amount increases and the time it takes for the borrower to repay it increases. The beneficiary of the loan has at most five years to extinguish his debt.
The EU announced a few days ago that it would suspend imports of Ukrainian goods for a year and work to accelerate progress on a free trade agreement in a bid to help the country’s economy. With GDP halving, it’s unclear exactly what Ukraine is supposed to sell to the EU.
Ukraine’s debt is increasing with private lenders, both individuals and institutions. So far, kyiv has sold $1 billion worth of war bonds. They must be paid, with an interest rate of 11%, within one year. According to CNN Business, the Zelensky government is now appealing for cryptocurrency donations and seeking funding with “non-financial tokens.”
The International Monetary Fund, World Bank and other major lenders all see the war as a way to dramatically expand their control over Ukraine’s resources and force the country to further cut social spending and open up its economy. to outside investors. Ukraine, for example, is home to a third of the world’s “black earth” soils, some of the most fertile land in existence.
Write in the Atlantic on April 11, David Frum, a well-known political commentator and former speechwriter to President George W. Bush, insisted that the steps taken by the West to help Ukraine “turn out to be not an onerous gift to charity but a mutually beneficial investment”. He insisted the country should tackle “internal corruption” and “predation” and endorsed leading economist Anders Aslund’s suggestion that Ukraine “overcome shortcomings in its judicial system by opening new commercial courts, staffed by foreign judges who gain international rights”. wages, but apply Ukrainian law.
About a week later, former U.S. Ambassador to Georgia and Kazakhstan and current RAND Institute fellow William Courtney wrote an article with his colleague Khrystyna Holynska in the U.S. UPI newswire highlighting similar themes. The authors slammed Ukraine for inhibiting investors and “backtracking” on previous promises made to the IMF to liberalize Ukraine’s economy. They demanded that the reconstruction process be accompanied by the extension of “an efficient market for private land” and the acceleration of the privatization of 3,300 public companies. They also insisted on the full implementation of “gas price reform”, a euphemistic way of demanding that Kyiv completely end all price controls on heating and cooking fuels.
While economic aid to Ukraine is under control, NATO countries jostle almost daily to announce the shipment of ever more deadly armaments to the country. By mid-March, according to the US State Department, Washington alone had sent $2 billion in “security aid” to kyiv since President Biden took office. Congress is now poised to approve the White House’s request for an additional $33 billion in aid, more than $20 billion of which is military. The UK, France, Germany and all other EU states are sending weapons to the Eastern European country and regions near the Russian border. They have no qualms about turning the region into a desert, a factor that could figure into their calculations as to the wisdom of handing over a lot of money to the Kyiv government “without strings attached”.