The only realistic way that Ukraine will be able to meet the IMF's loan conditions is through massive privatization — a sell-off of whatever property the Ukrainian state still has
This article originally appeared at Fort Russ
Vesti Finance reports that Ukraine will receive an IMF credit worth $15.4 billion only after Ukraine reduces its national debt to 70% of GDP. I suppose this is IMF's way of saying "when Hell freezes over" because currently Ukraine's debt is closer to 100% of GDP due to both hand-over-fist borrowing and the collapse of the real economy. The bad news just keep on coming...for example, Ukraine's car production declined by a factor of 10 between January 2014 and January 2015. As a result, and in spite of all the borrowing and running down its hard currency reserves, Ukraine has a 200 billion hryvnya budget hole to close (four times the size of its entire defense budget), which seems rather impossible to do without foreign assistance.
So what is Ukraine to do? It's not really clear what the IMF expects Poroshenko et al. to do in this situation. About the only realistic way by which that level of funding could be raised would be through a massive privatization, a sell-off of whatever property the Ukrainian state still has. This could, of course, include arable land, mineral rights, Ukraine's Black Sea shelf... Let's face it, considering the dire straits in which the country is right now, that's not as crazy an idea as it sounds. Greece has been doing precisely that for the last several years just to qualify for another round of "aid."
The alternative explanation is that the IMF is washing its hands of the Ukraine problem (I know, "Ukraine" and "problem" are synonymous, so the phrase is redundant). I suppose the good news (except for Ukraine--there will be no good news for that country for some time to come) is that the IMF's refusal to fund Ukraine, along with the suspension of the plan to send US instructors to Ukraine and the unwillingness by any country of note (I'm looking at you, Lithuania) to send weapons to Ukraine indicates the West is not trying to fashion Ukraine into some sort of an anti-Russian battering ram. It's just that the Washington-Berlin-Brussels brain trust, operating under the pressure of another looming financial and economic crisis (let's face it, the US will most likely suffer a recession in the last year of Obama's presidency) ignored the possibility that Russia might have a thing or two to say about the balance of power in the region. No, the reason the West supported Maidan was because it expected considerable profit-making opportunities once Yanukovych was gone. It would be just like the '90s, but better! A bonanza of "pennies-on-the-dollar" deals as Western investment funds picked up unprofitable Ukrainian industries.
Does anyone in the West still believe that's a plausible prospect? No. As I wrote some weeks ago, Poroshenko and Yatsenyuk proved an expensive disappointment at best, and an uncontrollable pair of loose cannon (pun intended) at worst. For the IMF to give money to Ukraine right now would not merely mean acquiescence to the fact that money would never be repaid. It would mean acquiescence to the fact Ukraine would use the money to finance another campaign on the Donbass (or the cockamamie wall/fence/ditch with landmines separating Ukraine from Russia, which seems to be Yatsenyuk's pet project and practically his only accomplishment as Prime Minister!), and then turn to the IMF for more money.
So instead the IMF is, in effect, instituting a "pay to play" policy. If Ukraine wants IMF's money, it will have to contribute something of value up front, so as to demonstrate its creditworthiness and general political credibility. If it can't do that, it's on its own. The ball is once again in Poroshenko's court...