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IMF Could Cripple Ukraine: Top US Policy Journal

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This post first appeared on Russia Insider


Josh Cohen, a former US State Department Project Officer, contributed an analysis to Foreign Policy magazine of Ukraine's dire economic prospects if it proceeds with the IMF bailout package.

His warning eerily echoes the work of Nobel-Prize winning economist Joseph Stiglitz of Columbia University, who wrote extensively on the economic ruin of Russia by neo-liberal reform brought to it by the IMF.

Earlier this year, Ukraine turned down a $15 billion “no strings attached” aid package from Russia, instead opting for the prospect of western aid, which quickly came in the form of an IMF loan. This may just well be the the final nail in the coffin for the country.

Here is a quick look at Josh Cohen's arguments as to why that is:

  • The loan comes with crippling strings attached, called “IMF-conditionalities”, which consist of stringent austerity measures that will hurt regular Ukrainians most. Some examples of these strings include cutbacks to reduce the fiscal deficit (meaning higher taxes, less social support, cuts to public wages and pensions, as well as the freezing of the minimum wage at 110EUR/month), increased natural gas and heating costs, and a decoupling of the currency from the US dollar (which already led to a 40% devaluation, meaning local businesses and regular Ukrainians will have a hard time servicing their dollar-denominated debts such as car-loans)
  • Ukraine is fighting on two fronts: an economic and a military one. While Ukraine cannot afford to keep fighting, Poroshenko is announcing $3 billion in additional defence spending. According to Poroshenko the war is costing $6 million dollars per day. The IMF has announced they will need an additional $19 billion dollars in aid as a result of the war, and this figure does not include the opportunity costs of the war, as well as the future costs of rebuilding the devastated south-east.
  • The IMF package is likely to lead to massive social strife, increased political instability, and possibly even another attempt at revolution. For example, when Russia underwent similar IMF reforms the results were devastating as poverty rates skyrocketed to 55% of the population, the country saw sharp increases in unemployment, massive inflation of over 20% per month, and GDP falling by more than 40%. Josh Cohen links an attempt by Alexander Rudskoy (who termed the reforms “genocide”) to overthrow Yeltsin to the economic consequences of the reforms.
  • Cohen argues that political stability must be priortized above austerity, and that a balanced look at the situation warrants consideration of debt restructiring, and that the "the west" (rather than the IMF) should consider providing aid directly (via low-interest subsidized loans and grants) that is not linked to harsh conditions. So far, direct aid from the US and the EU has been limited.

Implementing IMF's “one-size-fits-all” solution in Ukraine will inevitably mean that Poroshenko is shooting himself in the foot.

Rather than proceeding with additional sanctions and threats against Russia, an honest analysis of the situation faced by Ukraine is a must if the country is to survive the social and economic disaster that looms just around the corner.

Here is a link to Cohen's article


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