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Wednesday, 24 October 2018 12:42

UKRAINE: AN ECONOMIC MIRACLE IN THE MAKING

Michael MacKay, Radio Lemberg, 24.10.2018   
 
Ukraine is fighting a war of national salvation against invasion and occupation from the Russian Federation. Alone, Ukrainians defend Western civilization from the depredations of Muscovy in the trenches of Donbas. Despite this, Ukraine has robust economic growth, contained inflation, a declining debt-to-GDP ratio, and a balanced budget (excluding debt service). Especially because of the Deep and Comprehensive Free Trade Agreement with the European Union, trade is booming in Ukraine. All things considered, Ukraine is an economic miracle in the making.
 
The Russian aggressor has been waging economic warfare against Ukraine since the Russian Federation invaded Ukraine on 20 February 2014. On October 22 of this year, the Putin regime announced what it called ‘sanctions’ against Ukrainian individuals and entities. Stripped of the language of projection, these Muscovy measures appear to be simply an expansion of the unfair restraint of trade. Such moves are a direct violation of World Trade Organization rules, but Moscow cloaks its economic warfare with ‘national security’ wording. This drags out the complaints proceedings Ukraine has launched against the Russian Federation in the WTO.
 
Just like when Putin sanctioned food from the European Union in 2014, sanctioning Ukraine now is another case of Muscovy sanctioning itself. The Kremlin is isolating the Russian people from the world, following the  North Korean, “Juche” self-reliance nightmare model.
 
Waging war against Ukraine is a strategic disaster for Putin. The war aim of Putin’s War is the destruction of the freedom and independence of Ukraine, and the restoration of the ‘Rooskyi Mir’ (Russian World) imperialist project. But every aggressive move Putin makes against Ukraine increases the unity and viability of the Ukrainian state. Every act of war by Muscovy against Ukraine accelerates the process of the Ukrainian people integrating with Europe and with the West, acting on the choice they made in the Revolution of Dignity. Putin is only able to think tactically as a sabotage and disruption agent. That’s why he thinks sanctions against Ukraine are the right thing to do for his own power. But Putin is incompetent as a military strategist, as a politician, as an economist, and as a manager.
 
Ukraine has a new stand-by facility with the International Monetary Fund: a 14-month deal for $3.9 billion. On October 19, the IMF announced a staff-level agreement with Ukraine on renewed lending. This reopens access to IMF funds for Ukraine after a hiatus of a year and a half. The Ukrainian government may be able to raise as much as $8 billion on the international bond market on the strength of this backing. What this deal does is grant Ukraine sufficient international financing until the end of 2019. The Ukrainian economy will be stable during the elections in Ukraine in 2019: the presidential one at the end of March and the parliamentary one in October.
 
Four years of massive corruption by the Yanukovych Clan followed by four and a half years of unrelenting economic warfare by the Russian Federation against Ukraine have taken a toll. Ukraine is the poorest country in Europe. Nevertheless, the Ukrainian state has undergone greater structural reform since 2014 and the the Revolution of Dignity than in all the time since 1991 and the Independence of Ukraine. The Ukrainian government runs under a balanced budget, after stripping away debt-servicing charges. Ukraine has managed a remarkable economic recovery while it remains unjustly outside the European Union and not eligible for the kind of assistance Greece has received, for example. Plus, Ukraine has taken on the burden of defending Europe from Russian aggression alone: the Armed Forces of Ukraine hold back the invaders from Muscovy on the Donbas battlefront, at a cost to the national treasury of five to six percent of Gross Domestic Product.
 
What Ukraine must do to satisfy the IMF is raise gas prices and tackle corruption. On November 1, gas prices for households in Ukraine will go up by 23.5 percent. There is a subsidy program for poorer households. Unfortunately, because gas prices are being hiked before corruption is being addressed, the gas subsidy will not reach Ukrainians who need it. Poor Ukrainians are trapped in a corrupt, off-the-books housing rental market. The over 1.5 million internally displaced persons from the Russian invasion of Crimea and Donbas are particularly vulnerable, facing discrimination in housing and employment. Not officially tenants and not officially employed, the vast majority of poor Ukrainians will not get the gas subsidy because they haven’t gotten out from under the corrupt system yet. There will be some hardship for a great many people, which will be exploited externally by the Russian aggressor and internally by populist politicians.
 
It is not right that Internally Displaced Persons (IDPs) in Ukraine should be punished by the Russian aggressor, by the corrupt official employment system, and by the IMF-mandated gas price increase, all at the same time. A fair and a just solution would be to give the gas subsidy to every registered IDP. There is little point for a Ukrainian citizen to declare him or herself to be an IDP otherwise.
 
The IMF has things backwards by insisting on a gas price hike first. Demagogic politicians thrive by increasing the anxiety among the general public about the economy. Prudent politicians in Kyiv know they have no other choice but to accept the IMF’s dictates to get the IMF’s money. But prudence is not a vote-winning strategy in the 2019 elections upcoming in Ukraine.
 
Ukraine can competently maintain economic stability and provide for economic growth. It can do this despite fighting off invasion by the Russian Federation. Now Ukraine will be steering the ship of state soundly and judiciously despite sanctions on Ukrainian individuals and entities by the Russian aggressor, and despite onerous conditions imposed by the IMF. Ukraine is an economic miracle in the making.
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