Michael MacKay, Radio Lemberg, 20.09.2017
Ukraine made a triumphal return to international bond markets on September 18. Ukraine issued three billion dollars worth of 15-year eurobonds denominated in US dollars. Investors enthusiastically snapped them all up. A successful public offering is resoundingly good news, and shows that Ukraine is more than holding its own against the unrelenting economic warfare directed at it from Russia.
Russia is invading Ukraine in Crimea and Donbas. Russia is bombarding Ukraine daily in the areas of Luhansk, Donetsk, and Mariupol. Russia is attacking Ukraine’s computer network infrastructure to such an extent that it has at times shut down power grids. And Russia undermines the economy of Ukraine with a trade war that breaks World Trade Organization rules and a finance war that wreaks chaos on world bond markets.
Overcoming the feeble “no” vote of Russia, the International Monetary Fund (IMF) has been supervising the restructuring of Ukraine’s debt. This began in 2015. When the IMF gives a loan, it sets conditions: “He who pays the piper calls the tune.” Among the conditions set by the IMF is a return to normal bond markets. International investors showed that they have confidence in Ukraine’s ability to pay its debts the same way every other country does: by raising taxes and incurring more debt.
Other conditions of IMF loans to Ukraine have been pension reform and eliminating corruption. In a civilized society, senior citizens must have basic financial security such that they can retire in dignity without needing to work. Ukraine falls far below this standard when it comes to pensions. Ukraine has started on the path to a fiscally-sustainable pension system – when such a system is in place, IMF seed money will be there. The slow pace of eliminating corruption is frustrating to Ukrainians, to say the least. The corrupt “militsiya” system of policing was abolished and a new Western-style “patrol police” system took over, but the old Yanukovych-era judges and court system remains in place. A National Anti-Corruption Bureau was created but the Prosecutor-General’s Office remains unreformed. Formal structures to stop bribery exist but a culture of cash payments for administrative favours stubbornly persists. Eliminating corruption and a return to normal life is not just a stricture of the IMF – it was a clear demand of the Ukrainian people in the Revolution of Dignity which took place from November 2013 to February 2014. A good thing about IMF conditions on loans is that it kept the Ukrainian government’s ‘feet to fire’ when it came to pension reform and to eliminating corruption. Former economy minister Aivaras Abromavicius, resigned in frustration in February 2016 over what he called “covert corruption.” He worries now that with Ukraine servicing debt without IMF conditions “perhaps there would be the possibility of a slowdown on the reform path.”
It is Ukrainian civil society, not the IMF, that is the real driver of reform. There is no great risk to reform of being released from IMF conditions by returning to international bond markets. Ukraine raised three billion dollars of normal debt without any trouble, two years after Russian armed warfare and economic warfare had forced Ukraine to restructure its debt with the help of the IMF. President of Ukraine, Petro Poroshenko, was justified in saying, “Never before has Ukraine raised such a sum, never has it raised it under a 15-year maturity. This is an unbelievably positive assessment by investors of the reform [program].”