Shock strategy in ukraine

Kiev is preparing a debt moratorium. The country threatens Glaubigern with non-payment. EU funds also affected

On Tuesday, the parliament in Kiev passed a law to suspend payments to foreign creditors of the heavily indebted country. Currently, the government is negotiating the rescheduling of $23 billion in debt, which the country is not expected to repay. With the law that has now been passed, the Ukrainian government under Arseni Yatsenyuk and Petro Poroshenko has created the possibility of using the behavior of certain donors as a means of identifying and monitoring the financial situation of the country "unconscionable" to classify. At the same time, Prime Minister Yatsenyuk called for further international financial aid.

With their legislative initiative, the deputies in Kiev seem to be aiming primarily at Russia. The project has been publicly justified by the fact that the loans granted to the country under the overthrown President Yanukovych have not been repaid, "did not reach the people" are. Therefore, the company does not see any obligation to service the loans.

Shock strategy in ukraine

Head of government Yatsenyuk in Rada on 20. May. Image: kmu.gov.ua

Most recently, Russia bought $15 billion worth of Ukrainian government bonds in December 2013. After the meeting, Russian President Vladimir Putin stressed at the time that there were no political conditions attached to the financial assistance, "neither the reduction nor the freezing of social standards, pensions, transfers or spending".

The smaller share of Ukraine’s foreign debt is distributed among Western financial investors. A high proportion of the total. 7 billion US dollars Franklin Templeton Investment group, led by international star investor Michael Hasenstab. His colleague George Soros, who has been agitating international politicians for months to pump more public money into Ukraine, is also said to have risked an unspecified amount. Other donors include BTG Pactual, TCW Investment and T. Rowe Price Associates.

The appeals of the Western financial investors proved successful in that the IMF, practically at the same time as the peace talks in Minsk, granted international financial aid that saved the country from economic collapse in the short term. No sooner was the outcome of Minsk II known than the International Monetary Fund (IMF) announced that Ukraine would receive a total of $40 billion in aid.

In the midst of a global financial crisis and in parallel with tough negotiations with the new Greek left-wing government – an EU state after all – over every penny, this decision could only be seen as a political support program for the Poroshenko government. For the next four years alone, the IMF Executive Board has granted the country a credit line of $17.5 billion, knowing that there is no chance of full repayment. For the other 22.5 billion should "States or groups of states such as the European Union" come up.

According to the IMF, Ukraine’s debt burden will amount to 100 percent of economic output in 2015, so that the first IMF tranches have already been spent in full on repaying it. However, it is not the enormous Ukrainian debts to Russia that are being paid for, but first of all the banks and private believers from the West. The Minister of Finance, Natalya Jaresko, an American born into a family of Ukrainian migrants, used a formula for spending policy that is also famous in the EU: "The main challenge is to stabilize the financial and banking system."

Radical shorting program

This argument may even fall on the ears of parts of the Ukrainian population, because the most dramatic problem in everyday life under the new government is rapid inflation. Wages, salaries and savings lose their value in a flash. If some of the protesters on the Maidan had hoped that the economic and social situation in Ukraine would improve as a result, their hopes must have been bitterly dashed. The civil war brought the industrial regions in the east of the country to the brink of collapse. A nationwide problem arises for the energy supply. Last winter, there were daily power cuts due to the loss of coal supply from the Donetsk region. The Kiev government had refused to pay the insurgents for appropriate supplies against advance payment.

Some 30 power plants were forced to temporarily cease operations, harming all remaining industry in addition to private households. Numerous branches of industry, historically closely aligned with the exchange with Russian suppliers and sales markets, ceased production. At the same time, world market prices for metals and ores, one of the country’s most important exports, fell. For 2015, the IMF now forecasts a drastic drop in gross domestic product of at least 5.5 percent, but perhaps as much as 12 percent.

Connected with these figures is a corresponding increase in unemployment. In order for the country to reach pre-crisis levels by 2020, the IMF is imposing one of its famous reform programs. While military and police spending has increased many times over, the Poroshenko government has radically cut all forms of basic social security in recent months. "Savings are made in a narrow social segment and the weakest members of society are affected", Vitaly Atanasov describes the situation.

Especially for previously free forms of public services, Ukrainian families now have to pay high fees: from preschool to higher education, for the health care system, public transport and infrastructure. Pensions and unemployment benefits were cut. At the same time, rents and ancillary costs for water and energy are rising rapidly.

daily protests

The drastic social cuts are now leading to daily protests in the country’s larger cities. Most recently, in early May, thousands of coal miners marched on the capital demanding the resignation of the minister in charge, Volodimir Demchishin. However, the Ukrainian trade unions are now negotiating from a much weaker position. While in the old parliament their representatives were still in all the parliamentary groups, under the Poroshenko government they no longer have a single deputy. Instead, the Maidan parties staffed their factions with activists from volunteer battalions.

In view of the dramatic situation, even in Germany trade unionists are taking the initiative to provide practical support for their Ukrainian colleagues. "First of all, the colleagues in the unions urgently need practical help. But we want above all to support the freedom of movement of Ukrainian civil society. We are approaching all forces that oppose a military solution to the current conflict", one of the initiators, Jochen Gester, explains the goals of the fundraising to Telepolis.

What the German trade unionists have to do with "Freedom of movement" The fact that the Ukrainians still believe in the same thing became clear only recently when one of their Ukrainian colleagues returned to Kiev. Because he had informed abroad about the critical economic and social situation, he was summarily dismissed. It is only one case among many that indicate that the domestic political mood is becoming increasingly repressive. Since October of last year, there have been numerous death traps among opposition politicians and journalists. In mid-April, unknown persons murdered the anti-government journalist and former editor-in-chief of the Segodnya daily newspaper, Oleg Busina. The night before, the perpetrators shot the former deputy Oleg Kalashnikov from the "Party of the regions" (A "Ukrainian Insurgent Army" wants to be responsible for the assassination attempts).

"This is only the tip of the iceberg", explains a Ukrainian activist, who prefers to remain anonymous, to Telepolis. "Since February 2014, there have been daily attacks on journalists, trade unionists and political activists critical of developments since the Maidan protests." Of the numerous death traps in this context, including many apparent suicides by former Yanukovych supporters, none has yet been uncovered.

International of the robber barons

According to the latest polls by the Kiev International Institute of Sociology (KIIS), Arseni Yatsenyuk’s ruling Narodni Front party has just 4 percent approval nationwide after six months in power. The political and cultural division of the country continues unabated.

However, while a majority of Ukrainians across the country are in favor of concessions in the Donbass conflict and a departure from the centralized unitary state, the only rhetoric coming from the government continues to be war rhetoric. Contrary to all agreements made in Minsk in February, government representatives still refuse direct dialogue with the insurgents in the People’s Republics. Also an acceptable solution for an autonomy regulation is far away.

From the perspective of the new elite in Kiev, this confrontational strategy – which seems completely irrational to outsiders – makes perfect sense. The central project of the new government seems to be not at all to advance its own economy, but to siphon off international aid and redirect it into its own pockets. Instead, over the past year, the new political caste has generated one fantasy project after another, all to be funded by international aid money.

The climax of this theater was the project to build a wall along the 2000-kilometer border with Russia. The neighboring country of Poland, for example, gave them a loan of 100 million euros. With funding from the IMF, the European Development Bank, and various NATO funds, the new technocrats in the capital have made a comfortable living.

The insolvency of the state railroad company Ukrzaliznytsia currently illustrates how international funds are used in Ukraine. In 2014, the European Bank for Reconstruction and Development (EBRD) had disbursed a loan of 200 million euros to the company to rehabilitate the railroad lines and other infrastructure. Since then, there has been no evidence of any form of remediation. For this reason, the public company recently increased its fees by one third in February. Last week, the company filed for bankruptcy, which many observers believe is only the first step toward privatization.

According to Valery Voshevsky, Minister of Infrastructure, the privatization of the railroads and the state road agency Ukravtodor is necessary in any case in order to "to reduce corruption", of course only after the 200 million euros of EU money flowed into the company.

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