When the International Monetary Fund announced a tentative loan agreement with Ukraine last month, the move was widely acclaimed as vital to saving the country’s struggling economy. Headlines trumpeted the decision to “help” Ukraine with a $14–18 billion “financial lifeline.” In Italy later that day, President Barack Obama called the deal a “major step forward” that will “meet the needs of Ukrainian people over the long term.”
But the news headlines and political statements only tell half the story: The IMF loan comes with demands for “economic reforms,” i.e., austerity measures, that will be borne by the working-class Ukrainians, one-fourth of whom already live below the poverty line. It is this imposition of conditions, which have grown more numerous in recent loan deals, that led the European Network of Debt and Development to call in a report last week for reform of the IMF.
The IMF conditions for Ukraine won’t include any debt relief, and unlike the European Union-IMF bailout for Cyprus, they won’t impose any haircuts on the country’s creditors. Instead, the IMF recipe hinges on cuts to subsidies and social services and a floating exchange rate that will sink purchasing power even further. Kiev has already started to implement all of these measures. According to economists, the result will be growing poverty, reduced social benefits and an extended recession. In fact, the economic prognosis sounds a lot like Greece, which, four years after the start of an EU-IMF loan program, is suffering from 27 percent unemployment and rising risk-of-poverty rates.
Ordinary people will be the undisputed losers in Ukraine, since they’ll pay for the so-called reform program rather than the oligarchs who continue to freely move billions of dollars to offshore tax havens. The biggest winners will be currency speculators; Western banks whose loans will be repaid via austerity measures; and European corporations who will gain access to the country’s markets and cheap Ukrainian labor under an EU association agreement set to be signed in May.
Sergei Kiselyov, an economist from the school of political analysis at the Kiev-Mogilyanskaya Academy, said although austerity measures may eventually help end the country’s ongoing recession, first they will drag down GDP for at least the next two years. “But the population is paying for this struggle against the crisis,” Kiselyov said.
“You don’t need to predict an economic collapse; it’s already going on,” said Vasily Koltashov, an economist at the Moscow-based Institute of Globalization and Social Movements, referring to rising deficits and stagnant growth over the past two years. “The measures of the IMF and Ukrainian government will not do anything to solve the crisis, because they do nothing to raise standard of living and protect Ukrainian industry.”
The IMF economic reform program will unlock up to $27 billion in loans when it is approved this month, assuming Ukraine adopts a “strong and comprehensive package of prior actions,” according to an IMF statement.
In the first “prior action” for the IMF loan, Ukraine’s state-controlled natural gas provider Naftogaz raised its subsidized gas prices for consumers by 50 percent starting May 1. (Gas and heating prices will increase by 120 percent over the next four years, Prime Minister Arseny Yatsenyuk said last week.) According to Kiselyov, even more painful will be the accompanying 40 percent gas price hike for local heating companies. Starting on July 1, this will raise the average cost of heating a standard fifty-square-meter apartment from about 200 hryvnia to 280 hryvnia (from $18 to $25) per month. It’s a significant hit, considering that the average monthly wage in Ukraine is only about 3,150 hryvnia ($275), more than half of which typically goes toward food, Kiselyov said.