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The 2012 IMF/Ukraine Negotiations

2014 March 2
tags: ,
by Ian Welsh

These are the reform the IMF wanted for a 4 billion dollar loan:

the IMF demanded that Ukraine double prices for gas and electricity to industry and homes, that they lift a ban on private sale of Ukraine’s rich agriculture lands, make a major overhaul of their economic holdings, devalue the currency, slash state funds for school children and the elderly to “balance the budget.”

This is what the IMF does to your country. Note that 4 billion doesn’t even come close to covering Ukraine’s debts.  Moscow offered 15 billion and a one-third reduction in natural gas prices.

If the Ukraine wants something close to prosperity, this is a sideshow.  The first thing they have to do is destroy their own oligarchs: take away their money and power.

But remember how the West squealed when Putin brought his oligarchs to heel?  Or at Venezuelan redistribution?  Oligarchs are even more sacrosanct in the West than the East.  The IMF would never allow the Ukraine to destroy their oligarchs and throw them all in jail.

The next step after that would be solidly reorient to China.  They want Ukraine’s food, and  the Chinese are willing to pay a premium for the resources they buy, at least by developing world standards (and that this point, that’s what Ukraine is.)  What, exactly the Ukraine thinks it will sell the West is beyond me: their Soviet era factories don’t make anything we want, and the West heavily subsidizes its own agricultural production.

28 Responses
  1. S Brennan permalink
    March 2, 2014

    Someone in another Ukraine comment thread mentioned that the “west” must have known the outcome, they couldn’t possibly be that stupid.

    But really, DC operates in it’s own bubble, stupid people are rewarded not shunned. US “leaders” really are that stupid. Just as in the Wizard of Oz, our “leaders” hide behind a media curtain and the national security apparatus* is always ready to torture a confession out of any Toto brave enough to pull back the curtain.

    *a curious name for people who will ensure the USA’s downfall by protecting incompetence

  2. March 3, 2014

    If you want to know how the IMF engages in financial rescue of impoverished nations, read Shock Doctrine by Naomi Klein. She engages in a minor amount of hyperbole and does some minor conclusion jumping, but the book is for the most part well reasoned and is seriously damning.

  3. Eleni Tsigante permalink
    March 3, 2014

    In some ways standard IMF treatment is a lot better than what the EU offered in November / December, which included the mind-boggling condition that Ukraine shut down ALL its industry. Nor was freedom of movement (ability to enter EU contries) extended to Ukraine.

    If the IMF recipe is applied correctly in Ukraine (unlike Greece), the first step is OSI, ie a big debt write-down. That does help.

    I am not for IMF; and as it is a lot of Ukraine’s industry, following the austerity path, will shut down through lack of demand and unaffordable energy prices.

    BTW increased energy prices in Ukraine means death next winter for the part of the populace that can’t afford it.

    Following this crisis from the start I thought Yanukovych made the logical, and in fact only sane choice in accepting Russia’s offer.

  4. Formerly T-Bear permalink
    March 3, 2014

    A curious word, troika, needs to be incorporated into the vocabulary. Troika, is greater than the sum of its parts: the European Central Bank, the European Commission and the IMF and is responsible for the economic conditions present in Greece, Italy, Portugal, Spain and Ireland with France and Holland teetering on the brink. The Troika is at work in the Ukraine as well. The Troika is as economically dangerous as any manifestation of austerity/free market theology and should be so considered for any proposal or policy undertaken; one would be as safe taking a rattle snake to one’s bosom as taking advise from the Troika. The Troika excels at converting public streams of revenue into privately owned assets aka banking/financial assets for holders of contrived debts. The Ukraine is just the latest victim of the Troika and the NY/Washington/London/Tel Aviv axis of evil.

  5. Jerome Armstrong permalink
    March 3, 2014

    The low price of fuel in Ukraine are a huge part of the problem. They are about half the price of what’s found in Europe. A liter of diesel in Ukraine is the cheapest in the world. At the same time, Ukraine uses more of it, second only to Germany and Russia. Ukraine gets a discount for the transit from Russia. Engdahl doesn’t believe in global warming, so he sees no problem with this massive waste of a carbon footprint.

    Ukraine actually has it’s own massive supply of gas, but because of the artificially held low price, they have went from being an exporter to being overly dependent on Russia. At the same time, Russia is already building a pipelines that avoid Ukraine in transit to Europe. Why? Because Ukraine is inefficient, unreliable, and mostly, corrupt.

    It’s hard to imagine how to position Ukraine in a more economically undesirable situation than they are currently within. The Russian choice is to ignore everything, appreciate being able to drive diesel in return for sacrificing the future (don’t pretend that Yanukovych wasn’t already slipping into totalitarianism); the European choice is going to place hardship on the only economical piece left– piecemeal portions of income from the government.

    The only real hope for Ukraine is the reason why euromaiden began in the first place. And it wasn’t because of the US operatives or Omidyar money; and the Right Sector came later and played its opportunistic role (just as they had with Yanukovych). It was because the young people there realize they are screwed and started it, and people like Klitschko and the Punch responded. If they can chuck off the Russian stranglehold, gut the corruption, and retain a social umbrella, they will have succeeded.

  6. Jerome Armstrong permalink
    March 3, 2014

    One totally messed up angle on the Ukrainian debate is that of gay marriage. Here we have the social ultra-liberal’s in the US spreading that the Ukranian Right Sector, whom pulled off the coup, is anti-gay. There we have the Russian media attacking the Maidan for being pro-gay, calling Klitschko a gay icon of Europe.

    It’s like the Russian’s propaganda machine did a 180 for the US population, but it still, ironically, works.

  7. Jerome Armstrong permalink
    March 3, 2014

    How about a study that looks at why the left in the US has been so duped by what’s gone on in Ukraine. My own thought is that most didn’t tune in when it began, or even when the crackdown happened, but instead only when it blew up. That’s an easy information job for a propagandist to fill.

    http://thoughtcatalog.com/andrea-chalupa/2014/02/fact-checking-the-ukrainian-revolution/

    http://www.nybooks.com/articles/archives/2014/mar/20/fascism-russia-and-ukraine/

  8. bob mcmanus permalink
    March 3, 2014

    Kyiv Post goes through Euromaiden cabinet. Of course I don’t know these people, but it looks like it could be worse. A lot of them have corruption issues themselves, but that may be unavoidable. I do not trust Yatsenyuk.

    https://www.kyivpost.com/opinion/op-ed/katya-gorchinskaya-the-not-so-revolutionary-new-ukraine-government-337768.html

    If Armstrong is into freezing the poor and LMC to incentivize exploration and production, then we do indeed have little to talk about. He really does sound like a DNC neoliberal to me.

  9. Celsius 233 permalink
    March 3, 2014

    bob mcmanus
    March 3, 2014
    He really does sound like a DNC neoliberal to me.
    ~~~~~~~~~~~~~~~~~~~~~~
    Maybe one of the government sponsored trolls or socks?
    Who knows? Anything to fuck up the free exchange of ideas.
    There is so much to navigate these days, it’ll take dedicated participants.
    Never say die…

  10. March 3, 2014

    Armstrong listens too hard to libertarians.

    The Baltic states took a whole lot of EU austerity punishment and let themselves get displayed as the poster boys for austerity, because exporting your population is a great formula for success, yup yup.

    But they were willing to put up with it because, you know, any scissor to cut as many ties as possible with Russia will do.

  11. Ian Welsh permalink*
    March 3, 2014

    A country as poor as the Ukraine can’t afford to cut fuel subsidies overnight. Their economy would crash out, and yes, people would freeze. That sort of thing needs to be managed over years: you have to raise the media and bottom income so people can afford it, you need to modernize your industry, etc…

    It’s hard to see how they can do that, but the thing is that there is only one major power in the world today which offers any development to its partners: China. It’s not the best, but it’s the only power that still does that.

  12. March 3, 2014

    In what way are Russia’s oligarchs brought to heel? It sure seems to me like they own the place.

  13. S Brennan permalink
    March 3, 2014

    Ian,

    It does seem your site has become infected with paid-for-sock-puppets or those trying fluff their way into paid-for-sock-puppets. I guess it happens to any blog that breaks onto the radar screen…

  14. March 3, 2014

    FTB: Washington does what Washington wants. It does not stoop to being part of an “axis”. And flinging Israel into that pot is just antisemetic baiting–it’s hardly a center of the financial universe.

  15. Jerome Armstrong permalink
    March 3, 2014

    The trolls here are not very consistent, DNC liberal, hard libertarian, sock puppet. Make up your mind and stick with one.

    There’s an easy way out of this mess for Ukraine. But they were screwed with Putin, and the young people knew it. UDAR was the nexus of political power in the Maidan from the beginning, and I expect they will draw a majority in the upcoming election. They’ll control their destiny.

    If the crimean peninsula does break off into it’s Independence, or become part of Russia, it’s a pretty radical tip of the electoral scales for Ukraine. It’s like if California or Texas seceded in the US.

  16. March 3, 2014

    Gah…tah should have read “…flinging Tel Aviv into that pot…”

  17. Jerome Armstrong permalink
    March 3, 2014

    The easy way out of this mess… will be taken. All you have to do look at where Royal Dutch Shell has put their money… Ukraine has a lot of natural gas, especially shale. The EU doesn’t want to be dependent on Russia for fuel. Basically, think South Dakota-like fracking for Europe. Trade one mess for another.

  18. bob mcmanus permalink
    March 3, 2014

    “it’s a pretty radical tip of the electoral scales for Ukraine. It’s like if California or Texas seceded in the US.”

    ” roughly 3 point net loss of support for the Eastern/Southern dominated more Russophone parties. Not decisive but not trivial in a fairly evenly divided country.” …terza kurwa my at Crooked Timber, Polish and informed. CT is providing a pretty decent discussion thread, mostly center-left.

    A not entirely uninteresting question is if Crimea could also still vote in the referendums or National Elections, or carry dual or even triple citizenship/passports. A refusal by Maidan/Kiev to allow Crimea to participate might be a de facto acceptance of partition, or a declaration of civil war.

    They keep moving the vote up, I don’t think Maidan/Kiev is stable enough to last very long.

    I thought I remembered who Jerome Armstrong was. Very one-sided on a complicated issue here.

    He apparently doesn’t remember me.

  19. bob mcmanus permalink
    March 3, 2014

    http://crookedtimber.org/2014/03/03/if-you-want-to-be-truly-pessimistic-about-the-ukraine-crisiss-geopolitical-consequences/

    that Crooked Timber thread, posted today, is about Europe, Russia, gas and energy

    PlutoniumKun 03.03.14 at 8:39 pm

    “There seems to be a lot less trackable shale in Europe than everyone thought. Poland has been a big wash-out. There are huge technical and political issues elsewhere (including the UK). There is no guarantee whatever that even if the fracking industry was given the all-clear that it would be able to develop large scale gas production to compete with LNG from the middle east (which is the other alternative to Russian gas). It should be noted that a massive new infrastructure would be required for tracking (for various reasons too complicated to go into in a post like this, there is limited scope to use the existing gas network).”

    I no longer battle bullshit on the Internet

  20. bob mcmanus permalink
    March 3, 2014

    OTOH, folks, Armstrong is I think connected to the Beltway.

    If he knows this will go to a shooting war, well, as Yglesias and Klein knew in 2002, and Max Weber in 1914 although you are allowed to switch to anti-war after a decent interval, you have to be on the bellicose side at the start to keep a career in national politics.

    Over at Pat Lang’s: forces are massing on Western border of Ukraine…and in Poland.

  21. Dan H permalink
    March 3, 2014

    Christ there are lot of fracking advocates on that CT thread… Is Gasland complete bullshit or are they the fools?

  22. markfromireland permalink
    March 4, 2014

    What gay marriage? What debate?

    Article 51. Marriage shall be based on free consent between a woman and a man. Each of the spouses shall have equal rights and duties in the marriage and family.
    Parents shall be obliged to sustain their children until they are of full age. Adult children shall be obliged to care for their parents who are incapable to work.
    The family, childhood, motherhood, and fatherhood shall be under the protection of the State.

    Source: Constitution of Ukraine – Title II – Official web-site of President of Ukraine

    Ukrainian and Russian societies are deeply massively and profoundly homophobic. Gays are seen by the overwhelming majority of people in those countries are perverted, predatory, and dirty. They’re also seen as a sink of disease in particular syphilis and AIDS. No distinction is made in the public mind between somebody being a gay male and a pedophile. Lesbians are treated just as badly and are at risk of being raped ‘to cure them’, in the same manner to that common in South Africa.

    To call somebody ”gay’ in either society is a very serious insult that also serves as an accusation. People who defend, tolerate, accept, gays are assumed to be gay themselves.

    In such a deplorable situation it is entirely to be expected that all sides will use the ‘homosexual slur’ to denigrate their opponents.

    mfi

  23. Jerome Armstrong permalink
    March 4, 2014

    I don’t know recall it Bob, but since your tactic is to troll with name-calling first, and only secondly present an idea or two, that’s not surprising. Royal Dutch Shell has put down $10B already for it in Ukraine, Exxon and Chevron are there too. Just aside from the shale, they have quite a bit of natural gas not even trapped that has just been turned off– enough probably to be energy independent. I think the money from the Oil companies speaks louder than your friends at CT.

    Anyway, I read that the IMF deal is about to be approved there this week, so let the debt enslavement begin. Putin really laid an egg with his move.

  24. markfromireland permalink
    March 4, 2014

    @ Jerome Armstrong March 3, 2014

    Ukraine has a lot of natural gas, especially shale.

    No it doesn’t. As checking the very first sentence of entry on Wikipedia dealing with the topic will tell you.

    Ukraine has natural gas reserves of 1.1 trillion cubic meters

    Furthermore:

    Estimates by US CIA[1] for natural gas in Ukraine:

    * consumption:53.16 billion cu m (2010 est.)
    * production:19.36 billion cu m (2010 est.)
    * exports:2.6 billion cu m (2010 est.)
    * imports:36.4 billion cu m (2010 est.)
    * proved reserves:1.104 trillion cu m (1 January 2012 est.)
    Source: Natural gas in Ukraine – Wikipedia

    Not only does Ukraine not have very large reserves but they’re switching to coal-gasification because even if they manage to achieve the wildly optimistic targets of the Ukrainian government’s development plan they still won’t have enough for domestic demand.

    @ bob mcmanus March 3, 2014

    I no longer battle bullshit on the Internet

    Believe me I sympathise.

    mfi

  25. March 4, 2014

    The trolls here are not very consistent, DNC liberal, hard libertarian, sock puppet. Make up your mind and stick with one.

    Who are you calling a troll? You may be way famouser than I, but the nerve. Being “old school” on the Internet, I don’t, in any case, necessarily think of it as a slur, but I know that you meant it as one.

    But: I didn’t say you were a hard libertarian. I said that you listen too seriously to libertarians, or economic-libertarian-lite who support the kind of liberalization/structural adjustment policies that have proven to be so disastrous. I am telling you that your viewpoint on this comes partly from people with bad intellectual foundations. I was not accusing you of bad faith.

  26. March 4, 2014

    Go Team Lesser Evil! We’ll follow you all the way to hell!!!!

    Z

  27. markfromireland permalink
    March 5, 2014

    I love it when vipers start fanging one another

    mfi

  28. March 5, 2014

    *snort* Uh huh.

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