The International Monetary Fund issued on Thursday a scathing report on Ukraine’s financial situation, saying that the government of President Viktor F. Yanukovich had largely abandoned much-needed economic reforms that it had agreed to undertake as part of a deal in 2010 that provided more than $15 billion in loans.The situation in Ukraine is complex and messy. The eastern part of the country is economically and culturally oriented toward Russia and the western part toward the EU. The pot has been boiling for a number of years and there aren't much in the way of prospects for a peaceful resolution. The situation has become a pawn in the high stakes poker game for control of eastern Europe. That is a geopolitical conflict that goes back to the days of the tsars. Vladamir Putin is definitely not a warm and fuzzy character but he does the kind of personal chutzpah that makes him an accomplished poker player.
The report suggests that Russia’s offer this week to rescue Ukraine with another $15 billion in loans and a sharp discount on natural gas prices could be far riskier than President Vladimir V. Putin has suggested.
Mr. Putin announced on Tuesday that Russia would use $15 billion from its national welfare fund to buy Ukrainian euro bonds, and that Gazprom, Russia’s state-controlled energy company, would reduce the price of gas to $268.50 per 1,000 cubic meters, from the current $395 to $410, saving Ukraine about $2 billion a year.
Ukraine is facing an increasingly severe economic crisis and had been in talks with the I.M.F. for additional aid. Those talks broke off in large part because Mr. Yanukovich and other officials said they found the required terms too onerous. Those terms included increases in household utility rates and limits on government spending.
The situation with the IMF is about their long standing efforts to impose neoliberal policies on the economies of developing nations. They have a broad policy of requiring the elimination of subsidies on food and fuel for low income populations in exchange for IMF funding. They have attempted to apply it all across the developing world. Here is their policy statement on the matter. It is their position that the governments of developing countries should be investing their limited revenues in efforts to liberalize their economies and financial structure making them more attractive to international investment. Where such policies have been implemented it has often resulted in local agriculture being reoriented to export markets rather than producing for local consumption.
A similar demand from the IMF was a factor leading to the blow up of the government in Egypt and the present upheavals there.Saudi Arabia stepped in with alternative funding. Policies that pose such a threat to the necessities of survival can have major political consequences.
The IMF and the World Bank are bedrock institutions of the Washington consensus and what is the prevailing global financial regime. They came out of the Bretton Woods conference. Originally they were almost entirely funded and controlled by the US and western Europe. As the global economy has begun to diversity their hegemony is beginning to be challenged. The alliance of emerging nations known as the BRICS, Brazil, Russia, India, China, South Africa, is beginning to make waves. China in particular has been providing and alternative source of funding to developing nations. Much of its agenda is gaining access to natural resources rather than humanitarian concern. However, it has shown little interest in trying to force restructuring on the political and economic systems in return for its investment. There are plans underway to establish a BRICS fund as an alternative to the IMF.
None of this means that we are going to wake up tomorrow to an entirely different world. It is quite uncertain that more power for Russia and China would mean a better world, but there are some major reasons to be critical of the currently prevailing regime.