A week and a half ago, the IMF announced that it had reached a deal to provide a $14-18 billion "financial lifeline" to Ukraine, conditional upon the adoption of an approved "economic reform program."
In The Nation, Alec Luhn sheds light on those demanded "economic reforms":
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.
The second step in the austerity program came into effect on Tuesday— a law raising property and excise taxes and cutting social expenditures. The cuts include a 10 percent reduction in pensions for former government employees, decreased benefits for families with newborns and reduced numbers of law enforcement and state prosecutor employees.
Finally, a budget law signed on Tuesday increases government borrowing, while freezing the minimum wage and cutting the pension fund by 4 percent. In addition, Yatsenyuk said that despite rising prices, the poverty line won’t be increased this year, meaning the numerous social benefits based on that index will also be frozen.
But the most painful of the IMF demands is a free-floating exchange rate that’s already being implemented, which will contribute to soaring inflation. Estimates continue to be revised: the National Bank of Ukraine is now forecasting inflation of 12 to 16 percent this year, and the Royal Bank of Scotland now predicts the hryvnia will fall to 12.5 on the dollar by the end of the year, after starting at 8.23. Ukraine’s imports have long exceeded its exports, and the hryvnia devaluation will lead to price increases of up to 30 percent on imported goods in the near future, business newspaper Kommersant reported.
The combination of falling wages, growing inflation and gas, water and electricity price hikes will further reduce the purchasing power of Ukrainians, lower the standard of living and push even more people into poverty, according to economists. “I don’t think half the population will live below the poverty line, but the majority of the population will be worse off economically—that’s understood,” Kiselyov said.
We already knew that bondholders wouldn't need to face any losses like the "haircut" they had to face in Greece. And, as Luhn points out, this "reform" program isn't going to touch tax loopholes or the corrupt government procurement sector, which loses $4.6 billion each year.
The metaphor of "belt-tightening" that one so often hears in these cases always strikes me as sadistic. The accompanying policies do, too.