Ukraine asks for IMF help

David Marples

The Ukrainian Parliament has agreed terms with the IMF for a loan of $16.5 billion to help the country through the present economic recession. However, the bill approving the loan has yet to pass through Parliament despite an overwhelming vote in favor of 248-2 and the country is still stuck in a seemingly endless constitutional crisis.

The impasse is the result of a personal conflict between the two key figures of the 2004 Orange Revolution: President Viktor Yushchenko and Prime Minister Yulia Tymoshenko. Following the abandonment of the Orange coalition by his Our Ukraine party and its ally People’s Self-Defense, Yushchenko called for new pre-term parliamentary elections. Tymoshenko, backed by the Regions Party as well as her eponymous bloc, refused to accept that decision, arguing that it was criminal to take on the expenses of a third election in three years simply to satisfy the whims of the president.

Yushchenko, whose popular standing has reportedly reached an all-time low of 4-5% in Ukraine, believes that his Prime Minister acted treacherously by declining to back his overt support for Georgia following that country’s attack on South Ossetia and Russia’s overwhelming response in September. He is incensed that she held talks with Russian Prime Minister Vladimir Putin, and also collaborated with Regions’ leader Viktor Yanukovych to push through a parliamentary bill intended to reduce the power of the president to that of a symbolic figure.

These events coincided with the impact of the economic crisis, which has affected Ukraine in a number of ways. Imports have increased while valuable exports have declined with Ukraine’s aged steel industry an early victim. With demands for steel falling dramatically, mass layoffs are anticipated. Inflation in Ukraine is the highest in Europe. Several banks are not expected to survive the crisis, while those that will have in some cases frozen the savings of pensioners who make up nearly one-third of the Ukrainian population.

Ukraine’s currency, the hryvnia, has plunged against the dollar from around 5 to 7.2 last Wednesday. It has recovered slightly as the Bank of Ukraine has sold some $3 billion of its reserves to back the hryvnia. That policy cannot continue indefinitely. Ukraine’s total reserves are estimated at only $38 billion though the IMF loan will presumably provide some back-up. The country’s impressive growth rates of the past are also expected to decline from the 2008 total of 6% to around 2.9% in 2009.

As in other countries badly affected by the world recession, consumer lending is likely to be cut back, particularly in view of the sort of stringent terms expected from the IMF as a condition for providing the loan. Ukraine is billions of dollars in debt and costs of repayment have naturally soared with the fall of the domestic currency.

Fuel is an increasing problem. Utility bills are expected to rise by about one-third on 1 December, and Ukraine still does not know how much it will be paying for Russian gas next year. One thing is certain: that particular bill is likely to rise steeply given the political differences between the Yushchenko administration and its counterpart in Moscow. Gazprom has traditionally lowered the tariff for its friends and partners and raised those for those states that have been obstructive in their relations with Russia.

Politicians have been searching for suitable scapegoats for the dark economic news. Tymoshenko has focused on the 69-year-old Bank of Ukraine chairman Volodymyr Stelmakh, demanding his resignation. However, he can hardly be blamed for the political side of the crisis, which owes much more to disputes between the two ostensible democratic leaders, Yushchenko and Tymoshenko herself.

Tymoshenko briefly dallied with the notion of forming a working alliance with the large Regions Party—Yushchenko has also negotiated with Yanukovych in the past, appointing him Prime Minister from August 2006 to December 2007. A large majority coalition in parliament would be one way to approach economic problems.

However, neither of the two democrats seems able to overcome basic character flaws that undermine their role as statespersons. Yushchenko lacks communication skills and does not provide the impression generally of an effective leader. His integrity and sincerity seem clear, but he appears indecisive and bumbling. He has not delivered on his 2004 election promises to take Ukraine into Europe and now even the Membership Action Plan for Ukraine’s entry to NATO seems unlikely to bear fruit at the next meeting of the alliance in December, despite strong support from the United States.

Tymoshenko is talented and glamorous but completely unable to conceal a lust for power that seems to dominate her political activities. True, she is the only leader with national support. But most of her actions seem driven by her personal ambition: either to be president after 2010 or to remain Prime Minister in a much empowered parliament.

Ukraine very much resembles Russia in the early 1990s with no solution yet in sight for the constitutional crisis and excessive government spending that could presage economic collapse if it continues at the present rate. Unlike in Russia its problems will likely not be resolved by violence, but they do need to be addressed promptly and that will mean putting a stop to the interminable political bickering, fist fights in parliament, and destructive conflicts between leaders who put their own desires before those of their country.

An earlier version of this article appeared in the EDMONTON JOURNAL on 3 November 2008..



Distinguished University Professor, University of Alberta

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