Ukraine’s first assailant—international lenders

By Dru Oja Jay

April 24 2022 — Links International Journal of Socialist Renewal reposted from The Breach — After their gas was shut off, women and children in Ukraine took to gathering firewood or anything burnable to heat their homes. 

In regions like Donbas, one of the most land-mined areas in the world, that meant risking the loss of a limb. Even if they avoided unexploded ordnance, many were guaranteed smoke inhalation as the price of a hot meal or warm house.  

And that was before the Russian invasion.

Ukrainians have been suffering from the consequences of economic restructuring driven by the International Monetary Fund (IMF)—from a rise in mortality linked to rapid privatization after the collapse of the Soviet Union, to the commodification of agricultural land and sixfold increases in energy bills. 

Since the fall of the Soviet Union, Ukraine has borrowed more than $125 billion from international financial institutions, which pushed the sell-off of public enterprises and rewarded oligarchs and the super-rich with every loan they made. 

Now, as Russia’s invasion provokes an economic collapse and displaces millions, they’re learning the hard way that being under attack doesn’t mean you can catch a break from international lenders. In 2022, unless loans are forgiven or suspended, Kyiv will spend $6.2 billion paying down foreign debt. Nearly half of that will go to the International Monetary Fund. 

The situation has sparked calls from civil society in Ukraine and globally for the IMF to cancel the country’s debt.

Without speaking of debt relief or suspension of payments, Canada has offered Ukraine a total of $1.62 billion in new bilateral loans.

Yuliya Yurchenko, a professor of political economy and author of Ukraine and the Empire of Capital, says the collapse of economic sectors caused by the war should mean debt repayments be suspended at the very least. 

Speaking from Vinnytsia, Ukraine—a mid-sized city south-west of Kyiv now serving as a waypoint for refugees leaving the capital—Yurchenko says Ukraine is looking at spending 10 per cent of its budget on servicing debts, even while the country is under attack. 

Cancellation or suspension wouldn’t just compensate for the economic havoc that Western financial institutions have wreaked over the past decades, but could free up billions of dollars to support refugees, defend against the ongoing attacks, and—eventually—rebuild.

Experts say dropping the debt is possible, and not unprecedented, but it will require increased advocacy from people in countries—like Canada and the US—that set the agenda at the IMF, among other international financial institutions.

IMF fuel austerity push millions into precarity

Ukraine turned to the IMF for its brand of help in 2014, in the wake of a perfect storm of events that caused major economic instability.

That February, protests in Kyiv had overturned the elected government. It was quickly followed by Russia’s annexation of Crimea and the outbreak of civil war in the eastern Donbas region. Ukraine’s unelected successor government led by Petro Poroshenko appealed to the international “lender of last resort.” 

In return for financial aid, the IMF demanded a series of conditions that ended up denying millions of Ukrainians access to a basic necessity: fuel.

Among the conditions imposed in exchange for assistance was an overhaul of natural gas delivery, which about three quarters of Ukranian households rely on for heating and cooking. 

Previously, energy companies had to supply natural gas even to households behind on payments. But in 2020, the government removed that requirement. As the cost of fuel skyrocketed, millions lost access to natural gas as the winter began.

Losing access to fuel for cooking and heating can have deadly consequences at the best of times. But during a war, the dangers are even more extreme.

In the wake of gas privatization, Elliott Dolan-Evans, a researcher at Monash University, carried out dozens of interviews with women in the Donbas region.

“We’ve seen a lot of civilian deaths, particularly women and children from landmines and unexploded ordinances when they’re trying to collect firewood, because gas is too expensive,” Dolan-Evans told The Breach from his home in Melbourne. “And if women and children are able to safely collect firewood, they’re the ones impacted by the black particulate matter from burning these fuels in the home.”

Fuel delivery is just one of the areas the IMF has pushed Ukraine to privatize in recent years.

Dolan-Evans notes that deep cuts to social services in the 1990s, driven in part by the IMF, created enormous amounts of extra work for women, who care for children, the sick, and the elderly. 

By 2017, the IMF was pushing for new structural reforms. It considered pensions to be too generous, agricultural land to be insufficiently privatized, and state-owned enterprises to be inefficient.

The subsequent changes to ownership of land—which the IMF considers to be unfinished—have already had a profoundly negative effect on Ukraine’s food security. 

As private control of Ukrainian farmland has been consolidated, Dolan-Evans says agricultural production has been diverted to export commodities like wheat and soybeans, which are bound for the European Union.

“Before, Ukraine would grow a lot of fruit, berries and vegetables, which requires a bit more labor and more time to grow, and the agricultural conglomerates don’t want to deal with that,” said Dolan-Evans. “So there’s been, again, a lot of pressure on individual households to try to grow this food in really difficult conditions.” 

The lethal fallout of “Shock Therapy”

When the Soviet Union collapsed, Western governments moved quickly to sweep away as much of the communist-era welfare state as possible—a policy of rapid privatization, elimination of state subsidies, and trade liberalization popularly known as “shock therapy.”

Economic restructuring in Ukraine pushed by the IMF today is a continuation of such neoliberal policies that had devastating result underlying Ukraine’s contemporary economic and social woes.

Of the countries subjected to “shock therapy,” Ukraine was among the most rapidly-privatized of all.

These policies resulted in over seven million premature deaths in former Soviet republics after collapse and partition, according to studies published in the medical journal The Lancet. An estimated four million died in Russia alone, and the studies suggest that the policies were similarly destructive in Ukraine. 

Working-age men were the most affected group, but mortality rates increased for everyone, including among newborn babies.

Another Lancet study found the rising rate of mortality was related to the speed and intensity of the privatization process. Lawrence King, a professor at University of Massachusetts Amherst who was a co-author of the second study, said rapid economic restructuring has far-reaching and profound impacts.

“We have evidence that it damages the effectiveness of the state, it damages the health systems, it damages labor markets by making labor more precarious,” King told The Breach. “All these have major negative consequences.”

King’s planned in-depth study of Ukraine fell through due to the 2014 war, but he says the available data suggests a similarly devastating impact to that experienced in Russia. 

“Ukraine basically did what Russia did, and it wasn’t just privatization,” said King. “Radical liberalisation of foreign trade and domestic prices, austerity, jacking up interest rates to limit the monetary supply…all the planks [promoted by the US and Western countries], I think, are to blame for the mortality crisis.”

The IMF’s “de-development” of Ukraine’s economy

Today, you can find trained engineers with years of professional experience selling sweaters and other remarketed items in the market.

“In the market, not even in a shop,” professor Yurchenko says, describing the sense of economic dead end that millions face. “That does something to your sense of identity, to your desire to even get out of bed in the morning.”

The overall outcome of structural adjustments aggressively promoted by the IMF and other institutions has been psychologically and materially devastating for Ukrainians. The country’s Soviet-era economy was advanced by most standards, with high levels of education, sophisticated industry, and technological research.

“What has happened—what it has done to people’s expectations of social mobility to their ability to have healthy fulfilling lives—has been an absolute tragedy,” Yurchenko said.

Economic migration has been one long-term legacy of the post-Soviet collapse. Desperate workers left to find low-wage work in Europe, while highly-trained workers left for better-paying jobs abroad. 

Before the most recent Russian invasion, an estimated 2.2 to 2.7 million Ukrainians had emigrated, equivalent to around a quarter of the country’s workforce. The UN estimates another 4.3 million have since left, while 6.5 million have fled to other parts of Ukraine.

Workers who remain are stuck with low-wages, high unemployment and often desperate conditions. 

“Each round of loans only makes this de-development even worse,” said Yurchenko in a recent interview. “The Western imposition of neoliberalism destroyed Ukraine…now it is the poorest country in Europe. That was not by accident. That was by design.”

There are some voices in the IMF’s research division, Yurchenko says, who make the case for a state that plays an active role in maintaining social welfare instead of constantly imposing austerity and market discipline. 

“But when you look at the prescriptions that actually get dispensed, the old school of ‘tighten your belt’ is still there,” she said. 

Origins of oligarchy

Ukrainian-Canadian entrepreneur Michael Yurkovich’s investment in a solar plant in Ukraine began with bright prospects. Ukraine’s market offered a rates of return nine times what could be expected in Canada, and he gathered a $65 million investment.

But soon, a firm owned by Ukrainian oligarch Ihor Kolomoisky got wind of the project. The solar plant’s connection to the power grid was mysteriously disconnected “for repairs.” The repairs dragged on indefinitely, as it became clear they were being raided.

Yurkovich’s story, chronicled by Paul Wells in Maclean’s last year, is just one example of the kinds of strong-arm tactics and corruption that Ukrainians deal with constantly.

The privatization of Ukraine’s public companies, which just 30 years ago were owned by the nation but which were sold off in a fire sale mandated by the international financial institutions, has led to the creation of a super-owner class made up of powerful oligarchs.

“The system of oligarchs were pretty much Communist party functionaries in the old Soviet Union who were able to purchase really cheaply these state-owned enterprises that they had been previously in charge of,” Dolan-Evans explained.

Ukraine’s oligarchs control vast holdings in finance, media, agriculture, industry, and energy (including recently privatized natural gas),

Not only did the IMF’s privatizations allow these families to acquire valuable assets for a song, but the loans often ended up padding out their bank accounts.

The extent to which powerful players are siphoning resources from Ukraine’s government is difficult to estimate. A 2005 assessment by USAID reported that “top political and business figures collude behind a façade of political competition and colonize both the state apparatus and sections of the economy.” The report alleges Soviet officials and members of the criminal underworld conspired to make good off privatization, in “a clear exercise of state and regulatory capture.”

Enabling, then fighting, corruption

President Volodymyr Zelensky came to power on a mandate to clean up corruption in Ukraine, but his progress has been erratic. Last spring, he rustled feathers at the IMF for failing to pass an anti-corruption statue. Then, in the fall, he attempted to advance an “anti-oligarch law” following an assassination attempt against one of his aides. 

As president, he clashed with some of Ukraine’s super rich, and wined and dined with others and failed to report his own offshore accounts. Whether he is a reformer playing the game or a pawn of a pro-Western fraction of Ukraine’s billionaire class, Zelenskyy embodies the contradictions of power and corruption in the region.

Corruption is hard to overestimate in Ukraine, historically affecting every sector—from the military to education to health care. Transparency International found in 2017 that Ukraine was surpassed in graft and bribery only by Russia. 

It manifests at “high” and “low” levels—large-scale graft and state capture at the top, or kickbacks and bribes at the level of individuals. In 2015, researchers interviewed Ukrainians about corruption and found that bribe-taking was widely understood to be a reasonable response to low pay and chronic underfunding, but was also seen as justified because of the much greater levels of theft by oligarchs and political elites. 

The IMF helped create the conditions that perpetuate corruption, and then got to work fighting it. Last year, the IMF quietly clashed with Zelenskyy’s government over the lack of anti-corruption measures.

Where did the money go?

Despite the many contradictions in the IMF’s role in the country, many Ukrainians see links with the rich countries that drive the IMF’s agenda as key avenues to fight high level corruption.

Taras Fedirko, an economic anthropologist at St. Andrew’s University, thinks Ukraine’s oligarchs are to some extent at odds with the anti-corruption agenda that G-7 governments, the European Union and the IMF are advancing.

“Policies promoted at the diplomatic level and through civil society organizations funded by Canada, the US and other governments hit the oligarchs’ political influence because they go straight to the money link between the political elites and the economic elites,” Fedirko told The Breach.

But, Fedirko hastens to add, Ukraine’s oligarchs are not the only ones who have benefited from corruption. 

“Ukraine has been used and abused… Oligarchs are not the only beneficiaries of the corruption—the Western financial system, the property market in places like London, New York, Ohio, and elsewhere—they all benefit from the transfer of capital from Ukraine,” he said.

In other words, the countries that run the financial institutions that are nominally fighting corruption in Ukraine are also contributing to the conditions that perpetuate it, but are likely also receiving financial benefit from that corruption.

Canada’s loans and the IMF

Last April, Deputy Prime Minister Chrystia Freeland joined the IMF’s Managing Director for a discussion about feminist policy entitled “No Woman Left Behind”. Freeland, who is also Canada’s representative on the IMF”s board of governors, touted her government’s new $10 per day childcare. “It is good feminist policy, and it is good economic policy,” she said. 

For the duration of the IMF’s disastrous influence on Ukraine, Canada has been a key player.  And it is taking a leadership role in promoting policy changes in Ukraine.

Ottawa’s diplomatic ties and status within the G7 means Canada punches well above its weight at the IMF, where it is in the top 10 countries in terms of formal voting power. 

Over the past two months Canada has been vocal about easing the burden on the people of Ukraine. Canada’s recent loan offers to Ukraine include a $500 million bilateral loan to “sustain economic resiliency” untied to specific goals; $1 billion through an IMF-administered account to “support macro-economic stability”; and an additional offer of $120 million conditional on its use for “economic resilience and governance reforms.”

In addition to any clout it holds within the IMF, that gives Canada considerable latitude to offer relief from conditions that fuel inequality.

For now, each of those loans is institutionally interwoven with the IMF’s structural adjustment agenda.

One expert says Canada is deeply committed to the macroeconomic framework that drives the IMF’s often-disastrous policies. Bessa Momani, a professor of Political Science at the University of Waterloo, has observed Canada’s participation in the IMF’s inner workings for decades.

“By virtue of being there, you agree with the framework,” Momani told The Breach. 

She says countries can make wiggle room for lendees, but only on the margins of the larger framework. “You might say ‘this might have a negative consequence, maybe we need to soften this condition.’”

Decades of criticism and global protest has led the IMF to shift some of its considerations—a change that is most evident in its research division. “It’s changed a lot in the last 30 years,” said Momani. “There is far more consideration for social protections and social welfare.”

However, the change has only been a matter of degree. “It’s still staffed by hard-nosed macro-economists. They are number crunchers. They don’t see policy, they don’t see politics, they don’t see society.”

Lawrence King says the IMF’s changes have mainly been minor, or rhetorical.

“They added some conditions to target poverty alleviation—so they do that—but very often, they’re just not enforced, they’re not implemented, and they don’t seem to mind that much,” he said. “They still prioritize their other conditions over those policies,”

“They’re making the war safe for capitalism rather than trying to make the situation better for Ukrainians,” Elliot Dolan-Evans said of the current approach.

But popular pressure on the IMF, particularly from powerful member states like Canada and the US, can make a difference. 

“I think we have to really focus on canceling all of Ukraine’s debt for the country to have any kind of chance at not only rebuilding but also supporting the millions of people who will be in an awful living situation once this war ends.”

“Canada is one of the strongest countries in these international financial institutions,” he added, pointing to the Jubilee Debt Campaign’s petition “Cancelling Ukraine’s debt would help the whole world” as one effort to push for change. 

As rockets fly overhead and neighbours are killed in battle with Russian forces, Yuliya Yurchenko is appealing to the conscience of those in countries that set the IMF’s agenda.

“Honouring debts in this kind of situation is immoral—a temporary suspension needs to happen along with a serious conversation about writing it off.”

Dru Oja Jay is the Publisher of The Breach. He was the Publisher of the Dominion paper and a co-founder of the Media Co-op. He is the co-author, with Nikolas Barry-Shaw, of Paved with Good Intentions: Canada's development NGOs from idealism to imperialism.