Why has there been so little discussion of debt relief for Ukraine? Is it because powerful debt-holders support Ukraine fighting Russia but care little about that country’s economy, democracy or sovereignty?
Amidst an outpouring of support for Ukraine, no Western leader has called for international debt forgiveness. But, the country owes the International Monetary Fund (IMF), World Bank, European Union, Canada and other international creditors around US $125 billion or 80% of its GDP. Since Russia’s invasion Ukraine has paid international creditors hundreds of millions and is supposed to pay billions of dollars in debt charges this year.
Indebtedness has greatly influenced 30 years of Ukrainian independence. The country has repeatedly borrowed from the IMF to stave off default, which has given the Washington-based institution, Canada and other creditors significant leverage to push for neoliberal reforms.
As part of the dissolution of the Soviet Union, Ukraine took on 1/6 of the USSR’s $68 billion debt. Ottawa pressed Kyiv to conclude an agreement on Soviet era debt, making it a condition to receive credit. Canadian assistance was dependent on the privatization of public property and liberalization of the economy. In 1994 foreign affairs minister André Ouellet declared, “our assistance to Ukraine can only be effective if the Ukrainian government takes the necessary steps to put in place the framework in which a market economy can develop.”
During this period Ottawa sponsored various initiatives to promote neoliberal reforms including the Ukraine Reform Conference, Canada-Ukraine Trade & Investment Support Project, Canada Ukraine Intergovernmental Economic Commission, Canada Ukraine Business Initiative and Canada Ukraine Legislative Co-operation Project. In the mid 1990s Ottawa financed an initiative to enable the privatization of Ukrainian agricultural land, which had all been publicly owned. A 1996 Vancouver Sun article reported, “since the demise of the Soviet Union, Canada has committed more than $120 million in technical aid to help Ukraine make the complex transition to a market economy.”
Two months after Leonid Kuchma became the country’s second president, Canada hosted a special G7 conference to promote economic “reform” in Ukraine. Prior to the October 1994 gathering, the Toronto Star reported, “Canada will pledge up to $20 million in aid to help Ukraine transform its economy to a western-style market system, government officials say.” As “Ukraine’s largest investor”, the Star reported, Canada also pushed the IMF to make its first ever loan to the country.
In the years after the conference, Ukraine sold off thousands of state enterprises. Well-connected individuals often acquired these properties for a pittance of their true value, which gave rise to a class of powerful “oligarchs” whose interests were antithetical to democracy.
During the 1998 financial crisis, which devastated Russia and Ukraine, Ottawa pressed the IMF to expand financing to a country that had become far more vulnerable to foreign shocks after liberalizing its economy. Ottawa feared the neoliberal reforms would be halted or even reversed. In 1999 the Globe and Mail reported, “Prime Minister Jean Chrétien personally lobbied for a multibillion-dollar loan for Ukraine from the International Monetary Fund when it was hit by economic crisis last year.”At the time Chrétien urged the Ukrainian leadership to continue with unpopular economic reforms. “You have committed yourself to building that economic strength, navigating the difficult passage from a command economy to a market economy,” he told Ukrainian leaders. “In spite of the difficulties, I urge you to stay the course.” By some estimates Ukraine’s GDP contracted by as much as two thirds in the first eight years after independence!
Through the 2000s Canada continued to push for policies that favored capital and foreign interests. The 2008 global economic crisis delivered a sharp blow to Ukraine, forcing the country to again turn to the IMF for a bailout.
In 2009 Canada and Ukraine launched free trade negotiations, which “quickly bogged down after pro-Russian President Viktor Yanukovych came to power” in 2010, reported the Ottawa Citizen. “Negotiations were quietly resurrected after Yanukovych was ousted” in a Canadian promoted revolt in 2014.
Many in the west of the country were angry with Yanukovych after he backed away from a Ukraine–European Union Association Agreement. But, the government rejected that accord largely because it was contingent on signing an agreement with the IMF, which demanded “extremely harsh conditions” on eliminating energy subsidies and other government supports.
After Yanukovych’s unconstitutional removal Ottawa immediately announced $220 million in funding to shore up the new government. But foreign minister John Baird wouldn’t release the assistance until IMF officials were granted greater control over Ukrainian economic policy, saying “the IMF is going to want to negotiate some of the strict[est] conditions.” $20 million of the Canadian money was earmarked specifically to assisting Ukraine with the “expert guidance it needs to manage this important economic transition.”
Following a July 2015 meeting with PM Stephen Harper in Ottawa, the Ukrainian PM installed after Yanukovych’s ouster, Arseniy Yatsenyuk, called for Canadian investors to buy Ukrainian government enterprises. “I don’t want Ukrainian tycoons to buy these state-owned enterprises,” Yatsenyuk told the Globe and Mail. “We would be happy to see Canadian folks buying Ukrainian assets and bringing into Ukraine good corporate governance, new investment and new jobs.” Three years later Ukraine’s Minister of Economic Development and Trade Stepan Kubiv wrote in the Financial Post, “Our trade strategy is combined with an ambitious economic reform program to make Ukraine more attractive to western investment. Since 2014, we have achieved more reforms than at any time since independence. We have deregulated sectors of the economy, streamlined business regulations and undertaken privatization of state-owned enterprises. Reforms are underway to improve creditors’ rights and intellectual property rights.”
Since the 2014 coup, the IMF, World Bank and European Investment Bank have plowed more than $10 billion into Ukraine. In 2020 the IMF celebrated improvements in the country’s fiscal situation, which it said were “achieved mainly through a reduction in the real value of wages and social benefits.”
Three decades of neoliberal reforms have been devastating. Inequality has grown substantially and prior to the upheaval in 2014 Ukraine’s GDP was smaller than at independence. Before Russia’s recent invasion, it was about a third below Soviet times. Ukraine’s GDP per capita is less than half of Russia’s and a fifth of Poland. Immiseration has made the country fertile terrain for far-right demagogy.
With Ukrainian GDP down by 16% in the first quarter and expected to drop by up to 40% in 2022, it’s hard to imagine the country will be able to fully service its international debt. Without substantial debt forgiveness, creditors will gain even greater leverage over the country’s economy and politics. To pre-empt a further slide, Ukrainian civil society organizations recently launched a petition calling for debt cancellation. But it’s largely been ignored in the West.
In last week’s budget the federal government allocated a $1 billion loan to Ukraine. The funds will be channeled through the newly created IMF Multi-Donor Administered Account for Ukraine.
The budget also earmarked a half billion dollars in new funding for arms. Since February 27 Canada has announced three new weapons donations, which include 4,500 M72 rocket launchers, 7,500 hand grenades, 100 Carl-Gustaf M2 anti-tank weapons and 2,000 rounds of ammunition. The weapons are donated but the bulk of Canada’s other assistance to Ukraine is in the form of loans.
It appears that when the interests of international debt holders and ordinary Ukrainians clash, the losers continue to be workers, pensioners and their families. Wealthy capitalist countries are eager to provide weapons to enable continued fighting, but silent on requests for debt relief. This tells us something fundamental about the capitalist system.