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A bitter economic victory for Ukraine’s Maidan protesters

A Pro-European Union activist holds a rose, a symbol of revolution and a small poster reading "Do not to anger Maidan (Independence Square )!" during a rally in the Independence Square in Kiev, Ukraine.  (AP Photo/Alexander Zemlianichenko)

A Pro-European Union activist holds a rose, a symbol of revolution and a small poster reading “Do not to anger Maidan (Independence Square )!” during a rally in the Independence Square in Kiev, Ukraine. (AP Photo/Alexander Zemlianichenko)

HOST INTRO: A day after President Obama and Russia’s Vladimir Putin spoke for an hourabout the crisis in Ukraine’s Crimea region, Russian forces are still in control of the disputed peninsula. As the political crisis in Ukraine escalates, the country’s economy is in danger. Ukraine’s currency has been erratic and the country is on the verge of a banking crisis. The European Union and the United States have pledged financial aid. Poppie Mphuthing reports.

Some of what has put Ukraine in the financial mess it’s in is a legacy of cronyism and nepotism in former Ukrainian President Viktor Yanukovich’s administration. Billions of dollars were stolen from the economy when he was in power.

Ukranians in the capital Kiev ousted Yanukovic two weeks ago over his failure to sign trade deals with Europe to strengthen the economy. But the immediate result is that Ukraine’s broken economy has been pushed to the breaking point.

Robert Kahn is an economist at the Council of Foreign Relations. He says while the economy is in a crisis right now, economic turmoil is just a regular part of Ukraine’s identity.

KAHN: “The origins go back a long time. Ukraine has had a series of unsustainable fiscal policies. Successive governments failed to stabilize the economy allowing debt to spiral out of control.”

KAHN: “In each of the cases the government has not been able to make these adjustments or willing to make these adjustments, so that made for an economy that was already vulnerable going into this year.”

Yanukovic’s government tried to hide the economy’s weakness by overvaluing the currency, pegging it to the US dollar. Officials looting the state made the situation worse. The current political crisis is magnifying these problems.

Ukraine’s currency hit a ten-year low against the dollar last week, its financial institutions are teetering on the edge of bankruptcy and inflation is rising. These are problems that won’t be fixed quickly. The IMF has been trying to prop up Ukraine’s economy for years.

Kahn says President Yanukovich could have strengthened the economy by signing trade and investment deals with Europe. Something he rejected when he chose to hang onto historical economic ties with Russia.

Both Europe and Russia have a lot at stake in Ukraine and the country is divided. Mikael Beznosov is in Eastern Ukraine. He teaches sociology at Kharkiv National University. He says many in Western Ukraine want to trade with Europe. While Southern and Eastern Ukraine favour trading with Russia.

BEZNOSOV: “Eastern Ukraine and Southern Ukraine these are industrial regions with a history of very close economic integration with Russia since Soviet times…. Most of Ukrainian industrial facilities they are located in that area.”

Besnosov says Ukraine’s Russia-friendly regions fear that stronger ties with Europe will excluded them from lucrative trade deals. It’s not just trade and manufacturing that’s at stake. It’s also about gas. About a quarter of Europe’s natural gas supply passes through Ukraine. Mark Blythe teaches International Political economy at Brown University. He says Russia is threatening to go to war against Ukraine’s new interim government because it wants to keep control of gas markets.

BLYTHE: “Given the fact that Russian gas transits across the Ukraine then there are strategic interests that Russia will defend come what may. As the war talk plays out, Blythe says Ukraine’s geo-political strategic importance means the global economic system will find a way to keep Ukraine’s economy on life support.”

BLYTHE: The international community will make sure they don’t fail and will give them an unlimited credit line to sustain them in this period and possibly longer.

This came in the form of financial aid pledges from the EU and US this week. They’re to contribute $16 billion dollars in the form of subsidies, loans and grants.

KAHN: “It’s not enough money, but it is an important bridge to a bigger package.”

That bigger package will likely come from an IMF bailout. But Kahn says THAT money won’t come any time soon and when it does come it will have strict conditions attached. And Blythe says this will put Ukraine on the rocky road to austerity.

BLYTHE : “Thirty to forty percent unemployment, the near evacuation of capital from the country… basically it’s not going to be a nice place.”

Already banks are limiting how much money ordinary Ukranians can withdraw. People are on-edge waiting to see if their grocery costs and gas bills will become too expensive. Blythe says they are right to be worried. Ukraine is at a tipping point.

BLYTHE: “They’re broke. They’re bankrupt . They’ve been looted… Ukraine does not have a very bright future, at least as far as the eye can see.”

An IMF team is on the ground in Ukraine to assess the economy and begin negotiating a bailout plan.

Poppie Mphuthing, Columbia Radio News.


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