IMF Interference Plunges Ukraine into Recession

12 December 2015 by Jérôme Duval

It hardly matters if the IMF IMF
International Monetary Fund
Along with the World Bank, the IMF was founded on the day the Bretton Woods Agreements were signed. Its first mission was to support the new system of standard exchange rates.

When the Bretton Wood fixed rates system came to an end in 1971, the main function of the IMF became that of being both policeman and fireman for global capital: it acts as policeman when it enforces its Structural Adjustment Policies and as fireman when it steps in to help out governments in risk of defaulting on debt repayments.

As for the World Bank, a weighted voting system operates: depending on the amount paid as contribution by each member state. 85% of the votes is required to modify the IMF Charter (which means that the USA with 17,68% % of the votes has a de facto veto on any change).

The institution is dominated by five countries: the United States (16,74%), Japan (6,23%), Germany (5,81%), France (4,29%) and the UK (4,29%).
The other 183 member countries are divided into groups led by one country. The most important one (6,57% of the votes) is led by Belgium. The least important group of countries (1,55% of the votes) is led by Gabon and brings together African countries.

http://imf.org
’s policies, disseminated all over the planet, result in social chaos as they have in Greece and elsewhere since their only objective is actually to reinforce capital at the expense of common goods Common goods In economics, common goods are characterized by being collectively owned, as opposed to either privately or publicly owned. In philosophy, the term denotes what is shared by the members of one community, whether a town or indeed all humanity, from a juridical, political or moral standpoint. and public services. Countries have learned to dread the international institution after its deep involvement in the disastrous wave of privations in Eastern Europe during the post-communist transition of the early Nineties. Yet it is set to carry on regardless, with Ukraine next on its agenda. Ukraine is among the first European countries to fall into the IMF’s clutches since the crisis began in November 2008, shortly after Iceland, Georgia and Hungary.

Following a wave of popular uprisings which led to the destitution of the Ukrainian president, Viktor Yanukovytch, the interim government appointed on 27 February 2014 gave the IMF the opportunity to subject the Ukrainian people to a drastic austerity programme. Without waiting for the elections, the unelected government entered into opaque negotiations which led to the adoption of ultra-liberal policies in exchange for an IMF loan. Despite being rejected by the Ukrainian parliament at the first reading on 27 March, the IMF’s unpopular programme was finally adopted after feverish negotiations. |1|

The present Prime Minister, Arseniy Yatsenyuk, sees no alternative to submitting to the dictates of the IMF. Back in October 2008, as president of Parliament, Yatsenyuk said of the Washington-based international institution’s demands : “We have no choice. It is not a political issue, it is a vital issue for the country’s activity.” |2| Five and a half years later in March 2014, Arseniy Yatsenyuk, this time as prime minister of the interim government, said of the IMF’s imminent austerity plan: “The government will meet all the conditions set by the IMF, because we have no other choice.” |3| A new government was formed under the presidency of the oligarch and millionaire, Petro Porochenko, invested in June 2014 on the promise of ending the war within three months. However there is little hope of change as he has kept on Arseniy Yatsenyuk as prime minister. Thus Ukraine is rolling on along the liberal monorail of austerity policies dictated by the IMF. In the eyes of the present government, there is no other viable option, whatever the cost to the country. In Margaret Thatcher’s notorious phrase, “There is no Alternative” (TINA).

Yet all the country’s economic indicators have turned red, under the lending institution’s yoke. Its Gross Domestic Product GDP
Gross Domestic Product
Gross Domestic Product is an aggregate measure of total production within a given territory equal to the sum of the gross values added. The measure is notoriously incomplete; for example it does not take into account any activity that does not enter into a commercial exchange. The GDP takes into account both the production of goods and the production of services. Economic growth is defined as the variation of the GDP from one period to another.
(GDP) fell 6.8% in 2014 (from 180 billion dollars in 2013 to 130 billion in 2014). |4| In 2015, GDP per head of population was close to Sudan’s, at about 2 100 dollars (!). In 2014, more than half of the country’s foreign currency reserves melted away (-63 %), |5| sinking below the 10 billion dollar threshold for the first time in ten years. This, to support the national currency, the hryvnia (UAH), which lost a lot of its value against the dollar, and to finance the eight-month campaign against pro-Russian rebels in the industrial east of the country which cost over 8000 lives in 18 months.

The State’s public debt has more than doubled in less than two years, from 480 billion hryvnias on 31 December 2013 to 1 185 billion by 30 April 2015, equivalent to a progression from about 19 to 47.5 billion euros at November 2015 exchange rates. Everything indicates that the National Bank’s prognosis of sovereign debt Sovereign debt Government debts or debts guaranteed by the government. reaching 95 % of GDP by the end of 2015 will be fall short of reality. Company taxation has been reduced while that of private citizens has considerably increased. According to the IMF, nine of the fifteen biggest banks need to be recapitalized, |6| which seems to indicate that the IMF is in favour of socializing banks’ private debt with the fresh money from tax-payers. Other populations of Europe are all too familiar with the effects of this recipe, well aware that they are being made to pay through the nose while their country is being destroyed.

IMF Interference

Displeased with the government’s decision to raise salaries in 2009, which at the time caused the IMF to suspend its payments, the institution now keeps a tight control over State spending. |7| One of the conditions laid down by the IMF for the payment of the next tranche of credit was that the budget should be voted before the end of 2014. It was hurriedly adopted by the Ukrainian Parliament on 29 December 2014. In it, Defence and Security spending was multiplied by nearly 5 to almost 100 billion hryvnias (3.8 billion euros), i.e. 5 % of GDP and 14.3 % of the amount spent in 2015. Prime Minister Arseniy Yatsenyuk declared that this was unprecedented. |8| While welfare benefits and the budgets for Science and Education have been severely axed, the Security budget includes the construction, over three years, of a wall of nearly 2000 kilometres along the Russo-Ukrainian border, dotted with watchtowers, which is said to be costing Ukraine something in the region of 4 billion hryvnias (200 million dollars).

In April 2015, in accordance with the IMF’s wishes, and against a background of privatization, the government tripled the price of gas and implemented a sixfold increase in the price of heating. Hot-water and electricity rates have doubled. |9| On 21 July 2015, in a letter of intent to the IMF about fulfilling the institution’s demands, the Ukrainian government mentions a 285 % increase in the price of gas (!).  |10|

Restructuring the debt to maintain the debt system

After five months of negotiations, a committee formed of Ukraine’s main private creditors (PIMCO, Blackrock, Fidelity, Stone Harbor...), and led by the Franklin Templeton investment fund Investment fund
Investment funds
Private equity investment funds (sometimes called ’mutual funds’ seek to invest in companies according to certain criteria; of which they most often are specialized: capital-risk, capital development funds, leveraged buy-out (LBO), which reflect the different levels of the company’s maturity.
managed to reach an agreement with Kiev to restructure their debt. The agreement, made in late August 2015, provides for the cancellation of 20 % of public debt due to the private sector (which totals 18 billion dollars), so about 3.6 billion dollars, and a four-year extension of the repayment period. |11| Franklin Templeton, who holds about 6.5 billion dollars of Ukrainian credit), contracted the Blackstone investment fund to advise the group of private creditors during negotiations with Kiev on restructuring the debt. Blackstone, known in Spain for property speculation and expulsions for non-payment, is well known to Greece, too, as they advised her private creditors in 2012. In other words, they advise the same private creditors faced with different indebted countries, like Ukraine. On the other side, Ukraine, like Greece a few years back, is represented by Lazard bank for these negotiations around her debt. |12| In other words, Ukraine finds herself stuck between the same profit Profit The positive gain yielded from a company’s activity. Net profit is profit after tax. Distributable profit is the part of the net profit which can be distributed to the shareholders. -hungry actors who pushed Greece into a crisis the like of which had never been seen before. On one side we have Lazard who advised Greece –no doubt badly—, and on the other, Blackstone investment fund who made such a good job of representing Greece’s creditors. Round and round we go.

At the end of August 2015, Christine Lagarde, Managing Director of the IMF, said that the parameters announced in the agreement would help to re-establish the debt’s viability and that the reforms undertaken by the authorities would in fact enable the objectives fixed by the IMF-backed programme. In another communiqué, the American Treasury Secretary, Jack Lew, hailed the agreement which, he said, would help to improve Ukraine’s public finances and provide the authorities with the leeway needed to carry out their ambitious reform programme. The IMF and its main share Share A unit of ownership interest in a corporation or financial asset, representing one part of the total capital stock. Its owner (a shareholder) is entitled to receive an equal distribution of any profits distributed (a dividend) and to attend shareholder meetings. -holder, the United States, could not have made their wishes clearer: the whole point of the reduction of the debt, trifling in comparison with the amounts of the new loans to come, is to enable further repayments with interest Interest An amount paid in remuneration of an investment or received by a lender. Interest is calculated on the amount of the capital invested or borrowed, the duration of the operation and the rate that has been set. and the continuation of capitalist policies. This may be good for the oligarchs, but it will not help the Ukrainian people to get out of the crisis.

Furthermore, Russia is demanding the repayment of 3 billion dollars (the first tranche paid in December 2013 of a loan of 15 billion dollars granted to the former President Yanukovitch by Putin) due on 20 December 2015. However it would be difficult for Russia, not having a veto at the IMF (it only holds 2.39 % of the votes within the institution), to get a hearing on these euro-bonds which come under British legislation. Moreover the Putin regime, after first of all refusing to take part in Franklin Templeton’s restructuration of public debt that Kiev finally obtained, now proposes to reschedule payment as three tranches of l billion dollars a year over the three years starting in 2016, while the IMF proposes to postpone the entire repayment by one year.

A new IMF mission began work in Kiev on 12 November 2015 to resume discussions and assess progress being made with the counter-reforms as dictated by the Fund for the release of the next tranche of credit to Kiev. The third and fourth tranches of credit on an IMF loan of 17.5 billion dollars, of 1.7 billion dollars each, had been suspended pending the regional elections of 25 October 2015. The IMF is simultaneously trying to push through urgent modifications of its own rules so that it can pursue its aid programme to Ukraine even if Kiev fails to repay its debt to Moscow. For according to its own statutes, the institution may not lend to a member country if that country has defaulted on its debt. The IMF, under US supervision since it was founded, demands that Ukraine should accelerate its transition to liberalism, even if the result is more like a descent into Hell.

The participants of the international seminar, “Economic Crisis or Crisis of Neoliberalism?” held at the Polytechnic University of Kiev on 7 November 2015 and attended by the CADTM called for a citizens’ audit of Ukrainian debt to be started. It is high time to take that initiative and lead the campaign to end repayment of a debt that is mostly illegitimate, illegal, odious and unsustainable.


Translation : Vicki Briault and Christine Pagnoulle (CADTM)

Footnotes

|1| « Ukraine : le FMI passe en force au Parlement », Jérôme Duval, 2 June 2014. http://cadtm.org/Ukraine-le-FMI-passe-en-force-au (in French only)

|2| “We have no choice. It is not a political issue, it is an issue of the country’s vital activity.” Yatsenyuk : Parliament will adopt unpopular conditions in exchange for IMF aid, Oct. 27, 2008. kyivpost.com

|3| “The government will meet all the conditions set by the IMF, because we have no other choice,” Yatsenyuk said during a meeting with members of the European Business Association (EBA). “Ukraine vows to meet IMF loan conditions”, Xinhua, 3 March 2014 http://www.china.org.cn/world/Off_t...

|4| World Bank : http://data.worldbank.org/country/ukraine and Les Echos : http://data.lesechos.fr/pays-indicateur/ukraine/pib.html

|5| Reuters, 12 January 2015, “Foreign currency reserves in Ukraine plunge 63 percent in 2014”. http://www.reuters.com/article/2015/01/12/ukraine-crisis-currency-reserves-idUSL6N0UR2N720150112#8IJOdpykVMOWVTIR.97

|6| Letter of Intent, IMF, 27 February 2015 : http://www.imf.org/external/np/loi/2015/ukr/022715.pdf

|7| « Le FMI activement présent en Ukraine depuis 1994 ne veut pas entendre parler de hausse de salaire », Jérôme Duval, 5 April 2014. http://cadtm.org/Le-FMI-activement-present-en

|8| « L’Ukraine mise sur l’austérité mais quintuple son budget militaire », latribune.fr (with AFP), 29/12/2014. http://www.latribune.fr/actualites/economie/international/20141229trib097e0e8db/l-ukraine-mise-sur-l-austerite-mais-quintuple-son-budget-militaire.html

|9| Emmanuel Grynszpan, « Moscou, Kiev se débat avec sa dette et ses oligarques », Le Temps, 11 April 2015.

|10| Letter of Intent, Memorandum of Economic and Financial Policies, and Technical Memorandum of Understanding, IMF, 21 July 2015. https://www.imf.org/external/np/loi/2015/ukr/072115.pdf

|11| « L’Ukraine ’a surpris le monde’, selon la directrice du FMI », 7 September 2015, RTBF. http://www.rtbf.be/info/economie/detail_l-ukraine-a-surpris-le-monde-selon-la-directrice-du-fmi?id=9072957

|12| “Franklin Templeton hires Blackstone to advise on Ukraine debt restructuring talks”, Reuters, 15.03.2015. http://www.reuters.com/article/2015/03/15/ukraine-crisis-bonds-idUSL6N0WH0XY20150315#qBgKpdzUogXYYPoT.97

Author

Jérôme Duval

is staff member of CADTM Belgium and member of the Spanish Citizen’s Debt Audit Platform (PACD)


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