Friday, March 3, 2017
The IMF Should Be Worried On What Is Happening In Ukraine Right Now
Leonid Bershidsky, Bloomberg: What the IMF Doesn't Know About Ukraine
The conflict between Ukraine and Russia entered a new phase on Wednesday. The separatist, pro-Russian "people's republics" of eastern Ukraine announced they were taking over Ukrainian oligarchs' assets on their territory. Few people outside Ukraine know that throughout the three-year hostilities, these factories and mines paid Ukrainian taxes, and their output was counted toward Ukraine's gross domestic product. If the takeover stands, Ukraine won't see the predicted economic growth.
Unlike the military action and its geopolitical consequences, the economic side of the conflict in eastern Ukraine has never received much attention. It was assumed that Ukraine simply lost the industry of the separatist-controlled parts of the Donetsk and Luhansk regions. The October 2016 International Monetary Fund report on the state of the IMF's $17.5 billion rescue program for Ukraine had a chart showing the eastern regions as a slice taken out of Ukraine's economic pie.
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WNU Editor: Leonid Bershidsky is correct .... the economic side of the conflict in eastern Ukraine has never received much attention. And there is good reason for it .... Ukraine needs tens of billions to just stay afloat .... and that does not include the tens of billions that will be necessary to fix the country's infrastructure when the war is finally over. And we are talking big infrastructure projects .... from moth-balling old nuclear reactors to rebuilding their entire civil infrastructure (roads, water, sewage, etc.). In the past Russia provided a lot of aid .... but those days are long gone .... so the expectation is for the West to step in .... but to no one's surprise they are not stepping up at all. So all eyes are on the IMF to make up some of this shortfall .... but their conditions for providing these loans are no longer holding .... especially if the rebel regions in the eastern part oft he country start nationalising the industries that are there .... which I predict they will do so in the coming weeks. It is also true that over 2 million Ukrainians now work in Russia .... some of my own relatives included. A good part of Ukraine's economy is dependent on these remittances from Russia .... and yes .... any restrictions on these remittances will be incredibly damaging to families in Ukraine who are dependent on these monies. That is why I have said in the past that Russia's real leverage over Ukraine is the economy. If Russia was serious about crippling Ukraine .... forget about supporting the rebellion in the east .... all that they will have to do is put a stop to these money transfers coupled with a few other trade restrictions .... the economic impact would be immediate, and within a few weeks I would not be surprised if the Maiden protests were back. Fortunately .... such a strategy is not a Kremlin priority .... but later .... who knows.