Nothing like a crisis

Nothing focuses the mind like a crisis. This is true for a lot of people, including Ukraine’s ruling elite. President Volodymyr Zelensky is no exception.

His administration dithered for months with the International Monetary Fund, refusing — despite having control of parliament — to pass laws to create an agricultural land market and to protect the banking industry from those who stole $20 billion from it in the last decade. The third condition was fiscal responsibility: The state budget deficit should go no higher than 2.1 percent of the nation’s gross domestic product of $150 billion last year.

Those in power were so cocky that they floated the notion that Ukraine doesn’t need IMF loans: cash reserves were at record highs, inflation at record lows, the currency was stable and the economy was growing. Their froth came to a head with grandiose predictions of 8% GDP growth annually.

Then came the coronavirus.

Cash reserves are now being whittled away to ease the fall of the hryvnia (although reserves are a respectable $24 billion, while the hryvnia is holding its own at 28/$1.) Inflation is in check, mainly because prices are collapsing — including prices for oil and natural gas.

Everybody predicts a recession this year, and the only question is how deep — 5% or 10% (or more). Ex-Economy Minister Timofiy Mylovanov expects 500,000 people will lose their jobs. Already, we see entire sectors starting to suffer.

Suddenly sobered up by the harsh new realities, the Zelensky administration had the good sense to give Ukrainians (and the IMF) what they needed to get more credit. Now parliament, meeting in emergency session in coming days, must pass acceptable versions of banking and agricultural land reform legislation.

The IMF looks set to accept higher deficits than 2.1% of GDP. In doing so, the IMF is being remarkably flexible, given Ukraine’s traditional bad behavior. Now that Ukraine’s leaders are on the ropes economically, the IMF should be pressing its advantage and wringing more concessions out of the political class to benefit Ukraine. For instance, rule of law is a joke across the board — from cops to courts to prosecutors. The IMF can demand more action in this area. They should move the goalposts for the sake of Ukraine’s future. But the IMF appears to be going soft, content to secure the two important pieces of legislation on banking and agricultural land.

The size of a new loan has been estimated at $8 billion if Ukraine meets the conditions. With history as a guide, Ukraine’s leaders will take the money and, once the economy stabilizes, forget about any structural changes needed.

Ukraine needs to repay the lender $4 billion this year. Ukraine pays about a third of its $40 billion state budget annually on debt and interest. This is no way to live — borrow, spend, repay, repeat.

But given the gloomy global outlook, if the coronavirus doesn’t retreat soon, it looks like Ukrainians will at least be able to secure laws that boost the economy through agriculture land sales and ensure that the bank robbers who fleeced the nation won’t have access to the vaults again. These are partial victories reminding us that the bigger battles of de-oligarchization and creating a justice society still lie ahead.