Burden of Rescuing Ukraine: Price for West to Pay

The West’s Ukraine policy has the same drawback as its approaches to the settlement of other international issues.  When it comes to words Western politicians appear to understand the need to take into consideration the interests of all parties involved.

For instance, US State Secretary John Kerry has said recently that nobody wants Ukraine to choose between the European Union and the Russian Federation. He admitted the fact that the future of Ukraine depends on stable relationship with Russia.

German Foreign Minister Frank-Walter Steinmeier has said it is impossible to settle the crisis in Ukraine without Moscow; emotions should not prevail when it comes to foreign policy issues.

But practice is different. When it comes to deeds Western leaders take a unilateral approach fully relying on Kiev which is under their control. They do utmost to guarantee its undisputable victory as the war proceeds in the eastern part of the country.

This is not the right policy for finding solutions to the problems; it creates ground for other conflicts to follow shaking the whole world order.

A seeming victory would be illusory and unstable. The attempts to play a game starting with a zero sum are not a sign of strength and resolution because a real leader understands the need for a compromise. It rather reflects the fear to end up a loser as the new world order is being shaped. The refusal of the West to cooperate with Russia is a sign of weakness and lack of self- confidence.

Imagine for a moment that the West has reached its goals in Ukraine making the existing regime stay in power.  NATO delivers large-scale military aid and the Donbass self-defense movement is resolutely quelled with an iron hand while Russia is stepping back – all told what will it result in?

The West will have to ‘rescue” Ukraine, a large European country fully devastated by the attempts to install “freedom and democracy.”

As Alexander RogersUkrainian political analyst and blogger, said default is not just a possibility to threaten Ukraine, it’s an inevitable outcome.

The Ukrainian economy is known to be one of the least efficient in the world. During the first five months of 2014, even before the fighting broke out in Donbass, the pure loss of Ukrainian enterprises exceeded 17 billion dollars. It is expected to be over $40 billion – around a third of the country’s GDP.

As a result, taxes will bring in less income. Introducing new taxes and raising the existing ones will not solve the problem. Wages will not be paid, unemployment will rise, and the consumer demand will go down, the entrepreneurs who dependent on internal demand will suffer losses.

This year Ukraine is already a record holder: before the number of enterprises operating in the red was around 14-15% while in the recent months over 52% of them have declared losses and the figure is growing. The income of the enterprises keeping afloat is down by 5, 5 times.

According to the forecast of the European Bank of Development and Reconstruction, the GDP will go down by 7% while inflation will hike to   14-16%. Donbass needs about 30 million hryvna (over 2 billion dollars) to reconstruct the destroyed infrastructure while the government says the figure is only 2 billion hryvna.

The United States has allocated only 7 million dollars for the goal, enough to make come to life only one of many Donbass populated areas devastated by war.

Ukrainian Prime Minister Arseniy Yatsenyuk admitted that Ukraine spends the stabilization loans, including the International Monetary Fund credits, for the needs of war no matter it constitutes a gross violation of the rules.

The West is still turning a blind eye on all these things. It does not understand that in future the appetites of Ukrainian oligarchs making profit at the expense of suffering common people will only grow.

More than that, Yatsenyuk advocates austerity measures, raising tariffs and transfer of gas routes into the hands of Western companies.

According to him, such policy will bring in 1, 5 billion euros in credits from the International Monetary Fund and the World Bank to be allocated for military needs. Before that the authorities had stated many times that the IMF money went to economy and social sphere.

Corruption is another problem for the “post-revolutionary” Ukraine. The situation has deteriorated to the extent that what the Yanukovych “family” did seems to be children’s pranks.

The Ukrainian expert says that corruption has become a simple, effective and sometimes the only way to do things in a lot of cases: getting a medical certificate, the permit for construction or a job, entering a university – in all these cases one has to grease the hand.

Even to bury someone a bribe is to be paid for a place at a cemetery.  Graft has become the main source of income for many public sector employees. It has to large extent liquidated the stimulus for the government and society to apply any efforts to change things for the better.

Corruption has actually become a norm for public relations. In a wink of an eye the employees of military enlistment offices have become rich and the most hated people in the country.

Depending on the region the bribe for not being sent to war fluctuated from $500 to $ 2500. Special pay is envisaged for a chance to choose the service and the place of military unit dislocation.

Tom Keatinge from Foreign Affairs makes a conclusion that, “Failing to tackle the rampant and deep-seated corruption plaguing the Ukrainian people could quickly reverse any optimism that the revolution and the recently signed EU Association Agreement herald a better future”.[1]

Mikhai Pogrebinsky, the head of Kiev-based center for Political and Conflict Studies, says peace and quiet won’t come if the government forces win in Donbass. The mayor of Krenchug was killed and shots were fired at the house of the mayor in Lviv. Real terrorist acts have been committed.

The terrorist activities may intensify by leaps and bounds after the Donetsk area is captured by the government troops.  The criminal activities are not a result of the war in the east of the country.

The whole climate in Ukraine provokes crime. If they use mortars to shoot at the houses in one part of the country then why not do the same thing in another? There are a lot of unregistered weapons in possession of people, almost everyone is armed.

Many start to realize   that the horrendous crisis is at hand, it is knocking at the door as the guns are shooting as the ‘anti-terrorist” operation proceeds. The sound will engulf the whole country if the right decisions are not taken now.

Even the national ideas leaning analyst Y. Romanenko admits that, the key problem for Ukraine is that the government institutions do not reflect the real balance in society. The interests of majority are ignored. It is oppressed by greedy and small minded elite. The situation makes remember the Pieter Bruegel the Elder’s painting TheBlindLeading the Blind.  Here the blind and greedy lead the wretched and slow-witted.

A realistic estimate shows it would require at least 1 trillion euros to bring Ukraine up to the level of Hungary or Romania, not the most prosperous EU nations. The economic connections would have to be re-started, old enterprises closed and new ones will have to be built from scratch.

Remember how costly was the adaptation of much more developed and orderly East Germany to Western standards? And Germans are much more disciplined people.

No way can Ukraine get money for the needed reforms, besides Germans had more motivation for getting united. The Kiev government implements the policy of getting away from the national roots and soil; it is incapable to guarantee anything like prosperity.

It could be just one third of the East Germany’s living standards as its population was one third in comparison with the contemporary Ukraine.

Anyway at least one trillion euros is needed to compensate for breaking up with the countries of the post-Soviet Union’s space.

The Liberal Cato Institute believes that “the past 20 years, during which many Ukrainians thought of their country as a bridge between the West and the East, without any obvious enemies, were years of complacency and failed economic policies, which ultimately resulted in the capture of the government by special interests. Besides economic backwardness – Ukraine’s GDP per capita is barely $4,000 – these 20 years created a weak state, unable to deliver even the most basic public goods and services. The IMF estimates that Ukraine’s economy will contract by 6.5 per cent in 2014, and not by 5 per cent as was predicted earlier in the year. The rise in expenditure driven by the war and a fall in revenue in the east are responsible for the rising fiscal deficit, which is likely to attain double digits this year”. [2]

By driving Russia into the corner the West is provoking it to intervene on a scale never imagined before.

If one is condemned for the things never done anyway, then why not really do it? For instance why not increase the aid to the Donbass self-defense units to the level described by Western politicians and journalists?

Tony Brenton, former UK ambassador to Russia believes that, “Russia does not want to invade east Ukraine; it has already pulled back from doing so once.”[3]

According to Morgan Stanley estimates, Russia can avoid serious economic difficulties being under sanctions for two years. The foreign currency reserves are almost 500 billion dollars, the fifth largest in the world; it is three times more than the foreign debt allowing covering the import needs for 17 months.  It by far exceeds the six months threshold when the developing economies would routinely hear the alarm bell toll. [4]

These estimates omit something else. How long will Ukraine last, for instance? What gets now is far from what is needed to get it out the economic quagmire. And it cannot be left where it is.

As a result, by this autumn the European Union could face the terrible fallout of the Ukraine’s inevitable default. Germans are already complaining that the burden of sanctions is “to some extent” unequally shared between the European Union’s members. It’s easy to imagine the conflicts sparked within the European Union in case there is a bigger price to pay.

Dmitry MININ | SCF



[2] http://blogs.ft.com/beyond-brics/2014/07/28/guest-post-could-putins-war-be-good-for-ukraine/?Authorised=false

[3] http://www.independent.co.uk/voices/comment/the-west-cannot-keep-poking-the-russian-bear-9644509.html

[4] http://ru.reuters.com/article/topNews/idRUKBN0G14NZ20140801?sp=tr

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