Eastern Europe

Ukraine: Between Oligarchs And Foreign Powers

Kiev desperately needs new loans from the International Monetary Fund to support its economy. One of the major problems for Ukraine is that it became heavily dependent on foreign aid. Since there is no such thing as free lunch, various international organizations have numerous conditions for Ukrainian President Volodymyr Zelensky and his team. 

The European Union, reportedly, recently required from Ukraine to renew the payment of pensions and welfare packages to residences of the non-government-controlled Donbass region. According to United Nations reports, some half a million retired people lost their income after Ukrainian authorities limited access to state pensions for elderly citizens of the Russia-backed Donetsk People’s Republic and Lugansk People’s Republic in 2017. Currently, people living in non-government controlled areas are required to register as internally displaced persons with the Ukrainian authorities in order to continue to access their rightful pension benefits. However, it is unlikely that Ukraine will renew the payment of pensions in the Donbass until it can fully control the territory, as that would affect the country’s budget. 

Presently, the Ukrainian economy is dependent on IMF loans, in spite of the three percent growth the country had last year. Kiev wants to secure an IMF deal worth around $5 billion-6 billion over three years to support its economy and “signal to investors that the new government of President Volodymyr Zelensky is committed to reform”. The IMF, on the other hand, has a key condition —  It wants firm guarantees that the 2016 nationalization of Ukraine’s largest lender, PrivatBank, will not be reversed. The bank was owned by the billionaire-oligarch Igor Kolomoisky, who has close ties with Zelensky.

The Ukrainian President is facing hard choices. If he does not fulfil IMF demands, Ukraine might end up in financial trouble. On the other hand, he is doing his best not to spoil his relations with Kolomoisky, who is a very powerful figure in Ukrainian politics and within its economy. Recently Kolomoisky told The New York Times that financing from Russia could replace loans from the International Monetary Fund.

“We’ll take $100 billion from the Russians. I think they’d love to give it to us today,” he noted.

At this point, his warnings to the IMF sound like an empty threat, as Ukraine has been fighting Russia-backed forces in the Donbass for the past five years. In addition, Russia and Ukraine have been in conflict not only over the Donbass, but over the status of Crimea as well. Still, it does not mean Russia would not provide some loans to Kiev, if requested, in spite of tense relations between the two countries. After the start of the conflict in the Donbass in 2014, Russia supplied free gas to Ukraine for a while, even though Moscow and Kiev have a history of long-standing gas-price and debt disputes. Some analysts believe that the Kremlin might provide loans in an exchange for a de facto recognition of Crimea as an integral part of the Russian Federation. However, since Ukraine is firmly under the United States sphere of influence, it is unlikely that Washington would approve such arrangements. Both, Zelensky and Kolomoisky are quite aware of that, and the Ukrainian billionaire’s threat to make peace with Russia and take loans from Moscow looks more like an attempt to sell himself to the Trump administration, and also to get guarantees that his name will be removed from the list of the enemies of the President Trump.

Ukrainian oligarchs have proved adept at protecting their fortunes and keeping close contact with the country’s leaders even as politicians come and go. It remains to be seen if Kolomoisky will manage to improve his relations with the current US administration. Moreover, Kolomoisky, as well as other oligarchs, are expected to benefit from the land reform which will remove a moratorium on the sale of agricultural land that has stood since 2001. Many farmers in Ukraine believe the the new regulations will lead to full oligarchization of the country’s agrarian sector and also to total destruction of small and medium-sized farms. Some analysts argue that the government’s decision not to let foreigners take advantage once a ban on selling farmland is lifted will slow investment, help local oligarchs and hurt growth. However, allowing foreigners to buy fertile Ukrainian black soil and arable lands would have also had negative consequences. Such policy proved to be catastrophic in many countries worldwide, as it turned local farmers – former landowners – into low paid wage laborers for multinational corporations.

At this point, Ukrainian authorities seem to give priority to domestic oligarchs rather than to foreign powers. For the foreseeable future President Zelensky will likely keep balancing between Kolomoisky and other influential billionaires on the one hand, and the US, EU and IMF on the other. It is unlikely that he will be able to use Russia as a counterbalance to any of these groups any time soon. 

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