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Ukraine Must Fix Itself

February 13, 2015 in Economics

By Dalibor Rohac

Dalibor Rohac

Are things finally turning around for Ukraine? In the space of a few hours on Thursday, a cease-fire with the Kremlin-sponsored separatists was agreed in Minsk, and the International Monetary Fund (IMF) pledged $17.5bn in financial assistance to the government as part of a package from various donors totalling $40bn.

The events on Kiev’s Maidan last year opened a window of opportunity to stop the economic, social and human devastation of Ukraine by its own political elites. The popular will to stop corruption and fix the country’s political and economic institutions was palpable. Two successive governments of Prime Minister Arseniy Yatsenyuk have included a number of promising reformists, raising hopes that this time might be different.

The prospect of Ukraine’s transformation from a client state run by gangsters into a successful market democracy would set a precedent for the region — most importantly for Russia. That might be the best explanation for Vladimir Putin’s ongoing military escapade in Donbass.

It should not surprise anybody if the new Minsk agreement is short-lived, for reasons beyond Kiev’s control.”

Attacked by Russia and entering a second year of a continuous economic downturn, the country needs — and deserves — some form of help from the west. But, ultimately, Ukraine’s economic and institutional problems can only be solved in Kiev. Nor should western donors have any illusions about the effects of their financial assistance. Ukraine, after all, has a history of IMF programmes going back to the 1990s, with the various governments typically reneging on its reform commitments. We have yet to see evidence that this time really is different.

We should not discount the tragedy of the military conflict initiated by Putin. Yet, for the future of Ukraine, getting the economy on track, stopping corruption and government predation and building inclusive economic and political institutions are just as important as containing the Kremlin-sponsored aggression.

At a discussion event in Washington, a young Ukrainian journalist recently raised an important rhetorical question: “The war is taking place on just 3 per cent of Ukraine’s territory. But what happens on the rest?” Although it has affected industrial production, the conflict hardly explains

the magnitude of Kiev’s economic and financial problems. This year’s military and law enforcement expenditure — increased substantially relative to previous years — is still a mere 86bn hryvnias (around $3.2bn), or 5 per cent of the country’s public budget.

There is a thin line between …read more

Source: OP-EDS

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