Will Ukraine Do What It Takes To Unlock International Aid?

Feb 24, 2014
Originally published on February 24, 2014 7:55 pm

The United States, hoping to avert economic chaos in Ukraine, is prepared to send financial support to supplement aid from the International Monetary Fund, the White House said on Monday.

"The United States, working with partners around the world, stands ready to provide support for Ukraine as it takes the reforms it needs to, to get back to economic stability," White House spokesman Jay Carney told a news briefing.

After three months of street protests and the ouster of President Viktor Yanukovych, the U.S. and others are now urging Ukraine's interim leaders to start talking to the IMF about just what reforms are needed to unlock international aid.

Polish Foreign Minister Radek Sikorski took the lead in negotiating an end to the political standoff in Kiev, the Ukrainian capital, last week. He says that the only way for Ukraine to succeed now is to get its economy in shape. To do that, he says, the country needs the IMF.

"We need to help Ukraine get back within the IMF program so that she may receive huge macroeconomic assistance," he says.

The U.S. Treasury has sent some of its officials to Kiev this week, to work along with U.S. Deputy Secretary of State Bill Burn to sort out a path to stability with the help of international funding.

But it may be a tough mission because the IMF doesn't have a good history in Ukraine, says Stephen Sestanovich, a senior fellow at the Council on Foreign Relations.

"The IMF has — over the past 20 years — sent its senior people to Kiev many times, and they've sort of stopped going because they've been exasperated by what they've heard there," he says.

What they heard about was corruption and a lack of political will to reform the economy.

Anders Aslund, a longtime Ukraine analyst at the Peterson Institute for International Economics, believes this time could be different because the situation is so critical. He estimates that Ukraine needs an infusion of $15 billion — and soon.

"The IMF could put up $10 [billion to] $12 billion and the European Union could co-finance with $3 [billion to] $5 billion and this could be done in a month's time," he says.

Aslund says Ukraine needs to allow its currency to fluctuate, raise gas prices and cut spending. But there is one big problem.

"As yet, we don't know where Russia will come in," he said. "It's extremely important that the U.S. and the European Union act through direct contacts with Moscow."

Russia wants Ukraine to join a customs union with other former Soviet states rather than look to the EU for closer economic ties.

But the United States and EU hope Russia will allow Ukraine to have a relationship with many economic partners, arguing that it's in Russia's economic interests to act cooperatively, says Matthew Rojansky, director of the Kennan Institute at the Wilson Center.

"Stability and recovery of the Ukrainian economy benefits Russia because of the degree of investment in Ukraine," Rojansky says. "If Ukraine is able to produce and send products to Russia, and if Ukrainians are able to buy Russian products, that's good for the Ukrainian economy, and Russia needs that right now."

But unlike Russia, which has clear economic interests at stake, leaders in the EU and the U.S. may have a tougher argument persuading lawmakers to spend money on helping restore the economy in Ukraine, he says.

"Members of Congress will get very excited and issue statements about Ukraine, but there's a long distance between that and actually voting to open the floodgates of American assistance at a time when resources are tight all around," Rojansky says.

But the U.S. and its allies can't afford to put off dealing with Ukraine for too long, warns Jean-Claude Trichet, the former head of the European Central Bank. He told a group of top economists Monday that political leaders in the West need to understand that Ukraine's political meltdown could turn into an "extraordinarily dangerous" threat to global stability and economic recovery

"We should not take lightly the Ukrainian problem," Trichet said at the National Association for Business Economics convention in Arlington, Va.

Ukraine's political chaos might rekindle hostility between Russia and the West, Trichet said. And such hostility could lead to military conflicts and instability in a region still struggling with recession and huge government debt problems.

Ukraine must emerge from this crisis with "a good relationship with all of its neighbors," which include Russia and EU members such as Poland, Hungary, Slovakia and Romania, he said.

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ROBERT SIEGEL, HOST:

In Ukraine, it was a day of questions. Where is President Viktor Yanukovych, who fled Kiev over the weekend after signing a peace deal with opposition leaders? Can the country heal from three months of heated street protests? And what of Ukraine's economy? It was already in distress and in need of a bailout before the protests began.

Last year, Russia offered a lifeline but that is now in doubt. The European Union's foreign policy chief in is Kiev to talk about what the EU might do. And the U.S. is urging Ukraine's interim leaders to talk to the International Monetary Fund about what it will take to reform their economy and unlock foreign aid. NPR's Michele Kelemen reports.

MICHELE KELEMEN, BYLINE: The man who took the lead in negotiating an end to the political standoff in Kiev last week, Polish Foreign Minister Radek Sikorski, knows the only way for Ukraine to succeed now is to get its economy in shape. And he says the country's interim leaders need to start talking to the IMF.

RADEK SIKORSKI: We need to help Ukraine get back within the IMF program so that she may receive huge macroeconomic assistance.

KELEMEN: U.S. Treasury Secretary Jack Lew has been making that case, too. And Treasury Department officials are traveling with Deputy Secretary of State Bill Burns to Kiev this week. But the IMF doesn't have a happy history in Ukraine, says Stephen Sestanovich of the Council on Foreign Relations.

STEPHEN SESTANOVICH: The IMF has, over the past 20 years, sent its senior people to Kiev many times. And they've sort of stopped going because they've been exasperated by what they've heard there.

KELEMEN: Corruption and a lack of political will were just some of the problems they faced there. A longtime Ukraine watcher, Anders Aslund of the Peterson Institute for International Economics, believes this time is different and everyone understands the economy is in crisis. He says Ukraine needs $15 billion and soon.

ANDERS ASLUND: And the IMF could put up 10 to $12 billion and the European Union could co-finance with three to $5 billion. And this could be done within a month's time.

KELEMEN: Aslund says, Ukraine knows what it has to do - let its currency fluctuate, raise gas prices and cut its budget, including massive subsidies, which he says have only fueled corruption in recent years. He says the big question mark here is what will Russia do?

ASLUND: As yet, we don't know where Russia will come in. And here, of course, it's extremely important that the United States and the European Union act through direct contacts with Moscow.

KELEMEN: Russia wants Ukraine to join a customs union with other former Soviet states rather than look west toward the EU, so Moscow could retaliate if Ukraine appears to be getting too close to Brussels. That's why the U.S. and the EU need to appeal to Russia's economic interests, says Matthew Rojansky, who runs the Kennan Institute here in Washington.

MATTHEW ROJANSKY: Stability and recovery of the Ukrainian economy benefits Russia because of the degree of investment in Ukraine. If Ukrainian businesses are doing well, if Ukraine is able to produce and send products to Russia and if Ukrainians are able to buy Russian products, that's good for the Russian economy and the Russian economy needs that right now.

KELEMEN: But unlike Russia, where the economic interests are clear and leverage strong, Rojansky doesn't think the EU or the U.S. are really ready to make a long-term commitment to Ukraine.

ROJANSKY: Members of Congress will get very excited and issue statements about Ukraine, but there's a long distance between that and actually voting to open the flood gates of American assistance at a time when resources are tight all around.

KELEMEN: He also thinks the U.S. needs to learn the lessons from the last time protesters ditched a corrupt government in Ukraine. The U.S. was too focused on personalities, he says, rather than helping them build up institutions and the rule of law. Michele Kelemen, NPR News, Washington. Transcript provided by NPR, Copyright NPR.