What is the scope for the West to make up for the damage being wrought on Ukraine by supplying credits and assistance?
Professor Stefan Hedlund:
I think what the European Union should have realised when they started to define the struggle for Ukraine as a zero-sum game, where the win on one side is the loss of another, is that Russia’s capacity to inflict harm on Ukraine is vastly larger that the European Union’s ability to repair that harm. And this is what we’re going to be witnessing now.
With the breakdown in trade and with other Russian actions against Ukraine, the Ukrainian economy is now in dire need, first of all of credits to stave off a sovereign default which can happen at any time if Russia wants to call a default. They are teetering on the brink of that now.
And the EU and the IMF, in particular, will have to put up billions of dollars – the total committed now for the coming two years is US$30 billion dollars - and that’s not going to be enough.
The IMF is hinting quietly that there will be, even for the current year, a need of several billion dollars in additional credit – numbers between three and five billion dollars have been mentioned.
And this, we need to realise here, is that these are still credits. This is money that will need to be repaid over two years. So if you look at the Ukrainian position in terms of the sovereign default, it doesn’t look so critical at the moment because much of the money they have been getting from the IMF is now in the central bank account. But if you stretch it out over a three to five year period it looks very grim indeed.
And that is just handling the risk of a sovereign default. Then you need to do something about the fiscal policy, the fiscal balance, of raising taxes, which is going to be very difficult. Then you have the expenses of rebuilding everything that has been destroyed, which is going to take tens of billions of dollars.
I have a sense that the EU and IMF are writing cheques that nobody will be able to cash. And when Ukraine realises that ‘this has been a lot of talk and we are being left with bills that we can’t pay’, and Russia starts calling in a three billion eurobond, and when Gazprom calls in the debt for unpaid gas bills and it starts mounting up, then Ukraine is in a very, very sad state.
I think it’s foolhardy for the IMF and the European Union to try to convince the Ukrainians that we are standing ready with all the help they will need, because nobody has that money.