KIEV, Ukraine — Earlier this week the International Monetary Fund agreed to a $17.5 billion bailout package to try and stabilize Ukraine’s economy and avoid default. The economy of Ukraine is currently in dire straits. The crisis has been ongoing for several years due to widespread corruption and poor leadership but has become significantly worse over the past year as a result of political instability and the insurgency in the east.
The country’s economy contracted by 7.5 percent in 2014 and inflation is running at 30 percent. Ukraine’s currency, the hryvnia, has been in freefall and just a few weeks ago lost half of its value in a two day period.
The new IMF package replaces a previous $17 billion one from last April. When adding the $4.5 billion already received from the previous package, Ukraine’s total IMF assistance totals $22 billion. The U.S., E.U. and World Bank have also pledged assistance and the IMF hopes and estimates the total aid to add up to $40 billion.
That said, not everybody is optimistic about the new aid package. Many economists are worried about the conditions attached to the IMF package, most of which are very similar to previous IMF packages in the Eurozone that have been subject to considerable controversy. Ukrainian Prime Minister Arseniy Yatsenyuk has described the terms as “very difficult” despite expressing optimism.
The bailout package calls for austerity measures, including major cuts in social spending alongside other reforms. This includes freezing pension and wage increases, which critics say amount to substantial pay cuts due to rapidly increasing inflation. It also means phasing out oil subsidies, which some estimate will cause gas prices to increase by a factor of five over the next five years. Critics also argue that this will do little to balance the budget and point to the last time the government reduced subsidies and raised oil prices. Last spring the government raised the price by 50 percent, but the rapid decline of the hryvnia offset this and failed to save the government any money.
Many worry that Ukraine could become the next Greece and fear the country could plunge father into chaos. But all agree that the economic situation in Ukraine is dire and the country desperately needs assistance. Even critics admit the bailout package is better than doing nothing at all. Supporters of the rescue package argue that by reforming its economy and cleaning up corruption Ukraine will be able to get back on its feet. They expect these benefits will offset the austerity measures.
Prime Minister Yatsenyuk has also expressed optimism and said he expects the economy will start to grow again soon if the conflict dies down. But with so much at stake and so many players involved, the country’s future is far from certain.
– Matt Lesso