In the midst of Russia’s imperialist war, Ukraine’s unions and popular movements have carried out a double struggle: they have actively engaged in resistance against the invasion while also having to oppose Volodymyr Zelensky’s neoliberal policies and the growing indebtedness of the country fostered by the International Monetary Fund (IMF) and the European Union.
In a recent forum sponsored by Haymarket Books, titled Resisting the Shock Doctrine: Ukraine, Debt and Reconstruction, Yuliya Yurchenko, author of Ukraine and the Empire of Capital (2018), explained the problem of the growing “debt servitude” in which Ukraine will find itself at the conclusion of this war. The first estimate of the cost of the war is around $750 billion. The Western imperialist powers, under the pretence of helping Ukraine rebuild itself, gathered again at the Ukraine Recovery Conference in London at the end of June to draw a “reconstruction” plan. The harsh concessions tied to the loans will lead to the imposition of austerity and neoliberal policies and further the cuts to public spending and social programs that Zelensky had already initiated before the war.
As the questions of peace and reconstruction become increasingly prevalent, we must be attentive to the material and political aspects of such agreements. Neither of those can be discussed in the abstract. Popular and working-class elements of the Ukrainian resistance, such as the KVPU (Confederation of Free Trade Unions of Ukraine) and the Solidarity Collectives active in the Territorial Defenses, have insisted that a peace deal cannot include any annexation of Ukraine’s sovereign territory or any alienation of its economic assets. This demand was reiterated at the counter-summit to the London talks, “Another Ukraine is Possible,” organized on June 17.
Russian Occupation Aims to Plunder Ukraine
The Russian invasion was motivated in part by the appropriation of the significant natural and economic resources of Ukraine, and thus the efforts to resist the occupation have been fuelled by the aspiration to reestablish a free, independent and sovereign Ukraine. As reported in the Washington Post, Ukraine “harbors some of the world’s largest reserves of titanium and iron ore, fields of untapped lithium, and massive deposits of coal. Collectively, they are worth tens of trillions of dollars.” Russia aims at seizing its coal and ore deposits in the eastern region, as well as its steel industry and agricultural resources, and at regaining the leverage it had lost since the 2014 Maidan revolution when it controlled key sectors of the Ukrainian economy.
Stanislav Zinchenko, chief executive of GMK Center, a Kyiv-based economic think tank, explained that in the end, the occupation aims to deprive Ukraine of any economic independence: “The worst scenario is that Ukraine loses land, no longer has a strong commodity economy and becomes more like one of the Baltic states, a nation unable to sustain its industrial economy. …This is what Russia wants. To weaken us.”
Since the beginning of the war, Ukraine’s GDP has fallen 30 percent, and today, only 60 percent of the population has been able to keep its employment and only 35 percent has full-time jobs. Its coal production has plummeted by 50 percent, and its steel production — the second leading industry after agriculture — is down by 70 percent. The country’s foreign debt has skyrocketed; today it amounts to $132 billion, approximately 75 percent of the country’s GDP.
At the Haymarket forum, Yurchenko explained that debt “has been historically used as an instrument of external control and expropriation of national wealth” and as an obstacle to “meaningful exercise of economic and political sovereignty.” Debt mechanisms “lead to alienation of the state,” because regardless of who gets elected, governments are forced “to prioritize repayment of debts and interest in debts rather than prioritizing the needs of its people who are most in need.” The ongoing loans made to Ukraine are an integral part of this very well-known mechanism of economic and political subordination.
In contrast to the upcoming London talks — promoting the recovery conferences as forums for strengthening “democracy,” “equity” and “inclusion” — Yurchenko explained that the actual plans under discussion would lead to the implementation of austerity and neoliberal policies and further the cuts to public spending and social programs that Zelensky had already initiated during the war. These measures included the labor counterreform demanded by employers, which are also part of the “reforms to the social safety net” specified in the annexed “Letter of Intent” of the last IMF loan. They increased the workweek to 60 hours, gave power to employers to transfer workers to war zones and easily dismiss them without cause, weakened union representation rights, and allowed delaying the payment of wages. There is the façade of the recovery talks, and then the grim reality of the insatiable depredation of financial capital.
One Big Debt Trap
The fine print of the present EU loans is very different from the terms of the Marshall Plan that the U.S. deployed to rebuild the economy of Western Europe at the end of World War II and draw those nations away from socialism and the U.S.S.R. At that time grants, not loans, were given to countries, and recipients were allowed to act as investors and directly purchase food and supplies and invest in infrastructure rebuilding. The EU and U.S. reconstruction plan discussed at successive Ukraine Recovery Conferences, however, does not even give that agency to the national state. To the contrary, it is designed to advance the semi-colonization of the country, as the main form of financing is to attract private investment to Ukraine. That was made clear at the recent London Conference where more than 400 global companies, such as Virgin, Hyundai, Philips, Sanofi and Citi, signed up for the Ukraine Business Compact committing to invest in Ukraine.
Yet foreign capital is not going to invest in a country partially in ruins — or at least not going to do the herculean work of rebuilding its main industrial capacity and its logistics infrastructure without guaranteed profits in return. This is why the reconstruction plan is being organized with the support of BlackRock, JP Morgan Chase and McKinsey. These firms are advising the Ukrainian government to set up a public reconstruction bank (the Ukraine Development Fund) that will “steer public seed capital into rebuilding projects that can attract hundreds of billions of dollars in private investment,” and “use the lower-cost public money, known as concessional capital, to make initial investments and absorb the first losses.”
As Yurchenko pointed out, the plan all sounds fantastic from the outside, but “once you start looking into how these big aims are supposed to be achieved, you begin to understand that the means do not match the ends.” How is the plan supposed to achieve gender equality and inclusion if the fine print recommendations of the loans demand funding cuts to the public infrastructures of social reproduction, such as health care and education, retransferring this labor burden to working class women; and if the schools that have been bombed will be rebuilt not by the state but by private investors?
Last fall the EU upped its initial loans package to reach €50 billion through 2027. These are loans to be paid back in full and with interest. Ursula Von der Leyden, the current president of the European Commission, made it clear that “investments will go hand in hand with reforms that will support Ukraine in pursuing its European path.” What is meant by such “reforms,” both from the EU and the IMF, is the well-known packages of fiscal austerity policies against public deficits, the liberalization of foreign trade and prices, the reduction of consumer subsidies, and the further privatization of public assets and cuts in social rights.
As Éric Toussaint, historian and author of The Debt System (2019), pointed out, “What the European Union is doing with Ukraine is what they did with Greece after 2010. The European Union made an agreement in 2010 with the IMF to gather money to give to the Greek government with very strong and brutal conditionalities.” The successive austerity packages in 2010, 2012 and 2015 led to a loss of a quarter of the country’s GDP and of many social rights, with unemployment rising to 27 percent. Greece’s minimum wage was slashed from €751 a month to €586, and it only recovered its pre-bailout mark this year (€780). Today Greece’s debt still represents 170 percent of its GDP.
The EU is not the only lending agent. On March 31, the IMF approved a new loan of $15 billion for Ukraine with conditions already known for their devastating effects: “more ambitious structural reforms to entrench macroeconomic stability”; “boosting productivity and competitiveness,” etc. These loans are in addition to the $17.5 billion that the IMF lent to the country in 2015 over a four-year period, which demanded reforms that Zelensky started implementing in 2019, mainly privatization of land but also of some public assets. As Toussaint points out, “Since 2000, that country’s government has signed loan agreements with the IMF on 18 occasions. Each time, the agreement results in the government sending a letter of intent wherein it defines its commitments in fulfilment of the IMF’s demands.” Last week, at the London Recovery Conference, the UK pledged an extra $3 billion in similar loans backed by the World Bank.
What has been laid out around the reconstruction of Ukraine is a sophisticated smokescreen that hides the nature of the neocolonial enterprise to subordinate the country to EU and U.S. financial and political interests. This is why the news coverage of the Ukraine Recovery Conference in London staged a mimicry of the democratic process, publicizing the participation of Ukrainian “civil society,” which in fact consists of “selected” “civil society representatives” who are uncritical of the international financial institutions, such as the IMF, and the Zelensky government. Another tactic to obscure the ongoing predatory lending plans of the EU and the IMF is the commitment of the Biden administration to provide Ukraine with an additional $75 billion in humanitarian, financial and military aid, in the form of grants that must be partly spent on purchasing goods and services sold by U.S. companies rather than Ukrainian enterprises, which increases Ukraine’s economic dependence. Toussaint concludes that through those communications stunts, “the U.S. plays the part of the good financial cop next to the bad financial cops embodied by the EU, the IMF, the World Bank, the EIB (European Investment Bank) or the EBRD (European Bank for Reconstruction and Development),” and he calculates that the total loans from Western countries and institutions will result in a debt increase of some $50 billion — a devastating debt for the generations of Ukrainians to come.
In fact, European creditor countries backing Ukraine have already suspended the debt repayment in July 2022 and again in March 2023, and have extended the suspension until 2027 — while interest will continue to accrue during this period. However, this agreement excludes the IMF and private creditors. Toussaint analyzed the function and intent of this sophisticated and dangerous debt trap in the years to come: “Knowing that Ukraine cannot pay back the debt, they will use this debt and then negotiation around the debt to give a partial alleviation of the debt, maybe 10 or 20 billion, but with more conditionalities. So now they try to increase the debt to have more power and blackmail to impose more and more neoliberal policies in the interest of the capitalist classes.”
The False Promises of the EU
In the course of these negotiations, what is also at stake is Ukraine’s affiliation to NATO and the EU. The European Union promotes itself as a beacon of human rights and economic progress, and unfortunately, such rhetoric obscures the reality for many Eastern European countries. In Poland, for example, which joined the EU in 2004 after several economic reforms, income inequality has been on the rise: “the cumulative growth in real income over 1994-2015 for the top 1% of Poles reached 122%-167%, while for the bottom 10% the corresponding number is at most 57%.” One of the reasons for the widening gap was the EU inspired tax reform of 2004, which instituted a flat tax of 19%, lowering the taxes for the highest earners previously set at 40%. As a result of the war, a growing number of Ukrainians want to join the integrated economic zone (87 percent) and 86 percent will vote for joining the U.S.-led military alliance in a referendum. But all the EU glitter is not gold.
The recent mass strikes of French workers against the attacks on their public pension rights must be an additional opportunity to reflect on the reality of membership in the EU. In February 2021, when the COVID-19 Recovery and Resilience Facility package was adopted (€723.8 to be distributed over five years), the EU tied those funds to more than 5,000 “milestones and targets” that receiving countries had to meet by 2026 in parallel to the release of funds. These specific targets include austerity measures and in particular, cuts to pension rights: in the case of France these cuts were “promised” ahead of the deal; in the case of Spain and Belgium they are currently demanded in order to continue or start receiving the funds. A recent report from the New Economics Foundation also shows that if EU member states had not implemented many austerity policies on working people since the 2008 financial crisis, “the average EU citizen would be €2891 better off.” In fact, without those policies, governments could have invested an additional €533 billion in public infrastructure to support an energy transition, and an additional €1000 per citizen on social services such as health care and education.
The struggle to ensure the liberation of Ukraine does not end with the necessary defeat and total withdrawal of the Russian troops. The political economy of self-determination entails not only the entire reappropriation by the Ukrainian people of the land and assets expropriated and plundered by the Russian state and its oligarchs, but also the formulation of a workers’ reconstruction that refuses the neoliberal concessions imposed by the IMF and the EU.
As Toussaint explained: “We need to ask for the cancellation [of] the debt but with the socialisation of the big means of production, expropriation and socialisation of the big banking sector and a new fiscal structural reform of the country to benefit working people and the poor to finance the country in another way, without debt, a real human development and reconstruction for Ukraine.”
Working people in Ukraine, with their unions and social movement organizations, are the ones who can put forward a real alternative in the peace and reconstruction negotiations so a future Ukraine can set the material basis for its real independence. Our active solidarity with these independent social forces leading the resistance is more important today than ever.
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