We haven't been covering Ukraine, but what happens there could have a huge, global, economic and financial impact that would be felt in local real-estate and insurance markets around the world. Therefore, the following is a survey of diverse opinions on the current situation in Ukraine and how global leaders are handling it (or not).
Linking ≠ endorsement. Enjoy and share:
↑ CONVERSABLE ECONOMIST: Primer on Ukraine's Economic Troubles
Timothy Taylor lays out Ukraine's borrowing/energy problem.
… by December 2013, the economic situation in Ukraine was looking dire all over again. The same cycle of large trade deficits, capital inflows that turned on and then turned off, and banks that couldn't repay their international loans had surfaced all over again. But this time, the IMF felt that Ukraine had not kept its promises of reform in 2008, and was reluctant to step in again. That's when Vladimir Putin stepped up with his plan to buy $15 billion in Ukrainian bonds and also to offer lower natural gas prices.
↑ Ukraine and Russia: Why is Ukraine's economy in such a mess? | The Economist
C.W. places the emphasis upon high corruption and a lack of reforms, but this bit also caught our eye.
Last month the central bank admitted defeat and let the currency go. Currency depreciation, while necessary, will be an economic headache for Ukraine in the short term. About half of its public debt is in foreign currencies: as the hryvnia loses value, Ukraine's debt burden rises. Debt financing has also become more difficult as a result of the Federal Reserve's "taper", which has wrong-footed many emerging markets by stanching the previously steady flow of capital in their direction.
We appreciate that the Fed was mentioned in this way. The US is not an economic island. What we do tosses smaller nations around. Some of them hit walls as a result, not that the Fed is responsible for Ukrainian corruption.
↑ The Institute of International Finance, Inc. | Economic Research
Ondrej Schneider, Lubo Mitov:
Liquidity pressure on domestic banks has intensified sharply in recent weeks. Press reports suggest that bank deposits fell by 3.2% during the first half of February alone. This decline follows a 2.3% decline in January. These withdrawals, along with signs of stepped-up demand for foreign exchange, point to diminishing confidence among residents in both the hryvnia and the banking system. With the cumulative decline in deposits since the start of the year exceeding 5%, the liquidity shortfall among domestic banks is likely to have exceeded $3 billion. This liquidity shortfall came against the background of NPLs amounting to more than 40% of all loans and significant losses resulting from the recent hryvnia depreciation and the banks' large net open foreign exchange positions.
↑ Hard currency coveted in Ukraine's Lviv – FT.com
The flight to "safe" money:
Every day an aeroplane from western Europe lands at Lviv's gleaming new international airport carrying a very unusual cargo — euros and dollars aimed at ensuring a steady flow of foreign currency to retail banking customers in western Ukraine.
"The demand for hard currency has definitely increased," Dmytro Krepak, chairman of the board of Kredobank, a small bank based in the west Ukrainian city of Lviv and a unit of Poland's PKO Bank Polski.
↑ Ukraine: Emergency economic measures | vox
Gérard Roland, Yuriy Gorodnichenko:
The government should inject capital (for example, use a program similar to the TARP in the US). The Central bank should provide liquidity. Some form of temporary capital controls and temporary limits on withdraws of deposits appear unavoidable given the current ongoing bank run (deposits fell by a third in the last few weeks and are falling further on a daily basis). Banks should "reopen" after the infusions of capital and liquidity.
We like that to some degree (given the mixed economy), but the rest of their ideas are a bit too Austerian in our view.
↑ George Soros calls on the EU, and Germany in particular, to take the lead. – Project Syndicate
George Soros is despised in many anti-US imperialism (economic or otherwise) circles. They accuse him of funding regimes changes around the globe to usher in semi-neoliberal economic policies for the sake of globalization under finance capitalism (banks). Statements such as the following tick them off.
I established the Renaissance Foundation in Ukraine in 1990 — before the country achieved independence. The foundation did not participate in the recent uprising, but it did serve as a defender of those targeted by official repression. The foundation is now ready to support Ukrainians' strongly felt desire to establish resilient democratic institutions (above all, an independent and professional judiciary). But Ukraine will need outside assistance that only the EU can provide: management expertise and access to markets.
We think he has some good ideas to offer though.
… the EU could provide support to train local companies' managers and help them develop their business strategies, with service providers remunerated by equity stakes or profit-sharing. An effective way to roll out such support to a large number of companies would be to combine it with credit lines provided by commercial banks.
… Germany should take the lead. Chancellor Angela Merkel must reach out to President Vladimir Putin to ensure that Russia is a partner, not an opponent, in the Ukrainian renaissance.
That sounds very much like what we've written the Fed should expect of US commercial banks vis-a-vis businesses in the US and also what we've said about Germany's position in Europe.
↑ Is greater decentralization a solution for Ukraine? The Mylovanov Initiative
Given the current starting place and what the people might be ready and willing to accept, the following seems a good idea.
Curtailing the powers of the presidency was an important first step that reduces the "winner take all" nature of Ukrainian politics. Free and fair elections at the national level is an important next step.
One effort under way to change the political rules of the game in Ukraine is being overseen by Tymofiy Mylovanov from the University of Pittsburgh, but is supported by a long list of social scientists (including Nobel Prize winner Roger Myerson). Among other things, this proposal favors political and economic decentralization as a means to promote democracy and stability in Ukraine.
↑ Visualizing the Economic Ties Between Russia, Ukraine, and Europe – Walter Frick , and Sarah Green – Harvard Business Review
Walter Frick and Sarah Green:
As the situation between Ukraine and Russia continues to unfold, Europe and the U.S. are mulling what effect economic sanctions may have — not only on Russia, but on their own vulnerable economies. This economic interdependence is particularly apparent with respect to energy, and can be visualized by the The Observatory of Economic Complexity, from the MIT Media Lab Macro Connections group, which charts the flow of imports and exports around the world.
… Russia supplies 30% of Europe's natural gas and is the world's largest exporter of it ….
↑ Anders Åslund identifies the three main economic problems that the new government will have to address. – Project Syndicate
Why is Ukraine allowing devaluation? Anders Åslund:
… the first order of business being to float the exchange rate. This would lead to a substantial devaluation of perhaps 10%, thereby ending the current run on the hryvnia, eliminating the current-account deficit, and enabling a reduction in Ukraine's extremely high interest rates, which would stimulate investment.
Otherwise, the pain will drag out.
Anders Åslund also rips Viktor Yanukovych for corruption and greed.
↑ It Begins: Gazprom Warns European Gas "Supply Disruptions" Possible | Zero Hedge
It would appear this is the most important map in Europe once again…
↑ Twitter / ReutersGMF: #Russia stocks off 3rd time …
— Global Markets Forum (@ReutersGMF) March 11, 2014
↑ Blogs review: Wild Wild East | David C. Saha at Bruegel.org
We thank David C. Saha for most of the above links in this update.
What's at stake: Recent events in Ukraine have been and continue to be of great importance on a geopolitical scale. This review focuses on the economic dimension of the issue. Probably cut off from further Russian support, Ukraine faces urgent economic problems, particularly with regard to its international financial obligations and reviving its economy through reforms long overdue.
↑ The Looting Of Ukraine Has Begun – PaulCraigRoberts.org
Here's the opposite of the mainstream, more-neoliberal view. Paul Craig Roberts:
According to a report in Kommersant-Ukraine, the finance ministry of Washington's stooges in Kiev who are pretending to be a government has prepared an economic austerity plan that will cut Ukrainian pensions from $160 to $80 so that Western bankers who lent money to Ukraine can be repaid at the expense of Ukraine's poor. http://www.kommersant.ua/doc/2424454 It is Greece all over again.
Before anything approaching stability and legitimacy has been obtained for the puppet government put in power by the Washington orchestrated coup against the legitimate, elected Ukraine government, the Western looters are already at work. Naive protesters who believed the propaganda that EU membership offered a better life are due to lose half of their pension by April. But this is only the beginning.
↑ Ukraine: "Go West, Young Man" | Michael Hudson
Here's Michael Hudson on Ukraine.
… Play the ethnic card to break the country into pieces if you want to disable government regulatory power and investment. …
This is how American protectionists in the mid-19th century described British strategy for industrial and financial supremacy. …
When ethnic Ukrainians look to the EU as their savior, they have lost their sense of timing. They are seeing the last vestiges of a "Social Europe" that has been sacrificed on the altar of neoliberalism. … Now that the Ukraine promises to move under Western neoliberal tutelage, the first policies that one can expect are higher taxes on labor and consumers — and an accelerated capital flight out of the country to the Eurozone and Switzerland.
Yanukovych is the kind of kleptocrat that neoliberals promised would enrich the post-Soviet states, except he committed the unforgivable sin of refusing to implement an EU/US-counseled austerity program. The aim is to transfer public wealth into the hands of private individuals who will be steered by the "Invisible Hand" (that of the sponsors of today's color revolutions) to seek their gains by selling what they have taken to Western investors. Finance is the new mode of warfare, and we are seeing a grab for what military invasions in times past aimed at: land, natural resources and infrastructure monopolies.
There is little likelihood of national economic development. The aim is to empty out the nation's capital, not create it. There will be no more consideration of Modern Monetary Theory or Land Value Tax alternatives. The US/EU plan is the same neoliberal strategy designed to demilitarize the post-Soviet states by de-industrializing them and driving their population to emigrate.
"Structural adjustment" (today's euphemism for austerity) will continue loading down Ukraine with debt, using it as a lever to control its economic policy. Meanwhile, Russia offers debt relief (or at leas t more loans) without development, because it itself still partially remains under the thrall of neoliberalism.
↑ Oligarchs Triumphant: Ukraine, Omidyar and the Neo-Liberal Agenda
… There was one other stipulation in the EU's proffered agreement that was almost never reported: it would have also forbidden Ukraine to "accept further assistance from the Russians," as Patrick Smith notes in an important piece in Salon.com. It was a ruthless take-it-or-leave-it deal, and would have left Ukraine without any leverage, unable to parlay its unique position between East and West to its own advantage in the future, or conduct its foreign and economic policies as it saw fit. Yanukovych took the Russian deal, which would have given Ukraine cash in hand immediately and did not come with the same draconian restrictions.
By all accounts, Viktor Yanukovych was an unsavoury character running an unsavoury government, backed by unsavoury oligarchs exploiting the country for their own benefit, and leaving it unnecessarily impoverished and chaotic. In this, he was not so different from his predecessors, or from many of those who have supplanted him, who also have oligarchic backing and dubious connections (see addendum below). But in any case, the idea of supporting an unconstitutional overthrow of a freely elected Ukrainian government in an uprising based squarely on the volatile linguistic and cultural fault-lines that divide the country seems an obvious recipe for chaos and strife. It was also certain to provoke a severe response from Russia. …
… Washington and the E.U. are now pushing the International Monetary Fund forward as the leader of a Western bailout. If the past is any guide, Ukrainians are now likely to get the "shock therapy" the economist Jeffrey Sachs urged in Russia, Poland and elsewhere after the Soviet Union's collapse. Sachs subsequently (and dishonestly) denied he played any such role — understandable given the calamitous results, notably in Russia — but the prescription called for off-the-shelf neoliberalism, applied without reference to any local realities, and Ukrainians are about to get their dosage.
We hadn't known Jeffrey Sachs denied his involvement. We saw him discussing his involvement, explaining the role he played, not denying it. We had just been figuring he evolved since then.
↑ The Libertarian Angle: Ukraine and Venezuela – YouTube
We've heard from the mainstream above and from the more Progressive side (although Paul Craig Roberts is a supply-sider). Here's a purely Libertarian Capitalist take.
They discuss Ukraine for about the first 21 minutes.
We won't go point-by-point concerning where we agree or disagree.
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