Saturday, December 27, 2014

EU austerity in Ukraine: this is what Western help looks like?

Anders Aslund in a post at the conservative Peterson Insitute for International Economics, A New Reformist Offensive in Ukraine 12/10/2014, describes with admiration the drastic measures imposed on Ukraine as a condition of their acceptance of aid:

On December 2, a new government was appointed under Prime Minister Yatsenyuk. In stark contrast to previous Ukrainian governments, the new government consists of young professionals, the cream of Kiev’s financial professionals, with an average age of 43. Only five of the 20 ministers have been ministers before and have been members of Yatsenyuk’s previous government since February. ... Most remarkably, the government contains three foreign nationals, who were awarded Ukrainian citizenship the same day they became ministers. Natalia Jaresko, a US citizen, became finance minister, Lithuanian Aivaras Abromavicius economy minister, and Aleksandre Kvitashvili of Georgia minister of healthcare. All but two of the 20 ministers speak English, while only two ministers spoke English in President Viktor Yanukovych’s last government. The ability to speak English is an important indicator of education and modernity. [my emphasis]
Presumably, the new American Finance Minister Natalie Jaresko also spreaks Ukrainian. She "has worked in Ukraine for more than 20 years after holding various economic positions in the US State Department." (Ukraine appoints three non-native ministers Aljazeera English 12/02/2012)

Ukraine is struggling with the loss of Crimea to Russia, pro-Russian separatist movements in the east and is in a confrontation with Russia. And their Western friends who allegedly want to help them.

Several items he describes are standard goo-goo (good government) goals, e.g., less corruption, more transparency. And these would be good to do, though even with the best will, they aren't easy to implement immediately. And even if they could be implemented quickly, they would do nothing noticeable to immediately boost the Ukrainian economy.

But Aslund's admiring catalogue of neoliberal/"Washington Consensus" standard recommendations include several that we know from the experience of Angela Merkel's rule of the eurozone during the criis that began in 2008 are ones the Merkel takes very seriously:

In his speech on December 9, Prime Minister Yatsenyuk offered nearly everything a reformer could have asked for, and he backed it up with a strong narrative to appeal to Ukrainians. He presented Europe as the anchor, aim, and means of Ukraine’s reforms: “Our basic course is a European course .... Our final aim is Ukraine’s membership of the European Union. But to achieve that goal it is necessary to go through a serious test, to carry out radical changes and to make Ukraine European.” He justified his radical course with the external threat to Ukraine’s sovereignty and the “internal aggression” that corruption has created. To meet the security threat in 2015, Ukraine will raise its military expenditures to 5 percent of GDP.
It's important to remember that "reform" in the neoliberal lexicon means: deregulation of business; reduction of wages, benefits and pensions for ordinary workers (not for CEOs); and, reduction of public services, regardless of the need for them or the state of the economy; and, privatization of state enterprises and what public services remain.

It's a grim reality that "European" in this context means implementing Merkel's brutal austerity program at the expense of the Ukrainian people and in the middle of a difficult struggle with Russia:

Yatsenyuk’s key slogans were “decentralization, deregulation, and de-bureaucratization.” The old Soviet technical standards are to be abandoned for European standards in line with the Association Agreement with the European Union. The state administration has been cut by 10 percent this year, and another 10 percent will be cut next year. Anticorruption policy is a major emphasis. Finally, Ukraine is to adopt a public register of all property and all enterprises with their beneficiary owners named. The entire law enforcement system will be reformed, and all judges examined. All changes are supposed to take place in the course of two years, 2015–16. How much is to be done each year is mostly not specified.
It's not clear whether the 10% cuts will be netted against the 5% increase in military spending. If not, it means an even more drastic cut in non-military spending. Some major portion of the military spending will go to American and European arms manufacturers, of course.

Patrick Smith notes in Paging Keri Russell: Russia, Cuba and the truth about Putin the U.S. media doesn’t want you to know 12/24/2014:

On Thursday Obama signed HR 5859, the Ukraine Freedom Support Act, into law. One is always suspicious of bills with Boy Scouty names like this, and one is always justified: Obama just gave himself permission to inflict pointless suffering on the humane and very brave Russian people more or less arbitrarily and indefinitely. And in all our names, the Pentagon will now arm Ukraine with lethal weapons. Funny, the $350 million committed as an opener just about matches what Truman gave the Greek monarchists in 1947, so commencing the Cold War.
Continuing with Aslund's happy assessment of the harm the pro-Western Ukrainian government is: willingly imposing on its people:

On economic policy, three points stand out as a litmus test of Ukraine’s intentions. First, public expenditures are to be cut by 10 percent of GDP. Second, “we will raise all energy prices and tariffs to the market level at the same time as we offer benefits and subsidies to those who should receive them, that is, all poor people in Ukraine.” The main source of corruption, through buying and selling of energy at regulated prices, would finally be eliminated. Third, Yatsenyuk has promised to adopt a law on the agricultural land market. ...

The number of enterprises that cannot be privatized will be reduced from 1,500 to 300. The others will be sold off as the market allows. All state corporations will be subject to international audit. The labor market will be liberalized. [In neoliberal-speak, this means lower wages, less job security, opposition to unions. - Bruce] All medicines that are certified in Western countries will be allowed in Ukraine without the current cumbersome certifications. Ukraine intends to introduce comprehensive health care insurance. Education financing will be based on achievements. Wherever possible, EU standards or assistance are being called for.
Unfortunately, it's not clear from Aslund's account how the 10%-of-GDP reduction figure relates to the other 10% cuts in public spending he describes. On the face of it, a reduction of public spending by 10% of GDP would seem to be a much more drastic reduction program.

And even the more modest version will hammer Ukraine's economy during the ongoing political and economic crisis.

With friends like Angela Merkel ...

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