April is the Cruelest Month: the Coming Austerity Measures and Elections in Ukraine

Photo Credit: REUTERS/Anatolii Stepanov
Photo Credit: REUTERS/Anatolii Stepanov

The International Monetary Fund has offered Ukraine a two-year bailout package of $18 billion in return for steep economic reforms. The long-term goal of the bailout package is to stabilize a Ukrainian economy that is running up expenses and moving toward a debt default. It is hoped that economic stability in Ukraine will lead to the political stability that can then ease Ukraine’s transition to democracy, and more importantly, away from Russia. By opening up to the IMF deal, Ukraine will signal to nations like the US and Japan that they are committed to restructuring their economy and are open to investment. For example, the United States Congress is working on a bill for $1 billion in aid to Ukraine as well as economic sanctions against Russia. The European Union has put $15 billion on the table. It total, Ukraine is in position to receive around $27 billion in aid.

The downside to these deals is that the enforced austerity measures will likely hurt the average Ukrainian citizen by increasing gas prices by 50% and inflating the currency, the hryvnia, by somewhere between 12% and 14%. Therefore, we may see the cost of living rise while the purchasing power of the hryvnia plummets. Ukraine’s interim Prime Minster Arseniy P. Yatsenyuk explained that there would be a minimum-wage freeze and an increase in taxes for Ukraine’s largest companies. All of this spells out hard times for Ukraine in the coming years. But consider the result if Ukraine were not to accept the austerity measures. As The New York Times reported, Yatsenyuk “told the Parliament on Thursday that the country was ‘on the brink of economic and financial bankruptcy’ and that gross domestic product could drop 10 percent this year unless urgent steps were taken in conjunction with the fund.” With such instability, Ukraine’s interim government would not have the time or the legitimacy to set up the proper institutions before the planned election in May.

Photo Credit: Genya Savilov/AFP/Getty Images
Photo Credit: Genya Savilov/AFP/Getty Images

The top candidates for the election include former Prime Minister Yulia V. Tymoshenko, billionaire businessman Petro Poroshenko, and Parliamentary leader as well as former professional boxer Vitali V. Klitscho. Tymoshenko, who was born in the industrial and Russian-leaning eastern Ukraine, has support from the western and central provinces. However, it is Poroshenko and Klitscho who lead in the polls. No matter the result in May, the next president of Ukraine is set to face a difficult transition in all aspects of society. Somehow, he or she must ease the pains of economic liberalization, consolidate political factions, and reign in nationalist as well as pro-Russian sentiments. International aid may help, but the real battle for Ukrainian independence must be fought from within. It is a fight to defeat the legacy of authoritarianism; a fight that Ukraine desperately needs to win.

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The Macro Side of Microfinance

“Microcredit has given rise to its own breed of loan sharks,” groused Muhammed Yunus, Nobel Prize winner and the father of microfinance. These comments came in January, 2011 after the revelation that about 20 farmers in the Indian state of Andhra Pradesh had committed suicide due to over indebtedness and ruthless loan collection methods. An investigation by Associated Press (AP), identified Swayam Krishi Sangam (SKS) Microfinance, once the biggest microfinance company in India, as one of the main causes of these suicides, including sordid details of how their loan collection officers had allegedly driven their clients to death. SKS has refuted these allegations, having been exonerated from 14 out of 15 alleged suicide cases. Continue reading

Is China Capitalizing on the Congo?

On May 27, 2011 in Brussels, China and the Democratic Republic of the Congo (DRC or Congo) signed an $9 billion dollar economic cooperation agreement to increase the trade in natural minerals between both countries.

Today, China is the DRC’s largest foreign investor. The Congo is historically deemed as a country rich in natural resources such as oil, minerals, and timber. With China’s increasing need to intensify development and growth, China sees the DRC as both a development partner and a beneficiary of its economic investments abroad. Thus far, China has built a new foreign ministry, a hydroelectric dam, hospitals, sports stadiums, and an extensive network of roads. Cooperation has been extensive, including infrastructural and business investments totaling more than 2,050 miles of asphalt paved roads, repairs on 2,000 miles of highways, two electricity centers, five cobalt and copper mines, 32 hospitals, 145 health centers, a $367 million hydropower agreement, and many others. Unsurprisingly, these investments have been welcomed by the DRC’s government administration.

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