World Economy

Ukraine Creaking Under Heavy Debt, Ultra Austerity

Ukraine Creaking Under Heavy Debt, Ultra AusterityUkraine Creaking Under Heavy Debt, Ultra Austerity

Just over a year into the Petro Poroshenko’s presidency and the fog of uncertainty governs almost every facet of Ukrainian life. Even Poroshenko himself has bluntly expressed frustration at his first year in office.

Addressing parliament to mark the one-year anniversary, he said, “I am often asked whether I’m satisfied with the work of the government… I’ll say more–I am dissatisfied with my own work.” Candid honesty? Perhaps. More likely an admission of the inescapable truth, NewEurope reported.

Ukraine is sorely lacking direction. Economically, the country is struggling desperately to keep its head above a veritable flood of debt. Ordinary Ukrainians are paying the price with crippling austerity measures in order to foot the bill. And then of course, the country’s overarching security situation threatens to erupt at almost any moment.

There appears little prospect of calm on the horizon. Most worryingly of all, Ukraine’s current leadership has no fixed direction, no concrete path to navigate the country out of this malaise. Instead, Ukraine lurches from one uncertainty to the next. A different approach is desperately needed.

After all, the everyday grind for the average Ukrainian citizen hardly elicits hope for a brighter future. In April, standard gas prices nearly tripled and electricity costs rose by an average of 50%. This followed substantial pension cuts and tax increases authorized by parliament just a month previously.

Meanwhile, inflation is running at a dizzying 30% and counting. Everyday life is quite simply becoming a strain as the cost of living skyrockets in tandem with the financial burden placed upon the country’s taxpayers. And the prospects of this trend reversing any time soon appears distant at best.

GDP in the first quarter of 2015 contracted by a whopping 17.6% compared to just a year before and a decrease of 6.5% from the previous quarter.

  Bail-Out Funds

However, the ultra-austerity being experienced is necessary just to keep the lights on in Ukraine. The extreme measures which are now in place exist simply to satisfy the country’s creditors. The fact is that Ukraine’s economy is creaking and is being saved from total collapse only due to the largesse of an international bail-out.

The International Monetary Fund has handed Kiev a $17.5 billion loan to prop up the economy, with $5 billion immediately released to stave off the prospect of effective bankruptcy. The IMF’s demonstration of confidence helped pave the way for the European Union to hand over a $2 billion loan in May, to further help prop up the cash-strapped Ukrainian economy.

Of course, these huge sums come with huge conditions and Ukraine is expected to scrimp and save as dictated by its overseas benefactors. The country is firmly in the pockets of foreign money. Poroshenko and Prime Minister Arseny Yatsenuk have led Ukraine towards little more than slavish dependence.

However, what is so utterly dispiriting for Ukrainians is the sense that their leaders are focused solely on repaying debt, meeting the country’s dues.

  People Suffering

At the same time, Ukrainians are contending with the very basics of life. They face the very real prospect of a debilitating winter gas shortage, with trilateral talks between Ukraine, Russia and the EU over gas prices having recently broken down. With Russia seemingly unwilling to further reduce its sale price, Ukraine will almost certainly turn to the likes of Poland, Hungary and Slovakia to satisfy its energy needs in the short-term.

However, these countries simply cannot supply the quantities of gas Ukraine will require once the bitter winter sets in. Beyond playing continued hardball, a game they are almost certain to lose from a position of such acute weakness, Ukraine’s leaders have no apparent strategy to avoid a long, dark and potentially disastrous winter.