Is Ukraine’s Dependence on IMF Aid Actually Doing More Harm than Good?

by


Ukraine has undergone a recent wave of political, social, and economic instability well documented in the media. Rampant corruption, a flagging economy, and uncertainty over its future have left the nation in desperate straits.

To pay its obligations, it has relied heavily on loans from the International Monetary Fund (IMF); loans that it may not be able to repay. In addition, the nation may not be finished borrowing from the IMF.

This has led an increasingly vocal band of economists questioning whether the IMF is helping or hurting the Ukraine. When it was formed in 1944, the IMF was supposed to become the economic equivalent to the United Nations.

It would lend money and require nations to make structural reforms as a means of combating poverty and increasing global stability. Unfortunately, it has not always been successful in that mission.

Critics of the IMF’s current plans with the Ukraine cite other nations that came to experience a similar degree of reliance. Latin America is home to several of these nations. In the 1990's, Argentina countered a wave of stagflation with policies of trade liberalization, privatization, and deregulation.

This would lead to a period of explosive growth sometimes called the “economic wonder.” However, these reforms were not sufficient to allow Argentina to avoid a devastating economic crisis that arose in 2001.

Similarly, the military run government of Brazil experienced an enormous social backlash due to the reforms proposed by the IMF in the 1980's. The response was so strong that it ultimately led to the downfall of that regime. Bolivian President, Evo Morales, says the IMF’s suggested reforms cost his nation an estimated $32 billion in oil revenues over the course of 10 years. Other examples exist.

Critics say the IMF’s programs, while possibly effective, are far too often designed in a “one size fits all” manner. The programs support ideals favored by the IMF, even if those reforms undermine the political and social stability of a country, or are otherwise incompatible with circumstances on the ground.

In an interview, Bolivia’s Morales said, "The IMF would never help. The IMF is an instrument of economic domination, an instrument of economic intervention… The nations that obey the IMF will continue experiencing problems.”

Because of the Ukraine's current instability, economists fear the IMF’s help could cause more harm than good. Stanislav Grigoriev, an economics expert said, "I doubt that the IMF is interested in some sort of property in Ukraine. It’s likely that part of the debt will be written off, and another part will be subjected to restructuring."

That restructuring is the part that worries Grigoriev and others like him, because in exchange the IMF may demand things like privatization of parts of the Ukrainian economy in order to pay off parts of the debt. That level of structural reform could be more than the delicate situation in Ukraine can currently tolerate, and could even invite the interference of potentially hostile external forces into the already tumultuous mix.