The Hidden Hands Behind East-West Tug of War in Ukraine
Is it in Ukraine's best interest to negotiate liberalisation with the IMF and the World Bank?
News from Brussels on July 28 and from Washington on July 29 that both the EU and US are stepping up sanctions on Russia have been met with a general "it's about time" from the world. Nobody outside Russia, it seems, has trouble roundly condemning Russian President Vladimir Putin for fuelling this terrible conflict, or approving of punitive western responses.
And whereas there may be blame to lay at Putin's feet, to think that western leaders are now reacting simply because they are outraged by the downing of Malaysia Airlines flight 17 or what they see as Russian expansionist tendencies per se, misses a very big piece of the puzzle. On both sides of the Atlantic, leaders are playing out a strategy in league with two powerful actors who they have managed to keep quietly in the background so far - the World Bank and the International Monetary Fund (IMF).
The World Bank and the IMF's primary interest in Ukraine is the agricultural sector. Sometimes referred to as the breadbasket of Europe, Ukraine's ample fields of rich black soil allow for such high production volumes of cereals and grain that it is the world's third-largest exporter of corn and fifth of wheat.
It is a very big prize for whoever ends up with control. The IMF and World Bank are clear they are on the side of the West, a club that includes western agricultural corporations. The Bank and the IMF have a long history of pressuring economies the world over to make themselves into more profitable environments for large corporations; it is essentially their one-size-fits-all model for development. Ukraine is just their latest target, and their fingerprints are all over this crisis.
Resisting the IMF
One of the sparks behind current events was the ousting of former Ukrainian President Viktor Yanukovych in February. This followed his rejection of an EU Association agreement designed to integrate the Ukraine with the EU. Less well-known, however, is the fact that the EU agreement was tied to a $17bn loan from the IMF. Instead of the EU and IMF deal, Yanukovych chose a Russian aid package worth $15bn plus a 33 percent discount on Russian natural gas.
This was not the first time Yanukovych had rejected loans from the IMF. He objected repeatedly to the type of economic conditions they routinely attach to loans. In 2010, he vetoed tax reform that was part of austerity measures demanded as a condition on an aid package.
In 2011, the IMF put the deal on hold again because the government failed to pass a very unpopular pension reform bill, which was aimed at cutting public spending through raising the age of retirement for women and increasing the time of workers' salary contribution to their retirement funds by ten years. Yanukovych's decision to set a different economic policy than the neoliberal package designed by technocrats in Washington helped destroy his presidency.
Ukraine's relationship with World Bank and the IMF changed swiftly under the new, pro-EU government. Just a week after it took office, the IMF rushed a mission to Kiev. Assessing the conditions of the $17bn loan, Reza Moghadam, IMF European Department Director, declared that he was "positively impressed with [the new government's] sense of responsibility and commitment to an agenda of economic reform and transparency."
Then, announcing a $3.5bn aid package on May 22, Jim Yong Kim, the World Bank President, praised the Ukrainian authorities' determination for developing "a comprehensive program of reforms, which they are committed to undertake with support from the World Bank Group."
This programme includes reforms to the public provision of water and energy and, critically, aims at addressing what the World Bank says are the "structural roots" of the economic crisis in Ukraine, including the high cost of doing business in the country. By "business", they do not mean domestic, let alone small businesses - they mean corporate business. In other words, the World Bank has imposed conditions that rig the game in favour of large western interests, and even demanded that the government limit its own power by "removing restrictions that hinder competition and by limiting the role of state 'control' in economic activities."
Paving the way for corporations
Meanwhile, the people of Ukraine are being treated as most public around the world are treated in these circumstances; by being left out of the decision-making almost entirely. Ukrainians have suffered much in recent years, and so it is especially galling to see the IMF and World Bank use all their economic and political might to ensure that ordinary citizens bear the costs of reorienting their economy so that it can be more welcoming to western multinational businesses. Social services must be cut and retirement ages must be increased, so that corporate taxes can be lowered and pesky labour and environmental regulations removed or bypassed.
For example, the EU agreement now in place has a little clause that seems to have snuck by environmental watchdogs. Ukraine does not allow the use of genetically modified organisms (GMOs) in agriculture, but article 404 of the EU agreement commits both parties to cooperate to "extend the use of biotechnologies".
There is no doubt that this provision meets the expectations of the agribusiness industry. As observed by Michael Cox, Research Director at the investment bank Piper Jaffray, "Ukraine and, to a wider extent, Eastern Europe, are among the most promising growth markets for farm-equipment giant Deere, as well as seed producers Monsanto and DuPont."
There is nothing new in this. The World Bank's flagship programme, the Doing Business rankings, is essentially a tool to pressure governments to liberalise their economies, in much the same way as they did with such disastrous effects for ordinary people in the 1980s and 1990s, when they were called Structural Adjustment Programs. The packaging may have changed, thanks to the terrible reputation they quite rightly picked up, but the content is practically the same.
Ask the people of the Philippines, whose country is hailed as a top ten reformer in the Doing Business rankings. As a result of the changes made to acquire this honour, the Philippines has become the third most popular destination for foreign acquisition of land in the world, with 5.2 million hectares sold off since 2006. Or the people of Liberia, another top ten reformer in the eyes of the World Bank. In Liberia, giant palm oil and rubber producers have bought up more than 600,000 hectares of land, leaving communities without essential resources to sustain their livelihoods. The same story can be told in Nicaragua, Honduras, Guatemala, Senegal, Sri Lanka, Ethiopia, Mali and now, it seems, Ukraine.
So when we read the headlines and grand rhetoric about Russian aggression and human rights abuses, we should remember that what is being fought for in Ukraine is the ability for western leaders and institutions to impose the neoliberal trickle-down economic model. A model that has proved to devastate small businesses and farms, fuel inequality all over the world and concentrate wealth and power in ever fewer hands.
The people of the Ukraine are paying a terrible price for their country's rich and fertile land. They are being ripped apart in a tug of war between two camps; neither of who have their best interests at heart. Welcome to the politics of the 21st century.
© 2014 Al-Jazeera