Who Will Foot the Bill in Ukraine?

When it comes to fighting the economic battle over Ukraine, the West has been much more willing to hit Russia in its pocketbook than play sugar daddy to Kiev.

The International Monetary Fund, after hinting in September that Ukraine would come up short, officially sounded the alarm this week, acknowledging that Kiev’s coffers face a $15 billion shortfall. That’s over and above the $17 billion package the IMF put together for Ukraine last spring.

The IMF is not willing to plug the gap alone. Fund officials are still in Ukraine, training their green eyeshades on Kiev’s books, but spokesman William Murray said that other nations need to pitch in.

“It’s really important that the donor community step up and provide financing to Ukraine,” he said Thursday, Dec. 11, in Washington.

U.S. lawmakers passed legislation this week to push President Barack Obama to sanction more Russian companies, but no big rescue package is in the works for Ukraine. European leaders are discussing sending more money to Kiev but gripe that the Ukrainian government needs to move faster on reforming the country’s economy first.

Ukrainian Prime Minister Arseniy Yatsenyuk said his country could default on its outstanding debts if the United States and the European Union don’t pony up.

“To receive financial aid in order to survive in this difficult time, not to allow default, we need an international donor conference, the approval of Ukraine’s program, and to get support from our Western partners,” Yatsenyuk said Thursday in Kiev.

Ukraine’s need for a cash infusion is no surprise. Economist Robert Kahn has said from the beginning that the IMF’s assumptions — about what Russia would do and what the costs would be to Ukraine — were way too rosy.

“The IMF’s program for Ukraine was doomed to failure from the start,” Kahn, a senior fellow at the Council on Foreign Relations, said Friday. The IMF stepped in to bridge the gap and bring some stability to an incredibly difficult political situation last spring, but it was too hopeful about how the conflict would play out. While most political analysts at the time saw Russia’s annexation of Crimea and invasion of eastern Ukraine leading to a frozen conflict, the IMF didn’t take that into consideration. As Kiev continued to have to fight off Russian-backed separatists in the east and lost revenue from the territory taken over by Moscow, the IMF’s program became “increasingly divorced from the reality on the ground,” Kahn said.

“If we are serious about resisting [Russian] President [Vladimir] Putin’s efforts to destabilize Ukraine, sanctions are not sufficient by themselves,” Kahn said.

And Kahn is not optimistic that the West will loosen the purse strings now. The IMF will come under tremendous pressure to continue sending Ukraine money because without it the country’s economy could collapse.

So far, European and American support has been barely a trickle. The United States guaranteed a $1 billion loan for Ukraine last spring, but since then has sent only dribs and drabs, including soldiers’ rations and humanitarian aid. The IMF has dispersed $4.6 billion of the $17 billion it pledged.

Suffering from lower oil prices and Western sanctions, Russia’s currency has fallen precipitously, hitting new lows again and again. The ruble has dropped 40 percent against the dollar in 2014, despite billions flowing from Moscow’s central bank to prop it up. The only major currency that has fallen further than the ruble is the Ukrainian hryvnia.

Photo by VASILY MAXIMOV/AFP/Getty Images