Ukraine was badly hit by the financial crisis and plummeting steel prices. GDP fell by 15% in 2009. That made it a prime candidate for economic streamlining. In 2010 the IMF agreed to loan Ukraine $15 billion—with conditions attached. A major target for reform were Ukraine’s cushy energy subsidies. The state gas company, Naftogaz, only charges consumers a quarter of the cost of importing the gas. Cheap gas discourages investment: Ukraine is one of the most energy-intensive economies in the world and domestic production has slumped by two-thirds since the 1970s. The IMF ended up freezing the deal in 2011 after Kiev failed to touch the costly subsidies.
Daniel Berman’s explains the EU’s new $15 billion aid offer:
This is not quite as generous as it seems – the aid is tied to the implementation of an IMF restructuring campaign that is sure to be almost as destabilizing in the short-run as the aid is intended to be stabilizing. If the goal was simply to strengthen the Ukrainian state in the near future, the aid should have been offered with fewer if any strings.
Nonetheless a major aid package is an excellent idea, and is precisely what should have been [done] 20 years ago. The 15 Billion Dollar package would have done infinitely more to strengthen Ukraine and to guarantee the nation’s territorial integrity than the near-worthless promises entailed within the Budapest Memorandum, or a decision to risk both American and Russian ostracism by retaining control of Nuclear weapons Kiev could not fire. Kiev’s greatest weakness through the last two decades and even today has been less its lack of military force, and more its lack of political unity. History teaches us that money does not solve those divisions on its own, but it sure damn helps. In times of crisis economic weakness is, as was demonstrated in 1930s France and Germany, a political, not an economic problem.
But he also wonders if it’s just a payoff:
The package can be just as easily seen as a bribe to console Ukraine for the loss of the Crimea as it can be as an effort to retake it. With Crimea seemingly preparing to increase the tension by petitioning to join Russia, that is suddenly a more important issue than anything else. Right now the package represents the overlap between the German and American positions because it can either console Ukraine for accepting Russia’s terms, or strengthen the Ukrainian state in its resistance, the respective goals of those two countries.
The Dish 