Ukraine Crisis Winter of Truth

With Ukraine’s economy on the brink of collapse, the country’s prime minister is seeking financial help from German Chancellor Angela Merkel in Berlin on Thursday.
Arseniy needs some cash for Kiev.

Not far from the Maidan, the independence square in the center of Kiev, business is good for Andrii G.

“I do know that many people here are not doing well, but things are going fine for me,” said the man in his mid-thirties, laughing.

It’s easy to see that makes him a little uncomfortable. Andrii’s good fortune is due to the adversity of others. He buys used refrigerators, washing machines and, when necessary, even cars.

“Many of my customers need cash quickly,” he said. “I can give it to them,” he added, gallantly describing his job as a pawnbroker.

Ukraine is a deeply divided country this winter. Only a few hundred meters away from Andrii’s store, Porsche Panameras and Cayennes with deeply tinted windows are cruising the streets. But on Maidan square, old women and men are begging for a few hryvnia to help survive the bitter cold.

 

Ukraine has been worn down by the war in the eastern part of the country, the collapse of the economy, and the tedious and time-consuming reform work of Arseniy Yatsenyuk’s new government. Mr. Yatsenyuk, who arrived in Berlin on Wednesday for political consultations, is tying his country’s fate to aid from the West. The German government is ready to help in principle.

“Germany will continue to support Ukraine on its difficult path to political and economic stability,” German economy minister, Sigmar Gabriel, said after a meeting with Mr. Yatsenyuk. However, to do so “sustainable reforms are necessary,” and defusing the conflict with Russia is a priority, said Mr. Gabriel.

He and Mr. Yatsenyuk signed a declaration for a loan of more than €500 million ($593 million). On Thursday, Mr. Yatsenyuk will meet German Chancellor Angela Merkel. Without the assistance from the West, there is little Mr. Yatsenyuk can achieve. His critics accuse him, however, of not using the money from abroad for the implementation of reforms, but rather to carry out the war in the eastern part of his country.

Battles between pro-Russian separatists and the Ukrainian army have decreased in severity, but a total of about 4,000 people have died so far.

Pro-Russian hackers from Ukraine emphatically made this point on Wednesday, as they temporarily took down Ms. Merkel’s website and that of the Bundestag, or lower house of Parliament. The group, CyberBerkut, explained that Germany should not support “a criminal regime in Kiev.”

While the battles between pro-Russian separatists and the Ukrainian army have decreased in severity, there are still violent incidents and a total of about 4,000 people have died since the conflict began last year.

Mr. Yatsenyuk has endeavored in recent weeks to prove his will to reform his country. His cabinet has already passed two austerity packages, which include provisions for major price increases for gas and energy and a further reduction of already meager social benefits.

But the old structures, an oligarchic system more than 10 years in the making, and a justice system that has so far not been independent cannot change everything overnight.

And then there is still widespread corruption in the country. There is hardly an administrative decision that doesn’t come without a bribe, there is hardly a violation of the law that can’t be solved with money. Transparency International has ranked Ukraine as one of the most corrupt countries in Europe. Berlin and Brussels, therefore, are hesitant to financially lend a hand to the country worn down between East and West.

 

The Putin Impact-01

 

The International Monetary Fund (IMF) estimates that the country needs about $42 billion, of which $27 billion has already been paid, and the next tranche is soon due. A quick cash infusion is needed right away: The country’s economy shrank by about 7.5 percent last year. At the end of November inflation amounted to about 21 percent. Despite all of the negative reports, there are glimmers of hope. The agricultural and foodstuffs industry, in contrast to many other economic areas, is working with very modern and efficient equipment.

Ukrainian central bank governor Valeria Gontareva is carefully optimistic. If all reforms were now to be implemented as quickly as possible, then the GDP could increase by 1 percent in 2015, she said. Many economic experts consider this to be illusory, however. A winter of truth is waiting for Ukraine.

Helmut Steuer and Klaus Stratmann are reporters for Handelsblatt. To contact them: [email protected] and [email protected]