States of Shock
Shock therapy, take two
It’s now two years since the start of the Maidan protests in Ukraine, and the country remains in the grip of a severe crisis. The war in Donetsk and Luhansk provinces that began in April 2014, after groups of Russian-backed paramilitaries seized numerous police stations and town halls throughout the region, has so far claimed almost 8,000 lives and displaced as many as 1.4 million people. For now, a lasting peace is proving elusive: beyond the military standoff between the “People’s Republics” and the Ukrainian army lies a political impasse over Ukraine’s constitution. The “separatists,” and behind them Russia, insist on “federalization” — that is, the granting of nearly independent status to the region — which Kyiv argues is an unacceptable surrender of its sovereignty. All this has been accompanied by a deepening economic downturn. Ukraine’s already shrinking GDP has now contracted by almost a quarter since 2012, and the country’s debt stands at more than $70 billion, though Kyiv negotiated a partial write-down with creditors in August 2015. Wage arrears have been accumulating and unemployment rising, while those who receive paychecks have seen their value sharply eroded: the hryvnia has slumped by a third against the dollar since last year, and inflation has breached 50 percent.
Amid this dual emergency, the government of President Petro Poroshenko has been pushing through a radical neoliberal restructuring. “It would be sad to waste this crisis and not make reforms,” remarked Aivaras Abromavičius, the Lithuanian-born minister of economy and trade. Much of the program now underway was devised in consultation with the IMF, in exchange for a $40 billion bailout, and is laid out in successive Memoranda of Understanding (MoUs) between Kyiv and the fund. The agenda being advanced is, in classic IMF fashion, aggressively Friedmanite, aiming for a drastic shrinkage in the size and regulatory power of the state, while at the same time opening up swaths of the public sector for private profit. The February 2015 MoU, for instance, envisaged an “expenditure-led consolidation that targets a smaller and more efficient government,” as part of “deep and broad structural reforms to improve business climate, attract sizable domestic and foreign investment, and boost Ukraine’s growth potential.”
What does this actually mean, in concrete terms? No one who’s seen the fund in action over the past forty years will find anything new here. There will be sweeping job cuts that will thin the ranks of the civil service by 20 percent. Much of that will be accomplished by shutting down several regulatory bodies. A planned “rationalization” in education will bring the eventual closure of three-fifths of the country’s higher education institutions. Utility prices, including heating, in a country whose capital is farther north than Winnipeg, have already increased fourfold; further budgetary “consolidation” will be achieved by reforms to the pension system and by “reducing the social security contribution wedge” (that is, cutting unemployment and health benefits). The burden of these measures will fall disproportionately on the less well-off. Capital, on the other hand, is being offered all manner of handouts: the health-care sector will be steadily opened up to private financing, and in May the government announced a push to privatize 342 state-owned enterprises, including power plants, construction companies, mines, and the port of Odessa, one of the largest in the former USSR. Taxes on coal- and mineral-mining concerns will be reduced, since they “could be discouraging investments.” Kyiv has also committed itself to primary budget surpluses, that is, no deficits, sucking demand out of the economy even as GDP contracts. Much of the dirty work of administering the austerity has been dumped on regional authorities — so there are obviously some kinds of decentralization the Poroshenko government likes.
Strangely, for a country of Ukraine’s size, many of the people implementing the reforms are not from Ukraine. Finance Minister Natalie Jaresko, a native of Chicago, was a US Embassy staffer in Kyiv from 1992 to 2000; though of Ukrainian-American origin, she only acquired Ukrainian citizenship when she was appointed in December 2014. Economy Minister Abromavičius was naturalized at the same time, along with former Georgian health minister Alexander Kvitashvili. These recruits from two of neoliberalism’s post-Soviet poster children were joined in February 2015 by perhaps Poroshenko’s highest-profile appointee, former Georgian president Mikheil Saakashvili. Hounded out of Tbilisi in late 2013, he had then “commandeered his uncle’s apartment in a tower on the Williamsburg waterfront,” according to a New York Times profile, which made him sound like a hipster Ahmed Chalabi (apparently, “at the Smorgasburg food fair . . . Saakashvili motored in fluorescent green sneakers among bearded men with tattoos and women in revealing overalls”). Poroshenko somehow managed to lure him away, first making him head of his new international advisory council, then naming him governor of Odessa province in May. No role has yet been found, though, for the man who campaigned in successive Ukrainian elections as “Darth Vader,” in full costume and flanked by Stormtroopers.