Ukraine needs Money, not Guns

Foreign officials met Saturday at the Munich Security Conference to discuss possible diplomatic solutions to the re-emerging crisis in Ukraine, where fighting has erupted on the eastern Ukrainian border, leading to nine dead in the past 24 hours.  Per the Wall Street Journal, German Chancellor Angela Merkel has been in staunch opposition of U.S. lawmakers, who wish to bolster the Ukrainian armory with weapons with which to defend the country’s borders from Russian-backed separatists.  Merkel was quoted as saying “This cannot be won militarily.  That is the bitter truth.  The international community must think of something else.”  While I disagree with the sentiment that it is unfortunate that the situation necessitates diplomatic responses beyond wielding the biggest club, the international discussions about the situation are completely missing a crucial issue.  The Ukrainian currency has tanked all of the sudden, dropping 50% against the dollar in just the past two days, as reported by the Washington Post.  The drop is the product of the nation’s conflict with Russia, its biggest trade partner, which is facing its own economic issues that ripple down to Ukraine.

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The lack of discussion between international officials about the state of Ukraine’s economy is somewhat troubling – policymakers are too preoccupied with the clashes on Ukraine’s border, which may not have an immediate diplomatic solution, while Ukraine’s economy is desperate for some form of stimulus.  The country’s reserves are dwindling in correlation with the currency’s decline, leading to a dire situation where Ukraine may have to resort to defaulting on its debt if some sort of economic relief does not occur.  The Ukrainian government was in discussions with the IMF two and a half weeks ago about a $15 billion bailout package, per Reuters, which would help the country meet its public funding and debt obligations in the short term, so as to avoid any debt restructuring.  This is a more pressing issue than shoring up the Ukrainian military, where a few extra tanks or UAVs may not have any real impact, and yet the conversations about a stimulus package seem to have died down for the time being.  One of the worst case scenarios here (excluding all out warfare between Ukraine and Russia, which seems very unlikely) is one where Ukraine is thrown into a deep depression yet is dependent on Russia in its recovery.  Ukraine’s economy is overly reliant on Russia, namely for meeting its energy consumption needs, and if a depression is sparked (especially one that includes a debt default) while diplomatic agreements with Russia collapse, it could be years before the nation is able to restore economic stability.  The international community should focus on providing Ukraine with the funds it needs to meet its obligations to avoid crisis in the short run, while establishing foreign exchange programs that help compensate the country for any loss of trade channels with Russia.  There is no reason that work cannot begin on such economic-focused measures while foreign heads of state try to reach an agreement on political-based approaches.

 

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2 thoughts on “Ukraine needs Money, not Guns

  1. Jaewon Lee

    I agree with you point. However, I think it would be more convincing if you could compare the economical benefit if Ukraine were to win the war. If the economical benefit from winning the war outweigh the current currency collapse, what would happen?

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