Tag Archives: Ukraine

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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Disappointing Crimea

crimea_russia_mgn(http://www.ketknbc.com/news/pro-russians-tighten-security-as-crimea-heads-for)

It might be a particularly freezing winter for Crimea’s people. Their city has not been totally recovered from the war, and they are suffered from the essential decrease of money. Moreover, the turbulent circumstance of the government with terrible management also made people depressed.

AP_ukraine_crimea_russia_sk_140307_16x9_608(http://abcnews.go.com/blogs/headlines/2014/03/international-monitors-again-barred-from-crimea-by-pro-russia-forces/)

From the last year, Crimea’s people were immersed in the center of a big vortex. Russia’s tough attitude towards attaining Crimea, which was a peninsula with almost 60 percent of Russians, caused tremendous accusations from the rest of the world. Significant conflicts were boomed between Russophile party and Pro-Europe party. The conflicts spread from the political fields to military fields quickly and brought huge damages not only for Crimea but even the whole Ukraine, from sky, land, and sea. “Saturday’s attack, the deadliest in terms of civilian losses in the region in months, signaled a possible escalation in the conflict in eastern Ukraine, where a September cease-fire deal has never really taken hold. Mariupol, a deep-water seaport on the Sea of Azov coast about 70 miles south of the city of Donetsk, was little touched by the bitter fighting in the region over the summer. Capturing the city would give the economically struggling regions controlled by separatists access to the sea.”(http://www.wsj.com/articles/ukraine-city-of-mariupol-hit-by-deadly-rocket-fire-1422100691?KEYWORDS=russia+ukraine) Crimea’s people have endured the negative influence of fights for months. However, Russia still could not concede stepping back a little. Why Crimea is so important? For Russia, it can be a bay for the Russian navy, which was an army with chronic blockage by the barrier of the landlocked disadvantage. More vital thing is Russia can broaden its navy power to the world based on Crimea. “The Black Sea Fleet has seen a flurry of activity since 2008: during the war with Georgia that year, the fleet staged blockades in the Black Sea. The Russian navy was actively engaged with Vietnam, Syria and Venezuela (and up until March 2011, Libya) ‘for logistics and repair services in their principal ports’. It has also been alleged that Sevastopol has served as the main source in supplying the Assad regime during Syria’s civil war and proved useful with Russia’s role in dismantling Syria’s chemical weapons last year.”(http://gulfnews.com/news/world/usa/why-crimea-is-so-important-to-russia-1.1305604) Furthermore, Crimea’s about 60 percent Russian people who share the same kind of consanguineous relationship with the citizens of Russia, provided a powerful legitimacy. This was an absolute superiority for Russia.

dailyrouble_repo1(http://econbrowser.com/archives/2014/11/rouble-floats-and-sinks)

Unfortunately, the unpleasant situation will probably continue to be exacerbated. Rouble’s deject performance and the disappointing economic environment in Russia seems will keep for a while. After the big division of the former Soviet Union, Russia’s economy was unsteady for dozens of years. This phenomena should partly attribute to the unsuccessful diplomacy. Russia’s relationships with other European countries, USA, Japan could not make bilateral governments satisfied. As Russia’s tough attitude towards Crimea, it also received severe retaliation. “BRUSSELS—The European Union could extend targeted sanctions on Russian officials and separatist leaders when foreign ministers meet Thursday but there is little momentum behind a push for broader measures at this stage, EU diplomats said.”(http://www.wsj.com/articles/eu-may-extend-russian-sanctions-by-nine-months-1422471148) Such terrible circumstance’s victims are those Crimea’s people who have voted for coming back to Russia. Hoping their patriotic hearts will not be broken.

Has no one told Russia the cold war ended?

If you have been paying attention to the news lately, or even if you haven’t, you have probably heard about plummeting oil prices worldwide. Crude oil, which reached $100 a barrel less than a year ago, has now dropped as low as roughly $45 a barrel (The Wall Street Journal, Market Data Center). Everyday Americans view this as a great thing. I mean who doesn’t like cheap gasoline at the pump. For countries whose economy largely depends on exporting oil, however, this is a very bad thing.

One nation that has been hit extremely hard by falling oil prices is Russia.

“Heavily dependent on oil exports that are priced in U.S. dollars, Russia faces mounting pressure from U.S. and European officials over the unrest in eastern Ukraine. On Saturday, U.S. and European leaders threatened new sanctions against Moscow” (Albanese, Armental, 2015).

Russia is learning that their economy may have one huge fatal flaw, if they already didn’t know. Depending too heavily on one single commodity, crude oil, opens up their economy to extreme volatility. If the value of crude oil falls significantly, which is happening currently primarily due to increased global supply, the value of their entire economy also falls significantly. This openness to extreme volatility is exactly what is crippling the Russian economy currently. This is reflected by the falling price of the Ruble, Russia’s currency. However, this is just one of the issues that Russia is facing.

“The ruble, which has been in a free fall amid slumping oil prices and geopolitical unrest in the region, was trading at about 68 rubles to the dollar Monday, compared with about 35 rubles a year ago” (Albanese, Armental, 2015).

This “geopolitical unrest” that the above quotation is referring to is the conflict in Ukraine that has been going on for some time now.

“A surge in fighting in eastern Ukraine, which killed about 30 civilians in the Kiev-controlled town of Mariupol over the weekend, prompted U.S. and European leaders to threaten new sanctions against Moscow” (Albanese, Ostroukh, Armental, 2015).

“The sanctions, which cut off Russian banks and companies from global capital markets, are widely expected to push the commodity-dependent economy into contraction for the first time since 2009” (Albanese, Ostroukh, Armental, 2015).

If the falling global price of crude oil is not enough to sink the oil dependent Russian economy, facing sanctions and being cut off from global markets should just about do it. Changes need to be made, if Russia wants to remain a global player long term. Now don’t get me wrong, Russia is still one of the world’s most powerful nations that cannot be ignored. However, it seems that all of Russia would benefit, if Putin and Medvedev took a step back and reevaluated their cold-war-esque foreign policy, and drastically restructured their economy to keep up with the changing times. No more, it seems, that a nation can rely on natural resources alone to create a prosperous economy. No more are the days that a nation can invade another nation, and not expect serious backlash from the global community.

Sources

http://online.wsj.com/mdc/public/page/mdc_commodities.html?refresh=on

http://www.wsj.com/articles/s-p-downgrades-russia-foreign-currency-rating-to-junk-1422297409?mod=WSJ_hp_LEFTWhatsNewsCollection

http://www.wsj.com/articles/fears-of-fresh-sanctions-hit-russian-ruble-1422268436