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Only international efforts can save Ukrainian economy - experts

October 09, 2014, 16:13 UTC+3 Alexandrova Lyudmila
© ITAR-TASS/Mikhail Japaridze

MOSCOW, October 9. /TASS/. The Ukrainian economy’s condition is so dramatic that only international efforts will be able to prevent it from collapse, experts believe. However, the loans granted by international financial organizations so far are being used mostly to settle old debts, while Europe and the United States are not in a hurry to throw a lifeline to Kiev.

The World Bank expects Ukraine’s GDP will plummet 8% this year. The International Monetary Fund has left unchanged its July forecast the Ukrainian economy will go down by 6.5% The National Bank of Ukraine this week recognized that the Ukrainian economy’s downfall will be worse than it was originally anticipated — 8.3%. International experts say the Ukrainian economy is in a pre-default state.

The loans Ukraine receives have to be spent to settle old debts. Experts say that the IMF — the main lender to Ukraine — does nothing to rescue the Ukrainian economy, for it cares mostly of its own interests. Of the IMF’s new $3.4-billion loan $2.6 billion was spent to repay old debts to the Fund in March through August. In September Ukraine received a second tranche of $1.4 billion but will have to repay $1.2 billion to the IMF before the year is out.

This creates artificial liquidity. Money is written off from one account only to be entered to another, the editor-in-chief of the portal "Odnako. Eurasia", Semyon Uralov, told the TASS political analysis centre. “This has no bearing on real economy whatsoever,” he added, pointing to what he described as Ukraine’s “total de-industrialization and downslide back into the mid-1990s.”

Europe and the United States are in no hurry to extend financial assistance to Ukraine: of the $1.6 billion the European Union had promised Kiev has received $790 million, which have been spent entirely on repaying old debts to the European banks.

The president of the Ukrainian analytical centre Oleksandr Okhrimenko, quoted by the daily Nezavisimaya Gazeta, says that after all these settlements of earlier debts the net influx of foreign lending on September 1, 2014 stood at $1.6 billion, while the overall external debt soared by $2.825 billion. “It has turned out that after all debt settlements Ukraine’s indebtedness to lenders in the United States and the European Union merely got worse. This is not exactly what one calls real financial assistance,” Okhrimenko said.

The Committee of Civil Initiatives under Russia’s former finance minister, Alexey Kudrin, has presented a report entitled The Dead End of the Struggle of Integrations in Europe. The report quotes expert conclusions to the effect Ukraine in three or four years to come will need about $85 billion for the sake of maintaining economic stability alone.

The authors of the report point to Ukraine’s colossal losses resulting from the severing of ties with Russia and the Eurasian Economic Union. The annual losses are estimated at $33 billion, including missing incomes from shrinking trade, fewer trips by Russians to Ukraine, decline in spending that Russian guests make inside the country, and smaller Russian investment. 33 billion is nearly twice the amount of aid the IMF promised to provide in 2014-2015.

Experts are unanimous that in the final count all parties are interested in normalizing the situation in Ukraine. First and foremost because in a condition like that the state poses a threat to its neighbours. “The faster the problem is settled, the better for Russia,” quotes one of the report’s authors, president of the institute of modern development INSOR, Igor Yurgens, as saying. Europe, for its part, depends on the supplies of Russian gas through Ukraine.

“The Ukrainian crisis has produced a situation where both internal and external participants will merely benefit from finding a solution that will establish legal conditions for economic reconstruction and political stabilization of the Ukrainian state,” runs the Committee of Civil Initiatives’ report. In its authors’ opinion Kiev and also the European Union and the Eurasian Economic Union must take the most active part in that process, because saving Ukraine’s ruined economy is a common task.

ITAR-TASS may not share the opinions of its contributors.