March 2014, Demonstration In Kharkiv (Shutterstock)
March 2014, Demonstration In Kharkiv (Shutterstock)

One makes positive predictions about Ukraine with great caution. But recent events suggest reason for hope, if only faint.

Recently appointed Finance Minister Natalie Jaresko is a revelation. The Chicago-born, Harvard-trained Jaresko is a pleasant break from the bureaucrats with ties to corrupt oligarchies who tended to get appointed to senior positions in Ukraine in the past. Jaresko served at the U.S. State Department after university, and then moved to Kiev shortly after Ukraine’s independence in 1992 to become head of the U.S. Embassy’s economic section. She served the U.S. until 1995, when she left government to become a prominent member of the Ukraine business community, establishing Horizon Capital, an investment firm.  

Her team of freshly appointed deputy ministers and senior officials includes previous private sector and multilateral organization professionals, and is well-equipped to negotiate in Ukrainian, Russian and English. Jaresko displayed her savvy over the last couple of weeks by meeting international creditors in Washington, San Francisco, New York and London. These meetings followed the new stabilization program approved by the International Monetary Fund. 

The emergence of Jaresko shows Prime Minister Arseniy Yatsenyuk may finally be making headway in his effort to break the grip of oligarchs on his country. The Euromaidan Revolution of February 2014 resulted in the end of Viktor Yanukovych’s tenure as president of Ukraine, and shortly thereafter in the election of the new reformist, and pro-European-alliance politician, Yatsenyuk, as Prime Minister. The primary objective of Yatsenyuk’s government is to progressively curb the corrupt oligarchy that has hindered the reformist momentum of the country since its independence in 1991. The new administration continues to shrewdly navigate the complex network of divergent geopolitical interests of the major world powers.

In October 2014 in Washington, the Yatsenyuk government’s financial emissaries successfully negotiated a new IMF-approved assistance program even greater than that approved last April for $17 billion. The IMF estimates that $40 billion is required to stabilize the Ukrainian economy in the coming four years, over half of which will be provided by the international community. The program should catalyze an additional $7 billion of funds between the EU, the United States and other bilateral and multilateral actors. The remaining $15 billion is to be financed by a sovereign debt restructuring of Ukraine, for which the first consultations have already been initiated.

Now begins the next stage. There are positive signs. By having the IMF determine the magnitude of the restructuring, Kiev has signalled to its creditors that it intends to be a fully cooperative debtor and follow the newly established agreement to the letter. Another critical aspect is the timing. Negotiations with creditors — including Russia — began immediately after the approval of the new program in early spring. 

Russian intentions remain difficult to read. Many Western analysts and Ukrainians anticipate an intensification of Russian pressure, as they look to take advantage of the stressed Ukrainian armed forces. One extreme scenario foresees Russian military and paramilitary troops pushing into the southeastern part of the Ukrainian coast so as to weld the recently seceded Crimea with the eastern regions around Mariupol and Donetsk. This would ensure stable supplies to the peninsula and prevent its future isolation. 

Another scenario involves the intensification of the conflict on the east side of the country with Russian military and paramilitary troops, which may potentially reach up through the Dnieper River that runs through Kiev. Between these two extreme scenarios there are a number of alternative outcomes that provide intermediate incursions of varying intensity on the south and southeast portions of the country. The ultimate goal of these movements would be to stress the already exhausted Ukrainian troops and, above all, destabilize the ongoing Ukrainian reformist experiment.

Kiev has already shown its ability and willingness to effectively integrate financial aspects of the crisis with those related to its strategic defense. Just recently, it suspended the disbursement of payments and services to the occupied territories when the separatists violated the terms of the Minsk Protocol agreement. With this in mind, there is reason to think debt-related negotiations between Ukraine and Russia could conclude by autumn so as to discourage further Russian incursions this spring and summer. 

Many will wonder why Ukraine should pay Russia anything. Stability may be a price worth paying. 

The opinions expressed in this article/multimedia are those of the author(s) and do not necessarily reflect the views of CIGI or its Board of Directors.