Why does the IMF lend lots of money to Ukraine?

The IMF is busy lending to a European country in deep difficulties – and this time it is not Greece. It looks as if current IMF lending has just got more political, with the IMF acting as some banking arm of European Union expansionism and centralisation. It is lending to Ukraine.

The good news is that this lending, unlike the loans to Greece , is to a country with its own currency. It can devalue, and just has undergone a massive devaluation. The Hryvania has fallen from 23 to the £1 in November last, to 32 to £1 now.

The bad news is that the loans are to country which just like Greece has a government which wishes to write off or renegotiate its past debts. Lending to countries which say themselves they already have too much debt and need to cut them, if necessary without the agreement of creditors, is a very risky and arguably unhelpful thing to do.

On top of that bad news, just as Greece has experienced economic collapse with large falls in output thanks to the Euro scheme, so Ukraine has suffered a sharp fall in output owing to a civil war and to the loss of some of the industrial parts of the country’s economy.

In Ukraine national income and output fell 6.9% last year, and the IMF thinks it will fall another 5.5% this year. The Finance Minister is seeking $15 billion of debt relief, saying she intends to carry through a mixture of offering a lower interest rate on past debts, extending the date before the money is repaid, and simply cancelling some of the value of the debt owing.

Ukrainian debt currently trades at around 40 cents for each dollar owed. The country has very high inflation, weak banks, and a large shopping list for weapons.

All this bodes ill for the success of the debt programme. It also should raise questions in people’s minds about the kind of Europe which the EU is creating. The slaughter has been extreme, the country has failed to keep its people friendly to Russia onside, and it has been outwitted by Russia herself with the annexation of Crimea. I of course condemn any Russian military interference in Ukraine, and condemn the deaths of UKrainian citizens by the rebel forces. I also dislike some of the actions of the present Ukrainian government, which has not found a way to stabilise its country and protect its own citizens, and condemn violence by the Ukrainian state against its own people. The EU has had no answer to this. The Ukrainians that look to the EU for their future should ask why they are now so much worse off, and why their lives have been endangered by recent events.


  1. Lifelogic
    March 16, 2015

    I agree fully with all you say on this. But why has Osborne lend large sums of money to the IFM? If the UK wants to lend to other countries for some reason why not do it directly and keep control of the lending?

    It seems Osborne’s electoral strategy is to buy voters by giving them access to their own pension money (after taxing it at up to 45% of course). Sounds a good plan but he also needs something like a new right to buy scheme – to pull in more of the poorer floating voters.

    But how on earth is the annuity sell back going to work in practice? People’s annuities are worth different amounts depending on their life expectancy. This depends on their age, heath condition, job, hobbies, weight and gender (despite Cameron’s idiotic gender neutral annuity laws which cannot change reality).

    Osborne must now abolish IHT and say he will do it on May 8th if elected. Given the six year wait since he “promised” the £1M threshold (and then ratted on it )and his 299+ tax increases then this is the very least he can get away with. It will finally send a real signal and positive vision to all that once you have earned your money (and have paid your 45% income tax) the money is yours to spend, give away or invest just exactly as you wish.

    It is not something the government should steal off you a second time.

    1. Roy Grainger
      March 16, 2015

      Actually your pension money can be taxed at 55% if you are unfortunate enough to a smart enough investor to have grown your pension pot above the arbitrary LTA – penalising success. As they have imposed a limit on how much you can pay into your pension (currently 40k a year) imposing another limit on how much can be in there makes ($1.2M) no sense at all.

      1. REPay
        March 16, 2015

        Of course, no such limit or taxation strikes the senior policymakers (elected and unelected) who are funded through public taxation. I don’t begrudge our lawmakers their generous pensions, but the many public sector with six figure salaries should be forced to fund their own retirements either completely or to a much higher degree.

        1. Hope
          March 16, 2015

          Of course this is the same Cameron who said he would not bail out countries either directly or indirectly. This is why the US was sceptical over the appointment of Legarde as she might politicise the IMF lending to help the Euro project. It appears this is what is happening by lending the Urkaine money ie to help the EU project and its expansionism. Totally disgraceful. Nevertheless in accord with Cameron’s pattern of behavior to say one thing to get a vote and do the opposite. Vote for change, do not let the LibLab Con cartel set the agenda.

      2. Lifelogic
        March 17, 2015

        Yes 55% but only over the cap – that Osborne lowered still further.

    2. Lifelogic
      March 16, 2015

      Of course this pension relaxation would be a new direction from Osborne who continued Browns mugging of private sector pensions by reducing contribution limits to 40K PA and reducing the cap.

      His plans for relaxation will also conveniently for him bring forwards tax receipts – where people take the benefits early.

  2. Ex-expat Colin
    March 16, 2015

    Trouble is this region contains quite some blood thirsty groups…those that hate/kill. Reminds me of an earlier near neighbour? Its about the gun if you don’t get your way.

    Ukraine as I understand it recently went to the UAE and I don’t think it was for a bit of sun either.

    Has Ukraine paid their gas bills yet..I think the individual customers have and are wondering where that money went?

    All in all its the last place that money needs to be lent. But, the VIs of Europe/USA have sure need to run the path of ruin.

    Don’t need a referendum…simply duck out now.

  3. alan jutson
    March 16, 2015

    Seems like politics are now involved in almost everything John, so why are you surprised.

    Someone else’s money, someone else’s debt, who cares if it never gets repaid, its only taxpayers money !

    Seems to me that is how many politicians think about it, perhaps you are the exception ?

    1. Cliff. Wokingham
      March 16, 2015

      Indeed Alan, today my council tax bill came through the letterbox and left it’s large crater in my floor.
      I see that the police charge has increased by Two Percent, even though the State’s Broadcaster bangs on about massive cuts to the Police service.
      I noticed yet another large glossy brochure telling me how well they’ve spent my money, a flyer on super fast broadband and, the cherry on top, the flyer telling me to be full of the joys of spring; mind you, with it being a North Korea style flyer, telling me to get fit and a bill for well over a grand, I thought it rather took the mickey and I haven’t felt full of the joys of spring since it arrived! Knowing how inefficient and bad the public sector are at getting value for money, I wonder how much all this full colour printing has cost including for the design and distribution of the package.

      I see that the amount of advertising by the state on both the television and wireless has increased again……I wonder who Dorothy Gov actually is given that she is on almost every advert. (dot gov):-)

      1. alan jutson
        March 16, 2015


        Agreed got mine today as well, over two grand !

        But if I was single living in the same house then I would save 25%.

        Thus the amount is nothing to do with the services you get, its all about the value of the house you live in, in my case actually built myself.

        Hence why I was in favour of the Poll Tax as a fairer way to charge (share the cost) all of the people with the services provided.

        1. Cliff. Wokingham.
          March 17, 2015

          Yes Alan, I too prefered the concept of the poll tax. In my opinion, it was just badly implemented. Had the amount per head been fixed across the country, then it would have been far better and would not have been so easily manipulated by local authorities to make political points.

          It is sad that council tax is based on property value rather than anything else, the more wealthy a household is, the less likely they are to use umpteen services provided by local government.
          Just like so many areas of our lives, we need a grown up debate about taxation and what we expect from the state and how much we want to pay for it.
          When I hear a politician talk about “fairness” I cringe because I know, at one level or another, it will cost me dear and seldom, if ever, seems fair or perhaps, my understanding of the word fair is completely different to that of politicians.

      2. Bob
        March 18, 2015

        @Cliff. Wokingham

        “I see that the amount of advertising by the state on both the television and wireless has increased again”

        With a £3.6 billion a year taxpayer funded Public Service Broadcaster one has to wonder why the govt have to pay commercial channels to carry PSB announcements. One shouldn’t have to wonder for too long though, unless one is rather gullible.

  4. Ian wragg
    March 16, 2015

    It’s time the IMF was lead by someone from the Brics. British taxpayers are contributing to another failed state via the IMF.
    We have no interest in Ukraine and the EU should stop poking it’s nose in.
    This is what happens when you give our sovereignty to France and Germany . Is this why Juncket wants a European army to challenge Russia

    1. Mitchel
      March 17, 2015

      I think the US might like a European army to be available to challenge the Russia but I believe the EU wants one more for internal purposes or possibly out-of-area deployments.

  5. Stephen Berry
    March 16, 2015

    The Kiev government, the EU and NATO have received a well-deserved trouncing in the Ukraine and the coup d’état organised to overthrow the democratically elected government of President Yanukovich has spectacularly backfired. We are left with a failed state and huge bills. This result is in line with other recent examples of Western foreign policy in the Middle East, so we can detect a certain continuity here. The wish to bring Ukraine into the EU and NATO must now be put on hold. To cap it all, Poroshenko has tumbled down the Forbes Billionaire Rich List.

    When the residents of the Donbass region rose in revolt because their Ukrainian government had been overthrown by force, the leaders of the Kiev putsch decided to continue the use of force and brutally crush them. Thus, we saw a stand-off between Kiev backed by the West and the Donbass rebels back by Russia. Why has this turned out to be such a fiasco for the EU and NATO? Two main reasons can be detected.

    First, NATO’s tried and tested method of gentle persuasion, the bombing campaign, could scarcely be employed in the Ukrainian crisis. What had been used with such alacrity in Serbia, Afghanistan, Iraq, Libya and Syria could hardly be ventured against Russia. True, Russia can be bombed, but it was also possible for Russia to bomb back. Russia is not a militarily ineffectual Third World country and in Putin, the EU and NATO must have known they were dealing with a man who could not be trifled with. Hence the hysterical fist waving in the Western media whenever Putin’s name is mentioned.

    But the second reason is, in my opinion, the more important and interesting. There are a number of countries in the EU who want and benefit from good relations with Russia and do not share the present US obsession with weakening Russia at every opportunity. The most prominent of these is Germany which is Russia’s most significant trading partner. I doubt whether Merkel was consulted on the policy to destabilise the Ukrainian government. Certainly, she must be hopping mad as to how the Ukrainian stand-off has so badly damaged Russo-German relations. It’s clear she wants the Ukrainian problem fixed and German differences with the US on this matter are not just ‘tactical’ as Obama recently fondly maintained. US and EU interests do not always coincide and the Ukraine crisis acts as a big red flag to both parties.

    1. Mitchel
      March 17, 2015

      Whether Merkel was consulted on “the policy to destablise the Ukrainian government”or not she must have been either blind or deaf,possibly both, not to be aware of it going on.Does she take no interest in EU matters until they develop into crises?After all she remains a supporter of an expanding,deepening Europe.

      It will be interesting to see how Germany positions herself when the EU sanctions against Russia have to be renewed in a few months time as it will require a unanimous vote by all member states for this to be carried.

  6. Denis Cooper
    March 16, 2015

    Maybe it’s worth recalling what Christine Lagarde said in an interview with the Wall Street Journal on December 17th 2010:

    “We violated all the rules because we wanted to close ranks and really rescue the euro zone.”

    “The Greek and Irish rescues – €110 billion and €67.5 billion, respectively – and the creation of the bailout fund were, Ms. Lagarde said, “major transgressions” of the Lisbon Treaty that is the European Union’s governing document. “The Treaty of Lisbon,” she says, “was very straightforward. No bailing out.””

    And they were also “major transgressions” of the IMF’s rules.

    1. Hope
      March 16, 2015

      Well said Dennis, as usual spot on the money. So why did not Cameron and Osborne speak out against it or use it as a tool to renegotiate the UK position in the EU?

  7. Bert Young
    March 16, 2015

    The truth is the Ukraine is more naturally linked to Russia than it is to Europe and the West . It always relied on Russia for its energy supply and its more industrial eastern area has equally relied on Russia for its export and trade .Trying to establish links with the West now means establishing new routes and outlets – probably against the wishes and traditions of the producers .

    The IMF is foolish to believe that by supplying the Ukraine with funds it will oblige it to follow its rules . The Ukraine will follow the will of its people – one way or another . Outsiders should recognise this and allow it the room to do so .

    1. Alan
      March 16, 2015

      If the Ukraine is more naturally linked to Russia than to western Europe, it is strange that Russia uses armed force to further its objectives. You would think there would be less dangerous ways.

  8. Brian Tomkinson
    March 16, 2015

    JR: “Why does the IMF lend lots of money to Ukraine?”
    To aid the EU’s expansionist policies.

    1. REPay
      March 16, 2015

      I think Christine Lagarde could make a great president of France. I am now worried she might prefer a role in Bruxelles…

  9. rick hamilton
    March 16, 2015

    If Scotland had become independent and pushed out Trident, then years later offered the same naval base to the Russian fleet we British would feel betrayed and outraged. Voices would be raised that we should invade Scotland and keep the Russians out. Of course no UK politician would have the spine to do so. But Putin has that spine, in roughly comparable circumstances related to Sebastopol where he feared his only warm-water port would fall under NATO control.

    I see nobody else to blame for the Ukraine mess than the EU, its desire for Ever Greater Union and its hopeless excuse for a foreign policy.

    1. Cliff. Wokingham
      March 16, 2015

      I couldn’t agree more.

    2. Jerry
      March 16, 2015

      @rick hamilton; Whilst I agree with almost all you say I disagree with your conclusion, unless there is anything in the Treaty of Lisbon (or any of the Treaties governing membership of the EFTA/EEA) that prevents a EU member country from not also being a member of NATO – and if there is then France will have been in breach until recently.

      Surely the blame lies with NATO perhaps more than the EU, and as such there is as much a stain on the hands of politicins in the USA as there are in Brussels.

  10. Mitchel
    March 16, 2015

    Given the level of corruption in Ukraine and its unreformed economy,the IMF is quite blatantly being used -and not for the first time-as an instrument of “western” foreign policy.It’s no wonder the Chinese and Russians and others in their orbit are keen to establish an alternative financial architecture and look for ways to undermine the petrodollar.

    Despite much waving of western government chequebooks,it seems,according to an article in the Economist last week,that by the end of this year the average Ukrainian will be around one third worse off compared to the position at the time of the dissolution of the Soviet Union.

    I came across this telling passage in D M Thomas’s 1998 biography of Alexander Solzhenitsyn recently :-

    (In 1917)”The Germans took possession of the Ukraine and the crimea.The Ukrainians anticipated a civilised economic union,but instead found they faced concentration camps,food requisition and mass executions.Some 20 years later they would welcome the Germans again with flowers and cheers,as their liberators,and,again,would find a different reality.The 20th century is an illustration of the Freudian doctrine of the “compulsion to repeat””.

    Are they hoping for third time lucky…or will Freud be proved right again in the 21st century?!

  11. Gumpy Goat
    March 16, 2015

    hmm better a part of the EU than the Russian empire

    1. Jerry
      March 16, 2015

      @Gumpy Goat; “hmm better a part of the EU than the Russian empire”

      Hmm, indeed, considering that the last democratically elected majority government of an undivided Ukraine had pro-Russian leanings…

  12. Alan
    March 16, 2015

    I imagine those Ukrainians who “look to their future in the EU and ask why they are so much worse off now” will come to the conclusion that the Russian seizure of the Crimea and assistance to the pro-Russian rebels have seriously damaged the Ukrainian economy.

    I don’t think the EU is to blame for the seizure of the Crimea, or the civil war in the Ukraine. I think it is right to be giving financial support to the pro-western parts of the Ukraine.

    1. Vanessa
      March 16, 2015

      The EU most certainly is responsible for the mess in Ukraine as it started with the “Trade “treaty they wanted the government to sign. But the Ukraine government actually READ the treaty (unlike our lot who sign treaties without reading them) and told the EU he could not sign because it was not just a trade agreement but a demand to join the EU.

      1. turbo terrier
        March 16, 2015

        Spot on the button Vanessa. You couldn’t make it up. Will they learn from it? In your dreams.

      2. Alan
        March 16, 2015

        Even if that is true, how on Earth would it make the EU responsible for Russia seizing Crimea and supporting rebel forces in east Ukraine?

  13. Tad Davison
    March 16, 2015

    I was going to do a lengthy piece on this, and whether or not the IMF should lend to insolvent countries, but I can wrap it up quite simply.

    The ordinary people of this world need out of this madness altogether, and if it takes a global revolution to get the power back from the maniacs who presently run it, who con the public so they can continue to milk the system, then so be it. It won’t come a minute too soon!

    Hopefully, the necessary changes will come through the ballot box, not the bullet. It nearly happened once with the election of FDR, but unfortunately, he left in place the mechanisms for it to come back again like the remnants of some malignant tumour. And come back it did – with a vengeance!

    The IMF is just a manifestation of what is wrong with the entire global financial system.

    Tad Davison


    1. Hope
      March 16, 2015

      Well said. Voting for change starts in the UK in May.

  14. They Work for Us?
    March 16, 2015

    Madame Lagarde does it again in the interests of furthering the EU superstate at everyone else’s expense and not in the interests of IMF contributors. We should refuse more money to the IMF until la Lagarde goes and replace her with a non European, genuinely independent and impartial chairman/president whatever. We should also, where we can do it, oppose and veto any new EU or UN post where an attempt is made to shoehorn her in under the old pals act.

    1. acorn
      March 16, 2015

      The IMF press release is a master piece of political speak. Sir Humphrey Appleby, GCB, KBE, MVO, MA (Oxon), would be proud of it. http://www.imf.org/external/np/sec/pr/2015/pr15107.htm

  15. majorfrustration
    March 16, 2015

    Well the IMF is sort of removed from the donors – UK for example. Hardly think or Civil Service would chase anything up allied to the fact that when the chickens come home to roost everybody has moved on and the culture of “not me guv” takes over. And so a few more billions is wasted. It would be interesting to establish how much we have invested in the IMF – where its gone and what amount should be considered

  16. Roy Grainger
    March 16, 2015

    I suppose the IMF can do whatever they want as they are under no democratic control at all.

  17. forthurst
    March 16, 2015

    “…Ukraine has suffered a sharp fall in output owing to a civil war…”

    …which makes it even more remarkable that neither the Press Release issued by the IMF nor that by Christine Lagarde makes any mention of the civil war or its potential continuation by Poroshenko. Does the IMF believe that the terms of their loan can be satisfied irrespective of whether Poroshenko invests the cash in arms or in industrial development, in compulsory conscription of its workforce for belligerent purposes, which has seen many of military service age skip the country, or for training and employing them in productive activities?

    Perhaps, Natalie Jaresko , an American citizen who used to work in the US State Department, has friends in high places; either that or the neocons and their EU lackies would have looked rather foolish if the Ukraine had run out of money, as it was about to, so soon after implementing its exclusively EU facing strategy (if it can be called that).

    Perhaps, also, the IMF might have suggested the Ukraine government sticks to peaceful means to fight its political opponents in order to forestall the speight of ‘suicides’ by ex-supporters of the deposed President, Yanyukovich: etc ed

  18. Vanessa
    March 16, 2015

    I don’t know – why does the IMF lend so much to Ukraine ? It is run by a European who only has the EU enlargement and control at the heart of all she does despite the Eurozone being in permanent meltdown. It is going to have to implode, it is not sustainable to keep propping up a failing project.

    Also why should we keep paying into the IMF ? As someone so astutely wrote somewhere “why should we pay taxes when they can print all the money they need?” Good point I think.

  19. Margaret Brandreth-J
    March 16, 2015

    Stir up trouble, get the boys to milk them, play all sides, ruin them ,make them dependent .. Take control, increase power! Now where have we seen this before?

  20. Jon
    March 16, 2015

    I don’t disagree with the thrust of the argument but the IMF is not part of the EU or is there a connection behind the scenes. Yes it’s headed by Christine Leguard but is it’s direction heavily influenced by the EU and would that £17.5bn loan be loaned regardless of the EU by them?

  21. Mike Stallard
    March 16, 2015

    If you put someone who has absolutely no experience of foreign policy, only some supervision of Nhs trusts, in charge of the European Union’ relations with outside powers, then please do not expect peace.
    If you put a French Banker in charge of the IMF, then do not expect the EU to be far away.
    If I were M. Putin and I saw Baroness Ashton’s face in my country urging people to rebel against a friendly allied government (Ukraine), I would move heaven and earth to stand up for my ancestral home.
    Now we have a different High Representative with no army, no experience and lots of lovely hair. I forget her name…

  22. ian
    March 16, 2015

    The reason the government put limits on pensions is because they might of felt guilty about high earners taking the income tax they pay back out in pension contribution and lowering their tax rate. The average worker pay in about 3% to 8% of their wage, that if they have any to pay in because they usually broke, before these limits were put on most high flyers were paying a income tax rate much lower. Like I say tax system is set up for the rich, now wet & mad is talking about letting them take out their 1.2 million tax free. Out of the 54 billion in pension contribution less 8 billion for the bad accounting which leaves 44 billion I say half go to the well off. Before when we had the 40% income tax limit you would have been lucky if they were paying 10% income tax rate, like they were paying 18% under mr brown CGT as wages and not paying NI, as I sit hear I wonder what their next big tax brake will be. They make out that its for you so you can take out your 10 or 60.000 pounds tax free but I think 1.2 million sounds a lot better don’t you. Yesterday john posted my idea on pensions, this would mean they would have start paying tax and the small people would be a lot better off with between 8% and 15% the government paying into they workers pension. What the point in paying tax, at the top they get it nearly all back.

  23. petermartin2001
    March 17, 2015

    Why does the Ukraine need to borrow money (presumably euros or dollars ?) from the IMF? What’s the matter with its own currency?

    It’s OK for the USA to ‘borrow’ in US$. Even though it has a National debt of some $18 trillion it can never default on any “loan” it makes to itself in $. The dollar is the IOU of the US so its debatable whether it can actually borrow back its own IOUs any more than you and I can borrow back our own IOUs. But, on the other hand, it’s not OK for the Ukraine to borrow in dollars.

    It ‘s probably being unrealistic to say the Ukraine should never take out any loans in US$ or euro but it should think once, twice and three times before doing so. Loans in a foreign currency can be a big problem as Argentina has found out the hard way.

    If it wants to buy ‘stuff’ from Germany or the US then they should offer to pay in only Hyrvania. If the big exporting countries want the trade to happen, which they will, they’ll have to take them. Just like they take US$ and £ – even though they are only accumulating lots of foreign currency reserves which they can’t spend.

    The last thing that Ukraine needs right now is to allow the Eurocrats and the IMF too much of a hold on their economy. They’ll have jumped from the Russian fire into the EU frying pan if they allow that to happen. They need to build up trade links with both Russia and the EU, which is why a negotiated settlement to their dispute with the Russians should be their number one priority.

  24. ian
    March 17, 2015

    Wet & mad next tax giveaway for the rich, onshore and offshore will be to deceive you with IHT, He will announce the abolition of IHT on homes instead of moving the limit up to 1,000,000 pounds or both, now most people on this site would of been happy with the million pounds limit but by doing this it will push up house prices and give billions away in tax to families hear and worldwide, this is because he virtually done away with holding a property in a offshore company and he will have to bring in a withholding tax on oversea people property this budget weather in his speech or just write it in the book, even if labour win the election they will be under pressure to do it.

    Their all propaganda, they cannot even give the working person a proper pension because they to busy seeing what they can get out the system for the rich so that leaves no money for the poor of this country but lot of money for rich oversea people who will pay no tax

    I am feed up seeing poor people all over the place who will be living on just the old age pension with may be a small annuity or not. The new pension which starts in 2016 they say will pay 156 pounds a week, I think it will be 142 pounds a week and if you have opted out for a private pension you will only get what the old age pension pays this year 113 pounds plus inflation so if your annuity is only 20 or 30 pounds a week you will be out of luck. You will have to cash your annuity in quick next year and spend the money so you qualify for a hardship pension which is just what wet & mad has planed to bring the country out of down turn late this year, while your busy spending your bit they would of given their families billion in tax cuts.

  25. Lindsay McDougall
    March 18, 2015

    Even with the drastic fall in the oil price, Russia could still probably afford to bail out Ukraine, because of Russia’s low debt to GDP ratio. The US and the EU appear to have closed off this possibility.

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