Summary
Ukraine’s Economic Crisis was in the limelight due to a lack of resources and visibility of ineffective governance. IMF aimed to help the country with mega loans, but corruption was a key element, which restrained the company from containing economic growth and progress. Viktor has his vision, as he preferred Russia for different trade agreements instead of relying on countries in European unions. The resistance of stakeholders and a lack of effective government structure caused this struggle. Even after getting loans from the IMF, the government cut unemployment and insurance costs, which made things worse for the country. IMF intended to impose austerity policies on the country to help the company regain its economic growth. However, it was not a single solution for the country.
What do you think Victor Yanukovych walked away from a trade agreement with the EU in favor of close ties with Russia? What did he gain by doing this? What did he lose?
Viktor Yanukovych walked away from the trade agreement with the EU in favor of ties with Russia. The reason behind this move was to gain short term economic benefits instead of emphasizing long term outcomes. Russia was ready to help the country through investing in different sectors. Also, trade with Russia seemed less costly for the country as compared to countries in Europe. Unfortunately, he did not gain anything, as protests and resistance from government stakeholders made the situation worse. He lost his position and economic growth due to this consideration.
What were the root causes of Ukraine’s currency crises? Without help from IMF, what might have happened?
The root cause of Ukraine’s current crisis was a lack of investment and increasing unemployment. It has been revealed that the country failed to generate wealth through industry revolutions. Trade agreements with both Russia and the EU were in jeopardy. Without the IMF’s intervention to help, the country could have become bankrupt. Civil war might begin in the country, which could also block growth opportunities and progress. Without the IMF, the country might not be able to eliminate or reduce corruption, as the institution is forced to take initiatives to create the space for more loans.
Were the policy recommendations made by the IMF reasonable?
Policy recommendations made by the IMF were reasonable. For Instance, the financial institution compelled the company to implement austerity policies. The most important thing for the country was to reduce the cost and generate more wealth. IMF wanted to advance loans with strict policies, as it seemed reasonable. However, critically, these policies or recommendations were controversial due to stable unemployment, growing Inflation, and declining growth rate. There was a need for some immediate actions to help the country to get rid of this situation.
Why do you think the Ukrainian government balked at fully implementing the IMF policies?
The government balked at fully executing the IMF policies or recommendations due to many reasons. For Instance, strict policies or recommendations compel the country to put more burdens on people at the bottom-line. Also, the IMF did not guarantee immediate economic growth or progress. The government hesitated to implement policies due to immense criticism by government stakeholders. Getting loans at higher interest rates and putting the burden on people might lead to a civil war, as it could be a disaster for the country. The IMF did not ensure Inflation, employment, and growth rate, and on the other hand, the government wanted initial returns.
Was the IMF right to suspend disbursement of monies under its loan program in October 2015? Under what conditions should the IMF resume making loans?
IMF got the right to suspend disbursement of monies under its loan programs. Ukrainian government failed to eliminate corruption or depict any measure to create more space for loans. IMF had reservations regarding structural changes and corruption, which may hit their expected returns from the country. Thus, the institution had a right to suspend loans, as corruption was a significant barrier in spending the money in the right way. Thus, making changes according to recommendations could create the environment according to the IMF’s expectations, and it could make the deal successful.
What might happen if the IMF discontinues its loan program to Ukraine, as it has threatened to do?
The country can become bankrupt if IMF discontinues its loan program. It is a fact that the state does not have adequate resources to lift the economy. It has to depend on other countries and international financial institutions to run the economy. The financial institution streamlined the need for privatization, government reforms, and strict corruption measures. If the IMF does not have an appropriate environment, it may discontinue the loan program, and it will be a massive disaster for the government. Thus, for the betterment of the economy, demands of the IMF must be met.
Could the IMF have done anything differently to avoid the situation it now finds itself in?
The IMF has done it differently to lift the economy of the country. Privatization may help to generate more wealth and create employment opportunities. Government, political, and structural reforms are good initiatives, supported by IMF, to contain steady growth in the end. It seems different, but the government has to support these broader policies of IMF to get early results.
Questions
- How can the IMF help the country to boost its economic growth and sustainability?
- Why should a country consider IMF policy recommendations?
