Another hard choice between East and West

19.03.2012 | kyivweekly.com.ua

Foreign reserves crisis on the cusp

Business News Europe has reported that Ukraine´s foreign currency reserves have shrunk by a quarter since August, putting immense pressure on the hryvnia, and because the local currency has a fixed-rate exchange, hard cash is essential for its stability. For once, the government is not wholly at fault for this threat to the economy, since the unfortunate confluence of falling steel prices, rising natural gas prices, and the Eurozone financial crisis are well beyond Ukraine´s control or influence. The collapse of the hryvnia would be an economic and political disaster, of course, and to avoid this, the government must once again decide between accepting help from East or West, in the guise of Russia or the IMF. The Yanukovych administration´s decision to alienate Ukraine from Western donor organizations and the EU through its policy of selective prosecutions, failure to enact structural reforms and thumbing its nose at EU associate membership means that it has little choice but to cozy up to the Kremlin again and beg for help. The IMF is playing hardball by not only demanding proper economic reforms, but also the release of what it calls political prisoners before handing over any more cash. In other words, the IMF is telling Ukraine to declare itself, either as a part of democratic Europe or authoritarian Russia. The so-called multi-vector foreign policy of Ukraine has failed, and with the secure return of Putin as ruler of Russia, Yanukovych and Co. have lost any leverage they might have had with the Kremlin to counterbalance European interests in the region. As a result, in the coming months the government will have to decide who might be its long-term partner.

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