Michael Hudson — Losing Credibility: The IMF’s New Cold War Loan to Ukraine

Calling out the IMF as a neoliberal shill. The surrounding circumstances are even worse. Under the cover of demonizing Putin.

Oh, and does the IMF have any credibility left to lose?

In April 2014, fresh from riots in Maidan Square and the February 22 coup, and less than a month before the May 2 massacre in Odessa, the IMF approved a $17 billion loan program to Ukraine’s junta. Normal IMF practice is to lend only up to twice a country’s quote in one year. This was eight times as high. 

Four months later, on August 29, just as Kiev began losing its attempt at ethnic cleansing against the eastern Donbas region, the IMF signed off on the first loan ever to a side engaged in a civil war, not to mention rife with insider capital flight and a collapsing balance of payments. Based on fictitiously trouble-free projections of the ability to pay, the loan supported Ukraine’s hernia currency long enough to enable the oligarchs’ banks to move their money quickly into Western hard-currency accounts before the hernia plunged further and was worth even fewer euros and dollars. 

This loan demonstrates the degree to which the IMF is an arm of U.S. Cold War politics. Kiev used the loan for military expenses to attack the Eastern provinces, and the loan terms imposed the usual budget austerity, as if this would stabilize the country’s finances. Almost nothing will be received from the war-torn East, where basic infrastructure has been destroyed for power generation, water, hospitals and the civilian housing areas that bore the brunt of the attack. Nearly a million civilians are reported to have fled to Russia. 

Yet the IMF release announced: “The IMF praised the government’s commitment to economic reforms despite the ongoing conflict.”[1] A quarter of Ukraine’s exports normally are from eastern provinces, and are sold mainly to Russia. But Kiev has been bombing Donbas industry and left its coal mines without electricity.
This loan is bound to create even more dissension among IMF staff economists than broke out openly over the disastrous $47 billion loan to Greece – at that time the largest loan in IMF history – prompted a 50-page internal document leaked to the Wall Street Journal acknowledging that the IMF had “badly underestimated the damage that its prescriptions of austerity would do to Greece’s economy.” Staff economists blamed pressure from eurozone countries protecting their own “banks [that] held too much Greek government debt. … The IMF had originally projected Greece would lose 5.5% of its economic output between 2009 and 2012. The country has lost 17% in real gross domestic output instead. The plan predicted a 15% unemployment rate in 2012. It was 25%.[2] 

The IMF’s Articles of Agreement forbid it to make loans to countries that clearly cannot pay, prompting its economists to complain at last year’s October 2013 annual meeting in Washington that their institution was violating its rules by making bad loans “to states unable to repay their debts.” In practice, the IMF simply advances however much a government needs to bail out its bankers and bondholders, pretending that more austerity enhances the ability to pay, not worsen it. Ukraine looks like a replay of the Greek situation with an exclamation mark!

Losing Credibility: The IMF’s New Cold War Loan to Ukraine
Michael Hudson | President of The Institute for the Study of Long-Term Economic Trends (ISLET), a Wall Street Financial Analyst, and Distinguished Research Professor of Economics at the University of Missouri, Kansas City