It is very likely that Russian President Vladimir Putin tipped his hand months ago regarding one of the end-of-war scenarios that at least he would accept as having achieved an important goal or even victory in his Ukrainian ‘special military operation’ otherwise known as the Russo-Ukrainian War. In his February 2022 speech, signaling his decision to take military action, Putin discussed Ukrainian decommunization efforts and condemned them, retorting: “You want decommunization, we will show you decommunization”.
A look at the map below shows the regions of Ukraine that were handed to the Ukrainian Soviet Socialist Republic (Ukraine SSR) by Bolshevik Soviet leader Vladimir Lenin in 1922 as the territorial-administrative formation of the USSR after the Red victory over the Whites in the civil war was implemented.
The map’s area in pink and gray display the regions Lenin gave to the new Ukraine SSR in 1922 and the Crimea which Khrushchev handed Kiev in 1954, respectively. It is no coincidence that it was Crimea in 2014 and the Donbass regions of Luhansk and Donetsk in Ukraine’s far east in 2014 and that it is the remainder of those regions’ territories plus Kharkiv in the north and Zaporozhia, Kherson, Nikolaev, and Odessa now that have been at the spearhead of Putin’s military moves in Ukraine. The war map as of June 12 shows Russian forces (red-colored portion of the map) having occupied much of the very same pink area (‘Novorossiya’), adding to plus gray shaded Crimea annexed in 2014. The red
areas of Russian-occupied territory include all of the the pink and gray areas incorporated into Ukraine by Lenin in 1922 and Khrushchev in 1954 except for Kharkov (Kharkiv) in the northeast, Nikolaev, where Russian have entered but not moved deep into the region, and Odessa, which is rumored to be on Putin’s target list should Zelenskiy continue to reject peace talks.
The move towards Kiev at the beginning of the war may have been a feint — Edward Littwak argues credibly that its was a failed coup de main or coup de etat by a foreign power) designed to hold troops there and make the Lenin-added east and south easier for the taking. Putin may have seen the present goals in the east and south as part of Plan A along with Kiev as a target and then backed off and accepted Plan A minus Kiev as Plan B, which is to complete the ‘de-Leninization’ or ‘de-communization’ of Ukraine begun in effect in 2014 by annexing Crimea gifted to Ukraine SSR by Lenin’s ultimate second successor, Nikita Khrushchev. Whatever the original plan, Russian forces continue to press slowly forward and could occupy the 1922 territories by summer’s end should negotiations continue to be rejected or stall again. Thus, the direction of the present Russian war offensive suggests a goal of returning the territories given to Ukraine by Lenin in 1922. To be sure, this will bring several other benefits should Moscow decide to hold these territories as independent protectorates or as members of the Russian Federation, which is likely since the casualties, sanctions, and false propaganda being leveled by the West and Kiev need to be compensated for in the Russian mind. The benefits include: numerous natural and labor resources in these regions ranging from coal to natural gas to mining and steel production and other labor; the formation of a land bridge from Donbass to Moldova’s pro-Russian breakaway republic of Transdnistria; a bridgehead threatening to cut Ukraine off from the Black Sea; and the incorporation of a significantly pro-Russian population back into the Russian fold.
Putin has no love lost for Lenin and his communist experiment, especially the aspect of the latter that ignored indeed denigrated Russian nationality and bourgeois patriotism in service of the global socialist revolution to which Lenin was solely dedicated. Lenin was famous for condemning ‘Russian chauvinism’, and figures as diverse as Lenin’s fellow Bolshevik Leon Trotsky and American historian Richard Pipes noted that Lenin hardly knew Russia, especially after having spent nearly two decades in European exile before his German-sponsored return in April 1917.
For his part, Putin has not been shy about criticizing Lenin and the Soviet experiment. Putin is especially repulsed by Lenin’s collusion and treason in cooperating with and receiving financial and logistical support form the Central Powers in order to foment revolution and then organize the October coup while Russia was besieged during a failing war effort. Putin seemed to accuse Lenin of “treason” twice in 2012, and he has been highly critical of Lenin, the Bolshviks, and at times even Soviet power. Like many Party-state apparatchiki who jumped the sinking Soviet ship of state in 1990-91, then deputy mayor of St. Petersburg Putin rejected “that person” and Marxism-Leninism in a 1991 interview, saying he came to understand as he matured “more and more clearly the obvious truth” that communism was but “a beautiful but harmful fairy tale; harmful because its implementation or any attempt to carry it out in life in our country brought in the end enormous damage.”[1] At the beginning of his third-term, Putin accused Lenin and the Bolsheviks of “national treason” in World War I. At the July 2012 ‘Seliger’ Youth Forum, Putin accused Lenin and the Bolsheviks of “a unique, major example of national treason” for having “wished the defeat of their own country in the First World War,” making “their own contribution to the extent they could in Russia’s defeat,” and for the “amazing situation” of having “capitulated” so that “Russia lost to the losing side, Germany.”[2] At a June 2012 session of the Russian legislature’s upper house, he repeated the accusation of “national treason” and capitulation in war to the losing side, which, he exclaimed, was “a unique situation in all of mankind’s history.”[3] А year later, Putin again castigated Marxism-Leninism and by implication Lenin himself, telling a meeting at the Jewish Museum and Center for Tolerance that the Soviet regime was “guided by false ideological thinking, they moved to arrests and repression of both Jews and Orthodox, representatives of other faiths, Muslims. They raked them all in together. Now these ideological blinders and false ideological constructions, thank God, have collapsed.”[4]
More pertinently, in his long June 2021 article on the relationship between Russia and Ukraine and Russians and Ukrainians, Putin indirectly mentioned Lenin’s transfer from Russia of the regions noted above in forming the Ukraine SSR in 1922. He noted – incidentally quite accurately: “(M)odern Ukraine is entirely the brainchild of the Soviet era. We know and remember that to a large extent it was created at the expense of historical Russia. It is enough to compare which lands were reunited with the Russian state in the XVII century and with which territories of the Ukrainian SSR seceded from the Soviet Union. The Bolsheviks treated the Russian people as inexhaustible material for social experiments. They dreamed of a world revolution, which, in their opinion, would abolish nation-states altogether. Therefore, borders were arbitrarily cut, generous territorial ‘gifts’ were given out. Ultimately, what exactly guided the leaders of the Bolsheviks who were shredding the country no longer matters. You can argue about the details, the background and the logic of certain decisions. One thing is obvious: Russia in fact was robbed.”[5] Finally, three days before the February 24th invasion Putin warned in a speech signaling that he had already decided on military action: “As a result of the Bolshevik policy, Soviet Ukraine emerged. Which even in our day can by all rights be named Vladimir Ilyich Lenin Ukraine.” He then warned Kiev that if it wants decommunization represented by its dismantling of Lenin statues, then “We will show Ukraine real decommunization.” [6] Putin had essentially declared war (special military operation), perhaps only in his own mind at that point until the official declaration three days later. He did so in part for this territorial ‘decommunization’ as much as he did in the name of ‘denazification’ and ‘demilitarization’ of Ukraine and of course of stopping eternal NATO expansion to Russian borders. It is the last factor, its provocations in Ukraine, and Ukraine’s ultranationalist defiance of a great powers’ perceived self-interest and security that have sparked Putin’s desire to return these territories to Russia.
[4] “Poseshanie Yevreiskogo muzeya i Tsentr tolerantnosti,” Kremlin.ru, 13 June 2013, www.kremlin.ru/events/president/news/18336, last accessed on 10 October 2019. In January 2016 Putin ridiculed Lenin’s aspirations for “world revolution” and having “planted an atomic bomb under the building called Russia,” that “later blew up,” by creating national-territorial autonomies in the USSR. “Zasedanie Soveta nauki i obrazovaniya,” Kremlin.ru, 21 January 2016, www.kremlin.ru/events/president/news/51190, last accessed on 11 October 2019.
Mainstream media are focusing on a Russian hit against Odessa which they are interpreting, on the basis of no evidence that I have yet seen , as a reneging on their agreement to facilitate Ukraine grain exports (an agreement that I do not believe is limited to any particular port and has to do with port facilities not with entire cities!). Almost inevitably, further contextualizing information has yet to come and we will shall see what sense to make of it, and some of this clarification is provided by Mercouris (see my summary below):
In the meantime, Mercouris sees a possibility that the war is shifting, and the West, very grudgingly, is making concessions. There was talk yesterday that the great Ukrainian counteroffensive was starting, and that 2000 Russian troops had been encircled. It now seems clear that the Ukrainians did indeed attempt an offensive on Kherson but that this was repulsed after a few hours. The encirclement had probably not happened, another invention of Zelenskiy’s media spokesman.
Also in Kherson the Ukrainians have launched further HIMARS in an attempt to disrupt Russian communications across the Dnieper. They further attacked the road bridge they hit earlier in the week, and attacked a railway bridge across the dam. Russia claims to have shot down 12 HIMARS missiles, but some got through. No serious damage has yet occurred and repairs have commenced.
It is the British, particularly, says Mercouris, that are goading Ukrainians to attack with HIMARS. British media have been consistently harping on about the counteroffensive, encouraging a maneuver that is misconceived. The British are obsessed about the Kherson area, whereas the Russians are concentrating on the move southwards in Donetsk. The Ukrainian strategy is to simply stay on in the Donbas for as long as possible to give them more time to build defenses beyond Donbass. But the British want a big firework display.Russia is still fighting Ukrainians close to Seversk, and has reached central areas of the town of Solidar (not the correct spelling), preparatory to a major Russian offensive. Russians have captured half the forested area north of Slaviansk.
On the Istanbul meeting yesterday regarding the facilitation of Ukrainian grain from Ukrainian ports:
As part of the agreement the Western powers, specifically the EU, have had to reduce restrictions on Russian agricultural and other exports. The EU has accordingly announced a seventh sanctions package. But when you look at this package there is very little in it. There are further restrictions (unenforceable) on Russian exports of gold. Such restrictions have already been exercised. There is an extension in the list of prohibited items, more of the same, some new measures extending the import ban to locks in addition to ports.
Then, the major steps: relaxation of restrictions on public procurement, aviation, and justice. It will be easier for Russian to bring legal action in western countries. In aviation there may be more freedom to provide spare parts. Russians have been able to cannibalize existing aircraft for this purpose and have also found spare parts in China. And the EU may be getting worried about extension of sanctions to China. There may be swap of parts for titanium?
The most important thing is that for food and energy purposes, certain prohibitions on Russian public institutions, including to do with transportation of oil, wheat etc., have been lifted, and EU measures do not prevent purchase of pharmaceutical or medical productions from Russia. Previously food, fertilizer etc., even when not specifically identified, had been affected for fear of sanctions. Food, agricultural products including wheats and fertilizer, and pharmaceuticals are no longer sanctioned. Anyone can buy these from Russia and anyone can transport these. It will be fairly straightforward for Russia to increase these supplies in general and to Belarus more specifically.
But notice the EU has also extended exemptions to the transport of oil, including to such countries as India, China and Saudi Arabia. This trade is now specifically allowed.
What does all this mean? It draws attention to the much greater importance of Russia as a global provider of food and fertilizer than Ukraine. A major problem: several of the clauses are being kept secret, so there is no complete text. But we have clues: Russia confirms Ukraine is free to move food, and Russia will not launch attacks on ports facilities. Missile strikes on Odessa can and are continuing. But Russia will not attack port facilities or de-mining of ports for a period of three months, enough time to clear the existing Ukrainian backlog. We can expect that following this period, Russia may move on towards Odessa early in 2023. Russia is already forming the Odessa Brigade of anti-Ukrainian Ukrainians whose purpose may be an attack on Odessa and thus to capture the whole of the Ukrainian Black Sea coast.
So the agreement is time-limited. On the issue of mines, Russia has consistently argued that the mines were planted by Ukraine and that one of the problems in getting ships out of Ukrainian ports is the existence of minefields that Ukraine has refused to de-mine because of fear of Russian attacks on ships that pass through the fields. Do we know whether these ports will be de-mined? This may be the topic in the secret clauses. The mine fields will likely be de-mined and de-mined by Turkey, in collaboration with some non-NATO country. Turkey will inspect ships from Ukraine ports on their way to their destinations to make sure that the ships contain only food and the ships will also be inspected, with some Russian overwatch role, to make sure that they do not contain arms when they return. Since Ukraine has had no problem in getting arms in other ways, this agreement regarding arms may not have that much significance.
Putin has got everything he wanted from the agreement. Mercouris defines it as a retreat by Ukraine and the West in Putin’s favor. Why has this happened?
Anton (name has been changed) was a businessman in Ukraine. On February 24, he drove to the border with his wife and their two children to escape the Russian invasion. The trip, which usually takes only a few hours, took them almost the entire day.
But while they were still en route, President Volodymyr Zelenskyy banned men between the ages of 18 and 60 from leaving the country.
That meant Anton’s wife and children were allowed to leave for the EU, while he stayed behind — and immediately began to look for ways to reunite with them. “Duty to the family had priority,” Anton said. He drove to a village on the border with Romania, aiming to cross the Tisza River. “We were several men. But locals betrayed us and we were caught. We didn’t even make it to the river,” Anton told DW, adding that he later heard that smugglers usually take four people to the river for $5,000 (€4,930) each and show them where to cross. Anton was drafted into the army on the spot, but there was no suitable assignment for him so he returned home and made new plans to leave.
Tips found on social networks
The ban on leaving the country does not apply to single fathers, men who have three or more children, and people with disabilities. Students of foreign universities, drivers of humanitarian aid transports, as well as persons with permanent residence abroad are also exempt from the ban.
Some men who fall into neither of those categories but want to leave Ukraine choose the route via Crimea, which was annexed by Russia. Others enroll in a foreign university, find a job as a volunteer emergency aid driver or try to cross the so-called green border on foot.
Social networks offer various tips. The Instagram account “Departure for Everyone” has more than 14,000 followers. Private chats share information on how to retroactively enroll in a Polish or other European university — showing a date before the start of the war — within ten days for €980.
‘Men like me are called traitors’
Anton managed to leave Ukraine with the help of a charity foundation run by friends. “The foundation applied for an exit permit. We all drove, and the cars returned to Ukraine with humanitarian aid, but I stayed in the EU. Men like me are called traitors,” he said. “I’m not afraid of the front, and if I didn’t have children I would have been there long ago. But we didn’t have children so that my wife would have to survive somehow alone with them,” he added.
There seems to be quite some interest in leaving the country. “Legal Move Abroad,” a Telegram channel, has more than 53,000 followers and its backup channel, “Help at the Border,” has more than 28,000. For $1,500, the latter offers a certificate exempting a person from military service for health reasons. Another offer involves leaving the country ostensibly as the driver of a humanitarian aid truck. Allegedly, this allows ten men a day to get out of the country, at a price of $2,000.
Telegram also posts reviews by people who allegedly used those services: “I went as a helper, everything went faster and easier than I thought”; “Thank you for helping my son, he is now in Italy”; “I have arrived in Bulgaria, I am grateful.” DW wrote to several of these users, but only one responded, saying he did not want to “risk anything or tell anything.”
Most Ukrainian refugees in Poland, Germany
More than nine million Ukrainians have fled abroad since February 24, according to the UN. DW asked Ukraine’s border control service how many men are included in that figure but has not yet received an answer. The Ukrainian Interior Ministry reported on March 1, that some 80,000 military age males had returned to the country, most of them after February 24, “to defend sovereignty and territorial integrity.”
Poland and Germany have taken in the most refugees. Poland counted 3.6 million, including 432,000 men aged 18 to 60, between February 24 and June 7. In Germany, 867,214 refugees were registered from the end of February to June 19. According to a March survey commissioned by the Federal Interior Ministry, 48% of the arrivals were women with children, 14% were single women, 7% were men with children and 3% were men who arrived alone.
A petition and many bribes
In May, Odesa lawyer Alexander Gumirov launched a petition demanding Kyiv lift the ban on men traveling abroad, and calling instead for the recruitment of volunteers. In just a few days, the petition gathered 25,000 signatures, which meant the president had to review it. Volodymyr Zelenskyy’s response: the petition should be addressed to the parents of soldiers who died defending Ukraine.
Gumirow still considers the ban pointless. “If a person wants to defend his free, beloved native country, his home and his family, there is no need for a ban on leaving,” he said, adding that a ban is unnecessary, too, if people don’t want to defend their home.
Many men in Ukraine currently cannot find work, cannot feed their families nor do they pay taxes, according to Gumirov. In addition, he says, the ban leads to corruption. He says he receives daily inquiries about possible loopholes to get around the ban, adding that every one comes accompanied by a bribe offer.
Dmytro Busanov, a lawyer from Kyiv, said that according to the constitution, restricting the right to leave Ukraine can only be regulated by law, which has not been done so far. He considers the current ban illegal. “I get a lot of complaints, but people don’t want to sue in court,” Busanov said. He said he believes it would be possible to take the issue to the European Court of Human Rights.
Too few volunteers
Ukrainian men who travel abroad are often condemned by the wives of men who are fighting, said a Ukrainian lawyer who wishes to remain anonymous. Her husband volunteered to be on the front lines. She said she supports Gumirov’s petition in principle but that it was worded incorrectly — it implies people can all just leave and “let volunteers fight. That is unfair.” There are too few volunteers, said the lawyer, who is currently in the EU with her children. Her husband wanted to take up the fight, but he also wants to see his children, she said. She suggests granting soldiers short leaves and allowing them to travel abroad.
Anton, has since settled in an EU country with his wife and children. He is learning the language and looking for a job. He does not rule out returning home should Ukraine win the war. “In peacetime, I’ve always said that Ukraine is one of the best places to be.” He is a patriot, he says, adding he wants the war to end as soon as possible. “I send money to the army,” Anton says. “We are far away, but that doesn’t mean I’m a traitor.”
By Laura Pitel in Ankara and Max Seddon in Tel Aviv, Financial Times, 7/22/22
…Under the deal, which aims to restore grain shipments to prewar levels in the coming weeks, Ukraine and Russia have agreed not to attack merchant vessels, civilian vessels or port facilities covered by the agreement, according to a senior UN official.
It represents a “de facto ceasefire”, the official said, but added: “It doesn’t mean to say that parts of those ports which are not engaged in this mission are protected.”
It remains unclear how the deal will be enforced and what will happen if either side is accused of violating it.
Turkey, a Nato member with close ties to both Kyiv and Moscow, has agreed to send monitors to the ports along with UN representatives. But a senior Ukrainian official involved in the talks said Kyiv still had serious reservations. Without a binding mechanism to hold Russia to its commitments, the other parties essentially have to accept Moscow’s words on faith, the official said: “[There is] no enforcement, just promises.”…
Ukraine has agreed to facilitate the passage of wheat exports, through the Black Sea, to global markets, the New York Times, reported on Friday, citing three government sources in Kiev.
UN Secretary General Antonio Guterres has added that Kiev has agreed to remove “only a few” of the mines which have been blocking naval traffic since Russia launched its military offensive in February.
Under the proposals, Ukraine’s Navy and Coast Guard would steer grain ships to international waters, the report explained.
Wheat shipments from Ukraine, a major exporter, were disrupted after Russia launched its military operation in the neighboring country in late February. Both sides blame each other for hampering the exports.
According to the report, foreign crews would take the ship to Istanbul, Turkey, where they would continue on to other destinations. A control center would be set up in Istanbul to oversee operations, while Turkish officials would check the ships to assure Moscow that they aren’t used to deliver weapons to Ukraine.
Two senior European officials were quoted as saying they were optimistic that a deal would be struck at the UN-sponsored talks in Istanbul on Friday.
Western politicians accused Russia of deliberately blocking grain exports from Ukraine by blockading Black Sea ports. Moscow says the deliveries are not possible due to Ukrainian naval mines. The Russian Navy has offered to safely escort all grain ships.
A Ukrainian serviceman stands on the top of an infantry mobility vehicle Kozak-2 in Kramatorsk, Eastern Ukraine, amid the Russian invasion of the country, on July 14, 2022. (Miguel Medina / AFP via Getty Images)
Peter Korotaev writes on political movements, class relations, and economic policy in Ukraine.
In a 2020 lecture, Canada’s former ambassador to Ukraine said that after Euromaidan the country had become a laboratory for ideal-world experimentation. In other words, the economic liberalization unacceptable at home could instead be tried out in Ukraine.
But how is this “experiment” dealing with conditions of total war? And if such a situation generally pushes states toward economic interventionism, is Ukraine following suit?
Ukraine’s Financial Needs
First is the problem of Ukraine’s rising debts. According to the Ukrainian Finance Ministry, from January to June the state budget recorded $35 billion in expenditures and $21.8 billion in revenues. This situation has been worsening. June’s $1.5 billion in revenues, down from $2.5 billion in May, only covered 19.4 percent of expenditures.
Over January to June 2022, $19 billion of the total revenues came from various forms of credit and foreign aid. Over half, $11.8 billion, owed to state bonds, while $7.6 billion (35 percent) was simply money printed by the national bank and given to the Finance Ministry. The remaining $7.2 billion came from various foreign credits and grants.
Finance minister Serhii Marchenko has repeatedly stated that without an immense increase in aid, Ukraine will be forced to further cut nonmilitary spending within months. The strain has already made itself felt on state employees. Workers at the state railway company, who have been playing an important and dangerous role in saving the lives of millions of civilians, receive their wages with delays of seven to ten days, and when they do receive them, they are cut by a third, leaving about $150 a month. Many teachers and university professors haven’t received wages for months. At ports, workers who used to earn $260 a month now earn a little over $50 and that with delays.
Despite much talk of Western generosity, in May Ukraine only received one-third of the $5 billion it needs in aid. By mid-May the Economist reported that Ukraine had run up a fiscal shortfall of $15 billion and received only $4.5 billion worth of foreign grants. The Finance Ministry reports that fully 21 percent ($7.3 billion) of all January-June budget expenditures were dedicated to payments on state debt. The situation will only worsen, with Bloomberg calculating that Ukraine will face a $1.4-billion debt-repayment deadline in September.
The extent of Ukraine’s external public debt (the Ukrainian government also recently announced that it hopes for $200-$300 billion in Western credits for postwar reconstruction) means that it will have even less ability to refuse the policy demands imposed by Western creditors. The finance minister and the director of taxes have constantly reiterated throughout the war that Ukraine will continue servicing its sovereign debt, underlining their willingness to follow creditor demands.
Corruption and Nationalization
Since 2014 — but with renewed vigor in recent days — Ukraine’s Western partners have pushed Ukraine to “fight corruption.” This “struggle” has many important economic effects. Generally, states at war tend to nationalize key sectors of the economy to maximize armaments production and stabilize the civilian economy, both to prevent chaos in the rear and feed the army. Strangely, this has not taken place in Ukraine, despite what the government declares a “total war” situation. Remarkably, a law was even passed in late June that aims to “restart privatization of state assets on a new level.” Some politicians have critiqued this approach — Vadym Denysenko, assistant to the interior minister earlier in the war, urged a turn toward “direct state management of the economy.” But so far, his call has gone unheeded.
Calling for nationalization, Denysenko noted that “it is no longer time for the National Anti-Corruption Bureau of Ukraine (NABU).” He said this because over the past eight years, a flurry of “anti-corruption organs” — NGOs, state organs, and in-between — have focused on eliminating state intervention in the economy.
Set up by Ukraine’s liberal “civil society,” the United States Agency for International Development (USAID), and the Open Society Foundation, such organs have created websites such as Prozorro (“transparency”), which handles Ukrainian state purchases. The mayor of Dnipro has harshly criticized Prozorro in recent months, due to the government’s decision to require all purchases of military equipment to go through this program. He insists that such public transparency in military affairs and the bureaucratization of urgent military tenders is only helping the Russian army.
The website, tellingly, has no function for ensuring domestic localization of state purchases. According to Prozorro and its allies, domestically localizing state tenders is in the interests of a corrupt “oligarchy” that depends on state rents rather than efficiency. And anyway — as Ukraine’s liberal press never tires of reminding us — why buy a lower-quality Ukrainian product if it can be bought cheaper elsewhere?
The requirement that state tenders be made with a minimum amount of domestic suppliers is common in most countries, and its absence in Prozorro was called “extremely strange” by the new economy minister in 2021. As a result of this neutralization of the “corruption risks” presented by the domestic localization of state purchases, around 40 percent of Ukrainian state purchases are from foreign producers. By comparison, the United States and European Union (EU) countries make around 5 and 8 percent of their state purchases abroad respectively. The imperatives of “stopping corruption” take priority over Ukraine’s economic development.
When Ukrainian legislators tried to pass a bill in 2020 ensuring localization of state purchases, the anti-corruption bureaus (as well as the EU and the United States) frantically tore it down, citing the “possibilities for the corrupt use” of this patently ordinary measure. The law was eventually passed — but amended, so that localization restrictions were only applied to non–EU or North American nations. In short, Ukraine’s vast anti-corruption ecosystem is a control mechanism that keeps its economy perpetually open to decimation by foreign exporters who often enjoy preferential treatment from their own governments. The idea that “corruption” is the greatest barrier to development is a fiction used to justify trade liberalization in which the stronger Western capitalists inevitably win, to the detriment of the Ukrainian economy.
Largely a result of this valiant “anti-corruption” struggle, Ukraine has dramatically deindustrialized over the past eight years. From 2013 to 2019, exports of aerospace production declined by 4.8 times, of train wagons by 7.5 times, of metallurgical products by 1.7 times, and of chemical products by 2.1 times. The situation was particularly bad in the military-industrial complex, with Soviet Ukraine’s once-great shipbuilding and rocket complexes essentially disappearing. Not a budget passed by without grandiose — and costly — purchases of Western military equipment. Over 2018 to 2021, $1 billion was even spent to buy 110 French helicopters for the Ukrainian police, despite Ukraine possessing an excellent Soviet helicopter factory, albeit one falling into disuse due to the preference for foreign purchasers. This immense deindustrialization, even if in the service of such admirable ideals as “European civilization,” haven’t served Ukraine well in a war decided by the size of each army’s rocket and heavy-artillery stocks.
The various scandalous personalities of the anti-corruption courts have, since the beginning of the war, remained under the radar in relatively peaceful Lviv, or simply left for Paris. Several famous such figures, such as Artem Sytnyk, have even been convicted in court of corruption but are not removed from their posts due to the direct demands of the United States and the International Monetary Fund (IMF). Sytnyk was revealed to have received $30,000 in severance pay from one anti-corruption organ in the early months of the war, before being given a new post at a different one. Receiving the highest wages of all state employees, $83 million of the 2021 Ukrainian budget was dedicated to the three biggest anti-corruption organs, though they are often criticized for failing to make any large-scale arrests for corruption. While ordinary state workers have seen their wages decrease to absurd levels, Ukraine’s overstrained budget finds space for such “essential workers.”
These courts have very unclear juridical status, and the method by which their managers are chosen was even ruled unconstitutional by the Constitutional Court in 2020, following which Volodymyr Zelensky unsuccessfully (and illegally) tried to sack the constitutional judges. Unsurprisingly, one of the EU’s biggest demands, repeated in recent days, is for Ukraine to “reform” this court, which has also ruled against such symbols of EU integration as the privatization of agricultural land. Wartime has provided the opportunity for the distasteful judges finally to be pushed out.
The EU has already begun demanding that Ukraine continue giving the anti-corruption organs unimpeded control as one of the conditions for its “European integration” (or rather, the granting of a conditional EU candidate status). The “struggle against corruption” bodes ill for any wartime attempts to increase state economic intervention, though anti-corruption organs have already done enough to eliminate any dirigiste politicians in Ukraine over the past eight years. When finance minister Marchenko listed off what terrible things the government might be forced to do without sufficient aid, he listed “nationalization” alongside catastrophic budget cuts.
Instead of large-scale nationalizations of crucial sectors, there has been a mix of failed nationalizations, “nationalization” by Ukraine’s most liberal figures, and takeovers by neoliberalized state companies. In terms of failed nationalization, the past months have seen several attempts to regulate prices on petrol, short in supply due to targeted bombing campaigns. Given the lack of state capacity, this regulation has generally failed, and the government regularly switches between temporarily regulating the price or letting it float. Speculation-driven shortages have intensified once again in recent days.
Meanwhile, some fanfare has been made in Ukraine over the “nationalization” of Russian (or “pro-Russian”) assets. This fund of seized assets is controlled by Tymofey Mylovanov. A former minister of economic development and director of the Kyiv School of Economics, he is famous for his ultraliberal views, holding that privatization is the solution to any problem.
Meanwhile, the gas sector has become monopolized by the infamous state-owned gas company, Naftogaz. Its head, Yuri Vitrenko, enjoys regaling sacked energy-sector workers with lessons from Adam Smith, as part of his explanation for why they should simply go work in Poland instead of Ukraine’s superfluous uranium refineries. Nevertheless, the company “canceled the gas market” by taking control of 93 percent of the sector in March–May.
In May, Naftogaz announced a 300 percent increase in gas prices for suppliers. The government quickly assured the public that consumer gas prices would not increase anymore during the war thanks to Western financial help. But what about after the war, when Naftogaz will face no competitors? One of the IMF’s most constant demands has been the liberalization of the gas market such that its price converges with that in German markets. Though the Ukrainian government was often forced to regulate gas prices due to protests, in 2021 it signed a memorandum with the IMF, where a first $700 million loan was conditional on the agreement that by May 2022, 50 percent of the gas market would be sold at (European) market prices, and by 2024, 100 percent. This would mean increasing consumer gas prices by more than 400 percent. Since Ukraine became dependent on IMF credits in 2014, consumer gas prices have already increased by 650 percent. Given Ukraine’s growing dependency on the IMF, it is difficult to imagine that it will continue freezing consumer gas prices at a low level thanks to Western aid.
In short, though this move toward nationalization of the energy sector in wartime is certainly better than the alternative of letting the market decide prices, and the decision to ban export of coal, gas, and fuel in wartime is praiseworthy, the fact that Naftogaz has a history of being more interested in profits than public good makes it difficult to be optimistic about any postwar future. Many energy experts also doubt that Naftogaz has the capacity to deal with taking control of the entire Ukrainian energy system. Had Ukraine not been so preoccupied with building a “Euro-integrated gas market” over past years, it could have been better prepared.
Liberalization of Labor Law
Aside from gas prices, Ukrainian workers will have even more reason to head to Poland, as their bargaining power vis-à-vis bosses declines due to liberalized labor laws. Over the past three decades, almost every year has seen new legislation to liberalize the labor code, and in May the most maximalist version yet was passed. Instead of the provision of unified labor rights for all and the ability to create collective agreements, workers at enterprises with under two hundred employees (i.e., most workers) will now only have the “option” of individually agreeing to rules proposed by the employer — effectively canceling legislative coverage for most workers. These reforms allow businesses to fire workers at will without even nominal consultation with trade unions and removes employers from the obligation to pay wages for workers mobilized to the front. While this model had often been proposed in Ukraine, it was generally softened due to trade-union protests. Wartime — with its mass unemployment and suppression of labor activism — was the perfect time to pass it.
The politicians who created this legislation did so under the auspices of a USAID program. Rich Western countries have always been eager to push such laws in Ukraine. IMF reports on Ukraine often reference the need for more labor-market liberalization, and sometimes this was even the condition of further IMF loans. In 2021, leaked documents emerged of the British Foreign Office organizing workshops for Ukraine’s Economy Ministry explaining how best to convince voters of the need for such laws.
Given the dependence of the post-Brexit UK economy on low-paid Ukrainian migrant workers — with 67 percent of its farmworker visas in 2021 going to Ukrainians — it is no wonder that the British Foreign Office sponsors such deregulation in Ukraine. A worsened labor market in Ukraine would push even more Ukrainians to work in the UK for wages far below British levels. Since the war has seen Ukraine become increasingly indebted to the IMF and the EU, it is also entirely likely that part of the motivation in passing this legislation was to show the EU Ukraine’s fidelity to the “reform path.”
Fiscal Policy
At the start of the war, Ukraine’s government canceled import taxes and tariffs. This was great news for auto dealers, with thousands of cars crossing the border for far lower prices than they would usually sell for. But it was bad for Ukraine’s budget, which lost around $100 million a month. It also worsened Ukraine’s fuel deficit as petrol trucks were halted by the immense traffic jams at the border. As a result, the National Bank of Ukraine (NBU) and the finance ministry lobbied hard for the return of this tax, finally succeeding in late June.
Although the government displays some willingness to restore basic taxes, it otherwise does not consider increased taxation of big business necessary. In a Bloomberg interview, “Marchenko reiterated that he does not favor amending the taxation system in any form, either through easing or tightening it.” Wartime Ukraine’s fiscal policy has hence not departed from the post-Euromaidan consensus that sees decreased taxation as the key to growth and prosperity. Indeed, by canceling so many taxes and mainly speaking of postwar reconstruction in terms of tax-free export zones, the war has paradoxically seen an intensification of this fiscal model.
Meanwhile, what tax revenues are received, of course, are not being used to build up the state sector. The closest to what might be called Ukrainian economic interventionism so far has been the prime minister’s announcement of a 1.3 billion hryvnia ($44 million) program sponsoring IT workers to improve their qualifications. Here, as elsewhere, wartime has seen a continuation of the prewar liberal economic model — a country founded on the export of a small bundle of agricultural goods, a small but vocal urban class of IT specialists, and remittances from millions of migrant laborers.
Monetary Policy
One of the most important and constant demands made on Ukraine by the IMF and other Western creditors since 2014 has been “central bank independence.” This means choosing NBU figures approved by the IMF, who ensure that it obeys the strictest of orthodox liberal logics, considering “inflation targeting” through monetary means the only acceptable form of state intervention. Business can’t get credit and the country deindustrializes, but at least the currency is stable. In Ukraine, the NBU is certainly “independent,” though some analysts joke that this really means that it is independent of Ukraine’s interests altogether. This has been particularly starkly illustrated by the NBU’s wartime decisions.
The finance minister created special war bonds upon the invasion, hoping to receive around 400 billion hryvnia ($13.5 billion) by appealing to “patriotic citizens.” But after two months, only 57 billion ($2 billion) had been raised through these war bonds on the open market. The national bank was forced to step in, buying 70 billion hryvnias’ worth. But the NBU instantly started worrying because of the tendencies toward inflation and currency devaluation, worsened by its printing money to buy war bonds. By late June, the NBU had bought $7.5 billion of bonds — some 17 percent of Ukraine’s prewar budget. As Bloomberg notes, its printing of money has lowered Ukraine’s gold reserves by $3 billion, with $25 billion left, while inflation has risen to 20.1 percent.
Citing these monetary dangers, on June 1 the NBU hiked interest rates from 10 to 25 percent. This had two aims — first, hoping to stop inflation and currency devaluation by tightening the money supply for business and consumers; and second, to allow the finance ministry to make more money to cover the budget, since its war bonds would be pushed by NBU rate competition to increase its yield rate, thereby attracting more buyers.
Alexey Kusch, a popular Ukrainian economist, published a long Facebook post about the decision, writing that it made him “have doubts for the first time since the start of the war, not in victory, but in the possibility that after it our country might start developing in another way” than the liberal course he has always critiqued. He cited the adoption of a fixed exchange rate, the creation of war bonds, and certain controls on capital exports at the war’s beginning as signs of the emergence of a wiser and less liberal economic policy in Ukraine. In contrast, the NBU’s decision was an orthodox monetarist solution totally inadequate to the wartime context.
First, this is because no interest rate is high enough to convince foreign capital to invest in Ukraine, given the military risks and devastation. Kusch cites the fact that Ukrainian Eurobonds with a September maturation rate (Ukrainian war bonds have a thirty-year maturation rate, making them even less attractive) were being resold on the secondary market with a yield of 250 percent. The government has misplaced faith in private investors’ desire to save a war-torn state.
Second, because inflation in Ukraine is caused by supply-side factors such as the global energy crisis, petrol shortages due to Russian military attacks and border traffic jams, and so on. This means that the standard monetarist solution of cutting demand will have little effect in stopping inflation. There instead needs to be state intervention at the level of supply.
Third, because the fixed exchange rate a priori prevents any monetary attempts to influence the exchange rate. In Kusch’s words, if the national bank plans to float the exchange rate, “then things are really bad.” He recalls the 2014–15 currency liberalization, when the hryvnia went from eight to around thirty to the US dollar. This floating rate allowed elites to massively withdraw capital from the country while the population became impoverished, with over 80 percent of Ukrainians on under $5 a day in 2015.
Back then Ukraine had a port system — now, nothing can leave the ports because of the war, and exports have dropped to no higher than 40 percent of prewar levels. Kusch hence prognoses a dramatic devaluation of the currency if importers are allowed to buy foreign currency on an active interbank market.
Unfortunately, things “really are bad.” This move toward a “market-driven” floating currency is precisely what was announced by the NBU several days after its interest rate hike. Exchange rates have begun increasing, although inflation rates, as Kusch predicted, have continued increasing. In July, the NBU removed currency restrictions on various import goods, further increasing the devaluation of the currency. “The main beneficiaries” of the NBU’s interest rate hike and inevitable exchange rate devaluation, Kusch writes, “are structures that want to withdraw their capital from the country.”
As for war bonds, Kusch predicted that there would be little interest in buying them even if the yield is increased, because the limit of Ukrainian domestic savings for this purpose has already been reached. Furthermore, the uncertainty of future Ukrainian exchange rate behavior makes such an asset even less attractive. What would be bought would have to have a very high, 30-percent-plus rate and would only interest short-term domestic and foreign speculators. Meanwhile, to pay for this, the budget hole would become even vaster. According to an NBU statement in July, the Ukrainian state budget has received less from its sale of bonds than it has had to pay the bond owners.
For this reason, the finance ministry refused to increase the rate of yield of its war bonds to the astronomical height demanded by the NBU’s interest rate. This was why purchases of war bonds hit a record low of $79 million in the three weeks following the rate hike, as other assets became relatively much more attractive. The first auction on state bonds in July brought in little over $4 million.
The fact that the NBU interest rate is higher than that of the yields on the bonds sold by the finance ministry creates another dangerous possibility — the collapse of Ukraine’s “bond pyramid.” This scheme — popular throughout the post-2014 period but particularly during the COVID lockdowns, when interest rates were especially low — consisted of buying NBU credits at around 5-6 percent and using them to buy higher-yielding finance-ministry bonds with around 11 percent yields. This gave Ukraine’s banks easy profits, with the two biggest Ukrainian banks investing almost 40 percent of their capital in this financial pyramid. But this all falls apart if NBU interest rates are higher than NBU bond yields. All but two of Ukraine’s banks depend in some degree or other on NBU credit: such credit makes up 20-85 percent of almost a third of all Ukrainian banks’ repayment obligations.
The last time the NBU hiked interest rates, in 2015, the so-called “bank-o-fall” began, with over 60 percent of Ukraine’s banks going bankrupt and disappearing over the next two years. While the IMF praised this closure of “corrupt ghost banks,” many depositors lost their money, and credits for business and consumers became very hard to come by. It only took a day for the NBU’s latest interest hike to destroy one bank, leaving sixty-eight remaining.
Both because of competition with the NBU’s new rate and faced with the burden of repaying NBU credits involved in the enormous “bond pyramid,” banks have harshened conditions for debtors, resulting in a wave of complaints from business and the broader population. Interest rates increased by 15 percent overnight for many businesses; consumer and business credit rates are predicted to rise toward 25-40 percent, whereas before the interest rate hike they were closer to 15 percent.
In the weeks following the invasion, the trade and industry chamber recognized the war as force majeure: a special law (No. 2120-IX) was passed that prohibited banks from placing fines or penalties on debtors. Yet banks are getting around this by simply increasing the rate of interest. One refugee from the Kharkiv area reported that the biggest Ukrainian bank started using his pension funds to repay his credit debt. Others who have lost their jobs due to the war complain that banks refuse to give credit holidays. The best deal that banks are giving so far — only to people in territories currently controlled by Russia — is canceling 30-40 percent of the owed amount but with the rest still paid at a lower interest rate. There are reports of harsh negotiations where banks threaten to block access to assets in areas controlled by Ukraine to businessmen who have lost their assets in areas no longer controlled by Ukraine and hence cannot pay. For its part, the NBU was quite clear about which side it was on when law 2120-IX first came out, recommending individuals come to an individual agreement with their bank about credit rates.
The situation for debtors continues worsening, with one of Ukraine’s biggest banks announcing on June 7 that it is returning credit rates to prewar levels (doubling the present rates), citing the rise in the national bank’s interest rate.
Future Promises
Faced with such an array of economic crises, worsened by the liberal treatment of them, the Ukrainian government has stuck to what it does best: promising that foreign donors will resolve these problems. It has promised that foreign aid will subsidize the 300 percent increase in gas prices while Russia’s seized foreign assets will be used to rebuild housing and pay for credit subsidies. Even aside from the question of how realistic it is to assume that the West will pay for the monopolization of the Ukrainian gas market, the Wall Street Journal and the Swiss government each tell us that seized Russian assets are highly unlikely to end up in Ukraine’s hands.
We’ve seen that Western aid is already insufficient in covering Ukraine’s budget deficit, forcing the state to embark on inflationary printing of currency. Now even that financial assistance seems to be under question: the Ukrainian finance minister has confirmed Western media reports that Germany is blocking a €9 billion EU loan to Ukraine.
The most likely result will simply be that, lacking foreign aid, Ukraine will declare low taxes in various war-torn regions and wait for investors to come and build — a solution already proposed by various mayors. No doubt, Western countries’ promises to rebuild Ukraine will also bring some impressive show projects. To give an example of how serious these proposals look, Estonia has promised to rebuild Zhytomyr region, which is only 33 percent smaller than Estonia itself.
This perspective was made explicit on July 7, when Ukraine’s government unveiled its plan for how a hypothetical $750 billion could be used to reconstruct the economy. Apparently, $200-$250 billion will come from foreign grants and $200-$300 billion from foreign loans. Further, $250 billion will come from private investors, who the government clearly believes will be desperate to invest in a country destroyed by war that is spending only $5 billion of its reconstruction fund on education. The fact that another $5 billion will be spent on “improving the business environment” (further liberalizing labor law?) and $200 million on anti-corruption organs and the “corporatization of state enterprises” further goes to show the depth of the government’s faith in the power of the free market.
While the plan does involve rebuilding infrastructure, nothing is said about any state-led reconstruction of Ukraine’s industrial complex. No doubt, it is assumed that “efficient private investors” will accomplish this with gusto. If they don’t, Ukraine’s final transformation into a deindustrialized source for agricultural goods and labor power is simply natural — and in accordance with liberal principles of each nation’s comparative advantage.
Instead of effective wartime interventions, the government sticks to its old formula of justifying present sacrifices in the name of promised EU prosperity. Worsening labor conditions, the “Europeanization” of gas prices (but with Ukrainian wages), the central bank’s “independence” from “its” country’s national interests — all this is justified in the name of the shining European Future, or rather, possibly receiving the marginal status EU-candidate country Turkey has had for decades. Ukrainian and international media never cease to remind us that this war is being fought in the name of Ukraine’s “European Future” — and what are these economic sacrifices compared to all the blood being shed for this “grand ideal”?
The EU has plenty of interest in keeping up the illusion of Ukraine’s “European integration.” In the global context, the EU is increasingly economically vulnerable, with high wages and much higher energy costs due to sanctions on Russia. Many European countries have in recent decades become increasingly reliant on Ukrainian migrant workers, many of them driven out of Ukraine precisely because of the unemployment and low wages created by the EU’s wise reforms. According to Poland’s central bank, 11 percent of Poland’s GDP growth from 2015 to 2020 owed to Ukrainian migrants. Unsurprisingly, Poland has always been among the most active in encouraging Ukraine’s “Western civilizational choice,” with Polish diplomats being the first at Maidan Square in 2013. Interestingly, the Ukrainian government’s $750 billion reconstruction plan includes a high-speed train from Ukraine to Poland.
Much of US lend-lease aid is going toward preparing the EU to accommodate Ukrainian migrants. By paying for housing, language education, and budget benefits, many of the refugees will choose to stay and work in the EU. What this means is that this aspect of aid “for Ukraine” is subsidizing the integration of a cheap, educated workforce that will not return to or earn money in Ukraine. Unlike previous migration to the EU, where a single family member left and sent back taxable money to Ukraine, this form of migration involves entire families that are becoming taxpaying citizens of foreign countries. While the national bank facilitates the flight of money capital, the “Western partners” do their best to facilitate the flight of human capital.
