Impoverishing Ukraine: What the US and the EU have been doing to the country for the past 30 years
LONG READ
At last Wednesday’s gathering of US congressmen to hear the words of Ukrainian President Volodymyr Zelensky, House Speaker Nancy Pelosi opened the event by crying out, “Slava Ukraini”—“Glory to Ukraine”—no less than five times. This expression has become popular in Washington, London, and elsewhere as of late, with British Prime Minister Boris Johnson also bellowing out the cry in a session of the House of Commons and on Twitter.
American President Joe Biden, while not yet tackling the two Ukrainian words, claims at every moment that the more than one billion dollars’ worth of armaments he has poured into Ukraine—enough for every citizen to kill every other multiple times over—is to defend the “freedom” and “dignity” of that nation.
The origins of the term “Slava Ukraini” reveal something about the real relationship of the US and NATO to Ukraine’s working masses of all ethnicities and linguistic groups—Russian, Ukrainian, Jewish, Polish, etc. As biographer Grzegorz Rossolinski-Liebe explains in his book about Ukrainian fascist leader Stepan Bandera, “Slava Ukraini” was part of the salute delivered by members of the Organization of Ukrainian Nationalists and its military wing, the Ukrainian Insurgent Army, which were collectively responsible for the mass murder of tens of thousands of Soviets, Jews and Poles during World War II.
Neither the United States nor the EU nor any of their related institutions care now or have ever cared about the people of Ukraine, much less their liberty. Even as they have been using the country as a cat’s paw in their battle with Russia—as a result of which massive amounts of firepower are making their way into the hands of today’s Ukrainian fascists, and parts of the country are being blown to bits—the US and the EU have been economically strangling the Ukrainian people for decades.
As measured by GDP per capita, Ukraine, with its 44.13 million inhabitants, is the poorest or second poorest country in Europe. It competes with Moldova, with about 2.6 million people, for these inauspicious titles.
The bottom 50 percent of Ukraine’s population gets just 22.6 percent of all the country’s income and 5.7 percent of its wealth. The top 10 percent own nearly 60 percent of Ukraine’s net personal assets, according to the World Inequality Database, a publication put out under the directorship of three of the globe’s leading specialists in inequality—Thomas Piketty, Emmanuel Saez, and Gabriel Zucman. In 2018, Ukrainian households’ average net savings stood at minus $245.
The median household income in Ukraine is around $4,400 a year, about on par with that of Iran, whose economy has been operating under crushing sanctions for years. The average wage in Ukraine is estimated to be just €330 a month, and the state-mandated minimum a worker can be paid is €144. According to the Ukrainian government, an individual ought to be able to survive on less than half that amount, as the subsistence minimum is €64. Retirees who are at the bottom rung of the pension scale take home €50 a month.
The country’s Institute of Sociology reports that the typical Ukrainian family spends 47 percent of its total income on food and another 32 percent on utility bills. In 2016, nearly 60 percent of people were poor according to government standards, including 60 percent of kids. That poverty rate dropped to “only” 37.8 percent in 2019. The UN Food and Agricultural Organization found that in 2020 15.9 percent of Ukrainian children under 5 were malnourished, and in 2019 17.7 percent of women of reproductive age were anemic, a condition caused by lack of iron in the diet. That number has been steadily rising since 2004. Twenty-four percent of the population is obese.
Between 2014 and 2019, the birthrate fell by 19.4 percent. Ukraine’s mortality rate is extremely high—14.7 per 1,000 people. It is well above that of many countries in Africa, the poorest continent on the globe. Its suicide rate, according to the World Bank, ranks 11th in the world. With deaths outstripping births by more than two to one and hundreds of thousands emigrating annually in search of anything better, the country’s population has shrunk every year since 1993. There are 8 million fewer Ukrainian citizens today than there were 30 years ago.
One could go on. Apart from the super-rich and a narrow layer of middle and upper-middle class people concentrated in the major cities, Ukraine is a sea of deprivation.
This is a direct outcome of economic policies imposed on the country by the very states that today parade around declaring their love for Ukraine. In an immediate sense, the current situation has its roots in the 2014 US-backed coup that brought to power a government in Kiev that immediately signed an association agreement with the EU requiring it to implement severe austerity measures. But it has even deeper roots.
The social and economic disaster in that country can be traced back to the Stalinist bureaucracy’s dissolution of the Soviet Union at the end of 1991 and the restoration of capitalism in all of the newly independent nation states, which saw their full integration into global financial and trade networks. Through a series of policies collectively known as “shock therapy”—worked out in close collaboration with Western advisers—nationalized property was transferred to private hands. Former Communist Party officials and their children, economic managers and directors of major Soviet factories and sections of industry, as well as criminal elements active in the shadow economy, won out at the expense of the working masses, through a combination of outright theft and bargain basement fire sales of Soviet resources.
Out of this wrecking operation, competing factions of big business emerged in Ukraine that were centered in Donetsk in the east and Dnipropetrovsk to its west, with coal mining and processing, energy production and transit, and metallurgy being their main sources of wealth. Banking and media empires emerged, and new sources of profits were soon realized in consumer products and agriculture.
The ranks of Ukraine’s billionaires began to grow from this period forward—Victor Pinchuk ($1.9 billion), Renat Akhmetov ($7.6 billion), Igor Kolomoyskyy ($1.8 billion) Henadiy Boholyubov ($1.1 billion), Petro Poroshenko ($1.6 billion), Vadim Novinsky ($1.4 billion), and on. For decades, Ukrainian politics has been consumed by conflicts, alliances, splits in alliances, and warring among them, which have intersected with the question as to whether the country would be pulled into closer economic relations with Europe, maintain its strong ties with Russia, or somehow manage the two simultaneously. The warfare has unfolded as geopolitical tensions between Washington and Moscow have grown, with Ukraine understood as a key zone of competition.
During the 1990s, even as great sums were being accumulated at one end of the spectrum, Ukraine’s economy was in free-fall. With per capita GDP declining by 8.4 percent between 1993 and 1999, its economy was among the worst of any European country. Inflation was at times completely out of control, reaching an annual high of around 376 percent in 1995, thereby wiping out the savings and spending power of Ukrainian workers early in the process of market restoration.
“Many young people, who lacked alternatives in the early 1990s, joined gangs and were used as pawns in the process of accumulation by criminals,” observes political economist Yuliya Yurchenko in her 2018 book Ukraine and the Empire of Capital, with warfare between competing business clans producing at times bodies in the streets. A two-and-a-half fold increase in crime between 1988 and 1997 was largely driven by various forms of “theft, robbery, swindling, and extortion” and “bribe taking, counterfeiting, and trading in narcotics,” she notes.
During this time, Ukraine received 10 loans from the International Monetary Fund (IMF) and the World Bank, in the start of what would be a near-constant process of borrowing from international financial institutions over the course of the 2000s and 2010s. The terms of the loans have centered around a 1994 “Memorandum on Questions of Economic Policy and Strategy” signed by Ukraine and the IMF that, in the words of Yurchenko, “effectively limited Ukraine’s government decision-making power.”
Agreements with other international financial institutions, such as the European Bank for Reconstruction and Development, drafted on the principle of cross-conditionality—i.e., creditors set terms that coincide and reinforce one another—established similar limits. The noose around the loan recipients’ neck tightens in multiple directions.
Lenders demanded that the government in Kiev end policies that created obstacles for foreign trade, eliminate price regulations, reduce the state budget deficit, cut subsidies to “unproductive” industries, make manufacturing outlets more competitive by modernizing their plants and laying off workers, privatize more state-owned property, cut budgetary expenditures by targeting social programs and pensions, and impose value-added taxes such that the collection of money from sales would fall more heavily on consumers as opposed to business.
While these processes have accelerated and/or slowed down at times depending on whether the administration in Kiev has been more US- or more Russian-allied, every Ukrainian government has been a partner in implementing the demands of global capital. Having emerged out of the ashes of the great barbeque that was the breakup of the Soviet Union, the ruling class of Ukraine is a comprador class in the most complete sense of the term.
In 1998, for instance, Ukraine’s parliament granted President Leonid Kuchma the authority to impose a 30 percent reduction in government expenditures. This was done because the IMF told the country to do so. “In addition to meeting fiscal and monetary targets, the government must pass legislation on privatisation, tax reform, energy and agricultural sector restructuring, and flushing out its massive ‘shadow economy,’” observed an August 1998 article in the Financial Times.
“The reforms,” writes Yurchenko, “created mutually reinforcing negative effect on the economy by opening up outdated industry for competition with foreign transnational corporations and by reducing financial state support for enterprises and citizenry thus making the latter poorer and the former even less competitive with expected negative aggregate consumption and potential revenue drop.”
Ukraine’s debt continued to balloon over the course of the coming years, increasing from $10 billion in the period from 1997-2002 to $100 billion in 2008-2009, the equivalent of more than 56 percent of the country’s GDP and more than double the total value of all its exports at that time. While it has fluctuated in recent years, it is basically at the same level today as it was a decade ago. As a result, Ukraine has ended up in a constant cycle of indebtedness, careening at times towards default due to broader crises in the world economy, such as the 2008-2009 crash.
In addition to breaking up whatever was left of Soviet-era nationalized property and the social welfare state, austerity measures were aimed at disciplining Ukraine’s oligarchs. While their wealth was accumulated on the basis of the country’s integration into the world market, and thus made possible and sustained by the centers of global capital, investors from the West hesitated to descend directly into the dog-eat-dog world of Ukrainian big business, where bribe-taking, ever-changing economic laws, tax rates that on paper sometimes exceeded profits, and the use of bankruptcy for profiteering were rampant.
“[O]mnipresent lawlessness were damaging for foreign relations, political and trade. Western investors from the USA, the EU and particularly Germany (Ukraine’s strongest EU-isation backers) became ‘disenchanted with the country,’” notes Yurchenko. Still, they salivated at the prospect of getting access to tens of millions of consumers and wage-labor that was cheap and skilled. According to Yurchenko, “In a personal interview with the Corporate Europe Observatory think-tank, the former Secretary General of ERT, Keith Richardson, said that the demise of the USSR was as if they ‘have discovered a new South-East Asia on the [EU] doorstep.’”
Concerned not just about the loss of potential investment opportunities in Ukraine but also the geopolitical future of the country, the United States and Europe responded. First, a whole number of business associations and advisory groups—American Chamber of Commerce (ACC), Centre for US-Ukraine Relations (CUSUR), US-Ukraine Business Council (USUBC), the European Business Association (EBA), and the Centre for International Private Enterprise (CIPE)—were either created or mobilized for the purposes of, in the words of the EBA, “discussion and resolution of problems facing the private sector in Ukraine.”
These institutions were staffed with representatives from major Western corporations and Ukraine’s business elite, with many sitting on more than one board. By 2010, 105 of the world’s top 500 transnational corporations were active in them. They sought out, or even established, lobbying groups and advisory councils active in Ukraine’s government.
These include such bodies as the Investors Council under the Cabinet of Ministers of Ukraine, the Working Group of Justice (co-chaired by the European Business Association) under the Ukraine’s Ministry of Justice, the Working Group on Tax and Customs Policy (also co-chaired by the EBA) under the country’s Ministry of Finance, the Foreign Investment Advisory Council of Ukraine (FIAC) under the president of Ukraine, and the Public Councils that are within different ministries and state committees.
Over time, the lobbying groups and advisory councils, according to Yurchenko, collectively got their hands into all of the following areas of Ukrainian governance; the “reduction of state control over economic activity and marketisation alike”; the “simplification of import and export procedures, harmonisation of regulations with the EU in IT and electronics sector, revoking of medication advertising ban, creation of State Land Cadastre in preparation for land privatisation, simplification of market entry for pharmaceutical and insurance companies from the EU”; and “market reform; fiscal and tax policy; banking and non-banking financial institutions and capital market.”
Furthermore, being housed in government agencies, these groups did not just make suggestions as to how Ukraine ought to transform its economy, they were involved in the drafting of law and strategy documents laying out state policy. In short, there is not even one degree of separation between Ukrainian governance and Western corporations, financial interests, and state power.
Between 2006 and 2013 alone, Yurchenko found upwards of 50 instances of “successful lobbying” by just the European Business Association—in other words, the EBA’s suggested policies became Ukrainian law. The Americans have also had their direct means of leverage. The Centre for International Private Enterprise, one of the many lobbying organizations active in Kiev, “serves as a bridge agency between the US Congress and Ukraine’s authorities by proxy of ACC (American Chamber of Congress). The Centre is run by the Chamber but is in fact one of the four programs of the National Endowment for Democracy (NED) that is funded by the US Congress,” notes the scholar.
As Western political and business interests have increasingly been integrated into the Ukrainian state, the IMF, other foreign lenders, and the EU have used the ongoing crisis in the country’s economy to pile on the pressure. They have regularly held back on releasing loans or signing trade agreements because Kiev has not privatized and cut enough. When, in order to get the promised money, the government has pushed through the required measures, the outcome for the population have been devastating.
An April 2009 article in the New York Times devoted to Ukraine’s failure, yet again, to meet the requirements of foreign lenders, noted that while there had been tens of thousands of jobs axed in the country’s industrial towns in the east, bankers viewed it as still not enough.
In Donetsk, “unemployment has officially almost doubled, to 67,500, in the past two months, and the authorities suspect that up to one-third of the 1.2 million registered workers are toiling for a small fraction of their nominal salary,” wrote the newspaper, adding, “In Makeevka, with 400,000 residents, just outside Donetsk, the Kirov factory laid off nearly all its workers in December and January. Now, an average of four people vie for every job. In nearby towns, that ratio soars to 70 or 80 people for every available job, officials say.”
But, citing the comments of a bank analyst in Kiev, the Times observed that still more was expected. Another steel producer in Donetsk, the analyst said, “could easily cut 20,000 to 25,000 people and keep the same output.”
As part of the process of making Ukraine’s economy “more competitive,” the IMF and the EU have demanded the raising of the retirement age, the ending of fuel subsidies that enable households to afford to heat their homes and cook their meals, and the selling-off of the country’s highly profitable timber and agricultural lands. The latter in particular has been long sought, as Ukraine has 25 percent of the world’s “black earth,” some of the most naturally fertile soil in the world.
All of this and more have now been achieved. A 2017 study of Ukraine’s garment industry published in the Journal for Labour and Social Affairs in Europe, noted that the Kiev government has introduced the following measures in response to the demands of the international financial institutions and EU representatives over the last several years. It has:
- Frozen the legal minimum wage and stopped adjusting it to the cost of living
- Reduced social welfare payments and pensions by ending cost of living indexing
- Changed the labor code to restrict union access to workplaces, make the disclosure of “commercial secrets” grounds for dismissal, require unionized workers to agree to overtime, end limits on the number of overtime hours workers must accept, permit factories to monitor workers using cameras and other technologies, and end the requirement that unions agree to a layoff
- Increased utility charges dramatically
- Placed a moratorium on inspections, including labor inspections, in small businesses (This resulted in the growth of wage arrears from 1.3 million hryvnia in 2015 to 1.9 million in September 2016.)
- Decreased employers’ mandatory social insurance contributions, thereby ensuring there is less money for social services and pensions
- Cut the number of public sector employees
- Canceled family payments for childbirth, childcare and schools.
- Closed hundreds of hospitals
- Stripped higher education and cultural institutions of funding
As the authors of this study note, all of this is extremely unpopular with ordinary people. Polls have found that 70 percent of citizens are upset about the growth of inequality, 58 percent about job loss, and 54 percent about “interference of western countries in the governance of Ukraine.”
But this continues unabated. The ongoing assault on Ukraine’s healthcare system has been particularly severe. Due to demands from the IMF and the terms of Ukraine’s EU Association Agreement, the country has been implementing healthcare reforms. On the grounds of increasing “efficiency,” it stopped paying medical institutions on the basis of their number of beds and instead on how many patients they treat. This has resulted in the layoff of an estimated 50,000 doctors and the shuttering of 332 hospitals, with rural areas being especially hard hit and left, for all intents and purposes, without medical services.
According to the Ministry of Health, as of 2020 half of Ukraine’s remaining 2,200 hospitals were underfunded. An article that same year in the online press Current Time reported that the director of Dnipropetrovsk Regional Rehabilitation Hospital went on a hunger strike in late April of that year in protest. “That month, the National Health Service slashed the facility’s monthly financing by more than five times, she told Current Time: from 2 million hryvnia, or about $75,224, to 237,000 hryvnia or $8,914.”
All of this left, in the words of Ukrainian President Zelensky in 2020, Ukraine “medically naked” when it came time to combat the coronavirus. COVID-19 has infected over 5 million Ukrainians and killed 112,000. After Zelensky’s pleading with the United States to send vaccines to help, in the summer of 2021 the Biden administration finally dispatched 2 million doses, enough to cover less than 4 percent of the country’s population.
Between just 2008 and 2019, Ukraine shed over 1.4 million industrial jobs, according to the data analysis firm CIEC. When measured in constant US dollars, World Bank data shows that the country’s GDP has now declined by 56 percent compared to what it was when it was still a Soviet republic in 1989.
According to President Zelensky, Ukraine is “paying off billions of U.S. dollars annually to international organizations.” And still, as of that year Ukraine had $40 billion of “non-performing loans”—i.e., debt it could not pay. In 2022, on top of the interest on its IMF loan, the country was supposed to pony up another $35 million to cover IMF “surcharges” in February and $29 million in March.
This disaster has been achieved not simply through the domination of Ukraine’s economy by foreign capital, but through direct American and European political interference. Over the last 15 years, the country has experienced two so-called “revolutions”—one in 2004 and one in 2014. In both cases, Washington and Brussels were directly involved, backing forces in the country that were committed to drawing the country out of Russia’s orbit and shoring up its relation with the West. They had no problem with neo-Nazi street fighters doing the dirty work necessary to secure their preferred outcome.
In the latest exercise in “popular democracy,” Ukraine’s 2014 “Revolution of Dignity,” US State Department official Victoria Nuland was caught on tape speaking to America’s ambassador to Ukraine with instructions as to what the composition of the new government in Kiev would be. Washington’s choice, Arseniy Yatsenyuk, was installed as prime minister and immediately signed a deal paving the groundwork for Ukraine’s eventual ascension to the EU, resulting in the implementation of all of the policies listed above.
These historical facts are dismissed in the Western media as nothing but “Russian disinformation.” The Kremlin has its own reasons, which have nothing to do with concern over the well-being and freedom of Ukrainians, for drawing attention to the dirty role played by Washington and Brussels in Ukraine’s “revolutions.” But the use of these facts by the Putin government to promote Russian nationalism and justify its criminal invasion of Ukraine does not make the facts themselves untrue.
Ukrainian economic and political sovereignty, the democratic and social rights of its population, have been systematically and grossly violated for thirty years by the US and its NATO allies. No one in Washington, Brussels, or elsewhere has ever lost a minute’s sleep over the death of a Ukrainian man, woman, or child from poverty, ill health, job loss, or COVID.
Rather, they have orchestrated, welcomed, and profited off of Ukraine’s social misery. For them, ordinary Ukrainians are now little more than war materiel to be expended in the battle with Russia, whose working class they are also now strangling to death with economic sanctions, despite years of decrying their repression under the evil dictator, Vladimir Putin.
