Ukraine owes the International Monetary Fund (IMF), World Bank, European Union, Canada, and other international creditors around US$125 billion — almost 80 percent of its GDP. Amidst an outpouring of support for Ukraine, no Western leader has called for international debt forgiveness.

Since the beginning of Russia’s invasion, Ukraine has paid international creditors hundreds of millions and is supposed to pay billions of dollars more in debt charges this year. Between January and March, Ottawa has transferred at least 83.8 million dollars’ worth of military aid to Ukraine. In addition to these military supplies, new loans are in the offing.

In the face of Ukraine’s hardships and in spite of the acclaim to which pro-Ukrainian gestures are currently met, there has been virtually no discussion of debt relief for Ukraine. Canada and other powerful debt holders appear to support Ukraine fighting Russia. It is less clear that they care about Ukraine’s economy, democracy, or sovereignty.

Ottawa and Ukrainian Market Reforms

Indebtedness has greatly influenced the last thirty years of Ukrainian independence. The country has repeatedly borrowed from the IMF to stave off default. This borrowing has given the IMF, and elite policymakers in Canada and other creditor countries significant leverage to push for neoliberal reforms. When the Soviet Union collapsed, Ukraine took on a sixth of the USSR’s $68 billion debt.

Ottawa pressed Kiev to accede to an agreement on Soviet-era debt, making service to the debt a condition to credit access. Canadian assistance was dependent on the privatization of public property and liberalization of the economy. In 1994, foreign affairs minister André Ouellet declared, “our assistance to Ukraine can only be effective if the Ukrainian government takes the necessary steps to put in place the framework in which a market economy can develop.”

During this period, Ottawa sponsored various initiatives to promote neoliberal reforms including the Ukraine Reform Conference, the Canada-Ukraine Trade & Investment Support Project, the Canada Ukraine Intergovernmental Economic Commission, and the Canada Ukraine Business Initiative and Canada Ukraine Legislative Cooperation Project. In the mid 1990s, Ottawa financed an initiative to enable the privatization of Ukrainian agricultural land, which had all been publicly owned. As a 1996 Vancouver Sun article reported, “since the demise of the Soviet Union, Canada has committed more than $120 million in technical aid to help Ukraine make the complex transition to a market economy.”

In October 1994, several months after Leonid Kuchma became the country’s second president, Canada hosted a special G7 conference to promote economic “reform” in Ukraine. Prior to the gathering, the Toronto Star reported, “Canada will pledge up to $20 million in aid to help Ukraine transform its economy to a western-style market system.” As “Ukraine’s largest investor,” the Star reported, Canada also pushed the IMF to make its first ever loan to the country.

In the years after the conference, Ukraine sold off thousands of state enterprises. Well-connected individuals often acquired these properties for a pittance, which gave rise to a class of powerful “oligarchs” whose interests were antithetical to democracy.

Western Investors

During the 1998 financial crisis, which devastated Russia and Ukraine, Ottawa pressed the IMF to expand financing to Ukraine. Because the country had become far more vulnerable to foreign shocks after liberalizing its economy, Ottawa feared that the neoliberal reforms would be halted or even reversed. In 1999, the Globe and Mail reported, “Prime Minister Jean Chrétien personally lobbied for a multibillion-dollar loan for Ukraine from the International Monetary Fund when it was hit by economic crisis last year.”

Chrétien urged the Ukrainian leadership to continue with unpopular economic reforms. “You have committed yourself to building that economic strength, navigating the difficult passage from a command economy to a market economy,” he told Ukrainian leaders. “In spite of the difficulties, I urge you to stay the course.” According to an estimate published in the Globe and Mail in 2001, Ukraine’s GDP contracted by as much as two-thirds in the first eight years after independence.

Through the 2000s, Ottawa continued to push for policies that favored capital and foreign interests. The 2008 global economic crisis delivered a sharp blow to Ukraine, forcing the country to again turn to the IMF for a bailout. In 2009, as reported by the Ottawa Citizen, Canada and Ukraine launched free trade negotiations, which “quickly bogged down after pro-Russian President Viktor Yanukovych came to power” in 2010. In 2014, the article continues, “Negotiations were quietly resurrected after Yanukovych was ousted.” Yanukovych’s ouster was the result of a revolt that Canada promoted.

Much of western Ukraine was angry with Yanukovych after he backed away from the European Union–Ukraine Association Agreement. However, part of the reason for his government’s rejection of the accord was because of Brussel’s refusal to help with the terms of an agreement with the IMF. The IMF’s loan renewal demanded “extremely harsh conditions” — including the elimination of energy subsidies and other government supports.

After Yanukovych’s unconstitutional removal, Ottawa immediately announced $220 million in funding to shore up the new Ukrainian government. However, Foreign Minister John Baird refused to release the assistance until IMF officials were granted greater control over Ukrainian economic policy. As Baird put it, “the IMF is going to want to negotiate some of the [strictest] conditions.” Twenty million dollars of the money was earmarked to supply Ukraine with the “expert guidance it needs to manage this important economic transition.”

In the summer of 2015, then Canadian PM Stephen Harper met with Yanukovych’s successor, Arseniy Yatsenyuk. Shortly thereafter, the new Ukrainian PM called for Canadian investors to buy Ukrainian government enterprises. “I don’t want Ukrainian tycoons to buy these state-owned enterprises,” Yatsenyuk told the Globe and Mail. “We would be happy to see Canadian folks buying Ukrainian assets and bringing into Ukraine good corporate governance, new investment and new jobs.”

Three years later, Stepan Kubiv, Ukraine’s minister of economic development and trade, writing in Canada’s Financial Post, declared that,

Our trade strategy is combined with an ambitious economic reform program to make Ukraine more attractive to western investment. Since 2014, we have achieved more reforms than at any time since independence. We have deregulated sectors of the economy, streamlined business regulations and undertaken privatization of state-owned enterprises. Reforms are underway to improve creditors’ rights and intellectual property rights.

Free Guns With Purchase of Debt

Since the 2014 coup, the IMF, World Bank, and European Investment Bank have plowed more than $10 billion into Ukraine. In 2020, the IMF celebrated improvements in the country’s fiscal situation, which it said were “achieved mainly through a reduction in the real value of wages and social benefits.”

Three decades of neoliberal reforms have been devastating for Ukraine. Inequality has grown substantially. Prior to the upheaval in 2014, Ukraine’s GDP was actually smaller than when it declared independence in 1991. Before Russia’s recent invasion, Ukraine’s GDP was about 20 percent below its Soviet-era level. Ukraine’s GDP per capita is less than half of Russia’s and a fifth of Poland’s. Immiseration has made the country fertile terrain for far-right demagogy.

This year, Ukrainian GDP is down by 16 percent in the first quarter and expected to drop by up to 40 percent. It’s hard to imagine that the country will be able to fully service its international debt. Without substantial debt forgiveness, creditors will gain even greater leverage over the country’s economy and politics. To preempt further economic deprivations, Ukrainian civil society organizations recently launched a petition calling for debt cancellation. But it has largely been ignored in the West.

In last week’s budget, the federal government allocated a $1 billion loan to Ukraine. The funds will be channeled through the newly created IMF multi-donor Administered Account for Ukraine. The budget also earmarked a half billion dollars in new funding for arms. Since February 27, Canada has announced three new weapons donations, which include forty-five hundred M72 rocket launchers, seventy-five hundred hand grenades, a hundred Carl-Gustaf M2 anti-tank weapons, and two thousand rounds of ammunition. The weapons are donations but the bulk of Canada’s other assistance to Ukraine is in the form of loans.

When the interests of international debt holders and ordinary Ukrainians clash, it appears that the losers continue to be workers, pensioners, and their families. Wealthy capitalist countries are eager to provide weapons to enable continued fighting but are silent on requests for debt relief. The fact that weapons are acceptable aid — but not the concrete relief from suffering that debt forgiveness could provide — tells us something fundamental about the capitalist system.

Yves Engler’s latest book is Stand on Guard for Whom? — A People’s History of the Canadian Military.

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