Ukraine: Cancel the debt!


Outside of the main narratives of the war in Ukraine is the ever-present reality of crushing debt. Especially over the last decade, status as the country’s main lender—and the connected control over the Ukrainian economy—has been a source of tension between U.S. and Russian-aligned finance capital. The post-Maidan regimes have walked this tightrope in the years leading up to the Russian invasion. Now, for world imperialism, the future of Ukraine is a question of which imperialist bloc will profit from the debt-funding of future wars and the country’s reconstruction and reap the big profits from the final hammer-blows to the social and economic legacies of Soviet Ukraine.

Fighting the ongoing wars against Russian-backed separatists has been one of the major drivers for Ukrainian debt accumulation. Combined with the courting by Western imperialism, this has spelled a drastic increase in loans and connected economic restructuring to meet bankers’ dictates. Since 2014, Ukrainian debt has increased to almost $70 billion. Scheduled debt repayment for 2022 is set at $7.3 billion, more than the entire education budget. According to a petition calling for debt cancellation, “The IMF component of the above sum is $2.7 billion. That is equivalent to $16.5 million average pension payments in Ukraine.”

Ukraine is the poorest country in Europe and suffers from relatively severe underdevelopment. Yet the government has prioritized repayment of debts amidst economic and political crises. An opinion article in The Guardian (March 21, 2022) stated that in the midst of the Russian invasion, “Ukrainian bonds are trading at about 25 cents on a dollar, and so if repayments continue, hedge funds and banks are set to make profits of more than 300%. That the profit margins of the already obscenely rich are being inflated by the bloody slaughter of civilians should surely be a cause of universal revulsion—and sufficient impetus to action.”

As imperialist governments send arms and humanitarian aid to Ukraine, they are also preparing the grounds for debt financing the post-war reconstruction, whose cost is expected to be up to $1 trillion. The most recent and immediate example is the recent decision by Canada to authorize a $1 billion loan through the IMF.

Origins of the crisis

Government debt accumulated as part of the process of the disemboweling of the workers’ states and consolidation of national bourgeoisies in the countries of the former Eastern Bloc. Ukraine was particularly hard hit by these changes as debt funding was used to fill both industrial and governmental deficits and restructure the economy for the worse for workers and farmers.

In the 1990s, local capitalists used government-backed loans from international financial institutions to fund failing industries and foreign trade. Writing for the left Ukrainian journal Commons, Oleksandr Kravchuk explains that during the immediate post-Soviet period: “The introduction of the market, which broke the links within the single economic complex of Soviet republics, and the resulting decline in a production [sic] led to diminished tax revenues and caused an acute budget deficit. As a result, the welfare budget shrank, the amount of unpaid wages in the public sector accumulated on a catastrophic scale, and so on. In that situation, to balance the budget deficit, the Ukrainian government asked external creditors for financial help, and its public debt started to accumulate rapidly…

“The situation with publicly guaranteed debt (foreign loans to various Ukrainian companies and organizations, including private ones, which were guaranteed by the government) … got out of control by the late 1990s. The cost of servicing (paying the interest) and repayment of the publicly guaranteed loans increased to 31 percent of the state’s total debt payments, including internal debt. Overdue debt, for which the government was held responsible, rapidly accumulated.

“[L]ess than 15 percent of the companies that borrowed from foreign lenders paid their fees properly; about a third of them did not even try to pay back the loans they received. It is interesting that the overwhelming majority of this debt consisted of the obligations of Ukrainian companies to pay for the goods they imported from abroad. Therefore, the state budget ended up subsidizing foreign manufacturers instead of helping to develop domestic production.

“In general, the annual cost of servicing and paying back foreign loans, which constituted a lion’s share of Ukraine’s public debt, outweighed the new loan income already in 1995. Loans were taken to cover the budget deficit that was caused, among other things, by the need to pay for external debt service. The short-sighted debt policy in the situation of a global financial crisis led to a significant reduction of loan resources from both external and internal sources in 1998.”

The stability that wasn’t

Over the early 2000s, Ukraine’s economy stabilized somewhat from the period of tumultuous capitalist restoration and reorientation towards the international market. Foreign debt as a percentage of GDP fell to a low of around 12.3% in 2007, down from 45.7% at the beginning of the decade. This was due to growth in GDP and relative stagnation of foreign debt. However, neither brought fundamentally positive changes to the lives of Ukrainian workers and farmers or improvement to the country’s industrial base. Instead, Kravchuk explains that a “world market conjuncture favorable for the raw materials exported by Ukrainian companies … Ukraine’s … economic growth was based on the remnants of the industrial potential created in the Soviet years (iron and steel, chemical industry, heavy mechanical engineering industry), which ended up in the hands of oligarchic groups after the privatization.”

Also during this period, i.e., around 2000-2008, the Ukrainian state and capital ran afoul of the mandates of international finance. The fundamental reasons were extreme corruption and “oligarchic” tendencies in the post-Soviet regime. Instead of meeting the “transparency” and competition criteria mandated by the IMF, Ukrainian capitalists used the relatively positive economic situation to consolidate their control of the country’s productive forces.

A 2002 IMF review of the privatization process in Ukraine details how “collusion among bidders [on formerly state-run enterprises] is rumored to be widespread, and in many cases, managers of enterprises have taken ownership control of their firms through front companies initiating bids. Stock market sales became an important avenue for … privatization … in larger enterprises, particularly in 2000 … stock market sales have provided a means for existing owners to expropriate minority shareholders … A small number of interest groups still control vast areas of the economy, particularly in industry.”

The reason that the IMF and similar institutions call for “transparency” and “competition” as conditions for their loans is to allow easier and more dominating access for international finance capital to subjugated countries. The same is true for recent calls for the “de-oligarchization” of Ukraine as a prerequisite to join the European Union.

Bowing to imperialist pressures, the Ukrainian government passed Law of Ukraine 5599 in late 2021. That bill was signed into law in the days leading up to the Nov. 10 meeting of the inter-governmental U.S.-Ukraine Strategic Partnership Commission and goes into effect next month. One of the main things it attempts to do is to weaken Ukrainian national capitalists by not allowing “oligarchs,” defined by the EU/U.S.-aligned Zelensky government, to profit from future privatization measures. While discussed in neutral terms, this is also an obvious attempt to loosen Russian influence over Ukrainian economics, politics, and media through strengthening the hand of European and United States’ capital in the country.

At the same time, the Western European leaders of the EU have continually expressed unwillingness to bring Ukraine into the federation due to the country’s poor investment environment. Taken together, what this all means is that European capital is happy to use internal corruption and instability in Ukraine to make major profits and strike at Russian competitors while at the same time using those same conditions to denounce and exclude the country

In the face of war

Following the Great Recession and related shifts in the international economy, Ukraine found itself once again searching for loans. The years between 2008 and 2014 were a period of relatively high reliance on Russian capital while also making overtures with the IMF.

A 2012 analysis of Russian-Ukrainian financial relations explained the dynamic at the time: “The high prices for Russian gas are leading to widening trade deficits and declining foreign exchange reserves. Moreover, Ukraine is facing increasing debt problems; in total, Ukraine has to repay more than US$10 billion before the end of 2012, US$3.7 billion of which it owes to the International Monetary Fund. It seems likely that Kyiv’s credit dependence on Moscow will deepen, which will give Russia additional instruments to put pressure on Ukraine; if the economic situation deteriorates significantly, this may lead to Ukrainian enterprises being acquired by Russian capital” (quoted in the Socialist Resurgence document, Russia: An Imperialist State with Regional Clout).

Instead, the Euromaidan movement and conflicts in Crimea and the Donbass shifted the balance toward U.S. and European aligned  finance. Still, as explained in Russia: An Imperialist State with Regional Clout, “Russia was the dominant imperialist power in Ukraine before the Euromaidan, and despite war and sanctions and the urging of Western capitalist think tanks that European investors not  abandon Ukraine, will remain a key player in the wealth extraction game.” The Russian annexation of Crimea and formation of the Donetsk and Luhansk People’s Republics should be seen in this context.

As the Socialist Resurgence document reported in 2018, “In regard to the nearly 80 mines inside the Donetsk People’s Republic, the separatist government says it does not have the money to support work, so they are using the Russian model and turning to 100% privatization of this industry. It goes 228 without saying that such capital investments must be Russian… In Crimea, the Russians nationalized the 18 companies owned by the oligarch Ihor Kolomoyskyi and his close aide Oleksandr Dubilet, and then sold them to their own favored private investors. Other companies were also taken and sold.”

Economic despair, political concessions

Increasing indebtedness to international financial institutions, as well as the economic dislocations from territory and productive losses from the ongoing wars, have opened up new assaults on the livelihoods of working people and farmers in Ukraine. One prominent example is “gas reform.” In 2014, the IMF identified its main priorities for lending to Ukraine as increasing privatization of Naftogaz and raising gas prices. The latter “reform” has had the effect of increasing energy prices 4000% since 2000. Most of this additional money goes directly to management salaries, military spending, and debt repayment.

The Zelensky government is particularly ruthless in their imperialist debt-driven austerity policies. In June 2020, amidst the first stages of the COVID-19 pandemic, the government took on a new round of IMF loans that carried further gas price increases and ended the obligation of Naftogaz to supply heating to households regardless of ability to pay. These measures were enacted in August, leading into the harsh Ukrainian winter during a global pandemic.

The regime is also putting one of the last nails in the coffin of the legacy of Ukraine’s former status as a workers’ state. This is the creation of a land market in Ukraine and the full commodification of agricultural land. The impacts of this change will be swift and severe as huge swaths of the country are sold off to local and imperialist speculators. Small farmers are being put on the chopping block.

Cancel the debts!

International solidarity with workers and farmers in Ukraine means building a movement for the immediate cancellation of all the country’s debts. These are the conditions that can best aid the struggles against privatization and austerity, not just in Ukraine but also Eastern Europe and Central Asia as a whole. Militant workers everywhere need to connect the fights against imperialist debt-mongering with the movements against political repression, privatization, and encroachment by U.S., European, and Russian imperialisms in the region.

These connections, analysis, and demands around debt cancellation and support for class-independent struggles are necessary to rebuild the antiwar movement in the United States. Activists in the imperialist core need to be clear about the treachery of U.S./EU capital as well as expose the exploitative and destructive policies of the Zelensky government. Popularizing discussion about the spiraling debt-crisis in Ukraine in antiwar spaces is an important means of clarifying these points. 


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