Hlib Vyshlinsky Soviet propaganda was the most effective in the world. The U.S.S.R. has been gone for nearly 20 years, but the labels from its TASS news agency continue to stick to “agents of world imperialism,” such as the International Monetary Fund.

In Soviet legend, the IMF’s function was to “colonize third world countries” and turn them into “sources of raw materials for the West.” Today, the communists who perpetuated the notion that the IMF drives poor countries into a debt trap have found modern-day allies. The party of big business, the Party of Regions, has carried on for the Soviets.

Mykola Azarov, one of their deputies, said in May: “The Party of the Regions will do its utmost not to accept loans on these conditions.” According to Azarov, the party categorically opposes the pension reform that requires an increase of pension age, and a hike of gas and utility bills for the population to market levels.

Unfortunately, those in Washington know better what the Ukrainian economy needs than the Party of the Regions does.

In 2004, when he was first deputy prime minister, Azarov did not believe the IMF experts who warned about the danger of high inflation. “The fact is they [IMF experts] expressed their concerns that we would have an inflationary jump. We have no inflationary jump. Our inflation remains within the planned parameters,” he said on Sept. 22, 2004. He turned out to be a bad forecaster. Between September and December 2004, prices went up by nearly 8 percent – more than in the previous two years combined. After that, the annual consumer prices rose by at least 10 percent annually, and exceeded 20 percent in 2008.

In a document five years ago, Washington economists from the IMF named all the risks that led Ukraine to the cruelest economic crisis last year. “A relapse into higher inflation could undermine public confidence in macroeconomic stability, possibly triggering a shift back into foreign currency. The rapid expansion of bank lending in a weak institutional context is a significant risk to financial sector stability. External vulnerabilities remain, especially with respect to a potential decline in demand from key trading partners.”

Unfortunately, this is exactly how things happened.

Also, back in 2003, the IMF started to actively recommend that the National Bank of Ukraine should move from a fixed hryvnia rate, introduced after the 1998 crisis, to one that seeks to dampen inflation. This policy would move the emphasis from supporting a stable exchange rate to keeping inflation low. The fund managed to persuade Arseniy Yatseniuk, acting chief of the NBU in 2004. But when Volodymyr Stelmakh returned to the National Bank in 2005, he firmly refused to drop the fixed rate policy.

In the following years, the IMF spoke increasingly tougher in its economic reviews about the risks of such a policy. “A more flexible exchange rate could also help stem financial dollarization while providing incentives to develop markets to hedge [ensure] foreign-exchange risks,” the IMF said in its 2007 recommendations.

A year-and-a-half before the massive financial collapse of the banks, the fund wrote: “The [lending] boom has created substantial credit risk, in particular indirect foreign-currency risk, since most borrowers are unhedged. It has also raised banks’ foreign-exchange liquidity risk as banks have increasingly relied on foreign funding, much of which is at short maturities.” The National Bank of Ukraine failed to listen and failed to prevent a collapse.

In the mid-1990s, thanks to the toughest conditions of the IMF’s lending programs, Leonid Kuchma managed to pull Ukraine out of the depths of hyper-inflation and stop printing more money to cover the budget deficit. Cooperation with the IMF allowed Ukraine to get firmly back on track of market development. Thanks to the IMF, real gross domestic product grew by 81 percent between 2000 and 2008. Now the fund once again is helping Ukraine’s politicians understand what is going on and making unpopular decisions.

It’s performing the same ungrateful function as last-hope creditor for the bankrupt populist governments of Latvia, Belarus and Hungary. Like Ukraine, these countries spent recklessly during the economic boom, doing nothing to prevent imminent problems.

There should be a small memorial erected to symbolize the modest IMF worker, who is preparing economic policies for Ukrainian politicians who are incapable of doing the same. This same IMF worker, meanwhile, is castigated as an enemy of the people.

Perhaps the honorary memorial should be erected in the yard between the Cabinet of Ministers and the National Bank of Ukraine. The space, closed to the public, would allow the monument to be observed only by the state bureaucrats who owe so much to the IMF.


Hlib Vyshlinsky is a department manager at GfK Ukraine and can be reached at hlib.vyshlinsky@gfk.com.