Ukraine Must Make Hard Choices To Fix Its Economy

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The new government has taken some steps says Anders Aslund, who advised Ukraine and Russia in the 1990s. They've let the exchange rate float and cut subsidies that he says enriched the ex president.


Western countries are taking a two-fold approach to the Ukraine crisis: isolate Russia and help Ukraine overcome massive economic challenges. The International Monetary Fund has a bailout package in the works. It requires Ukraine to carry out difficult reforms. Ukraine has fallen short on such conditions in the past but the stakes are higher now.

NPR's Michele Kelemen reports.

MICHELE KELEMEN, BYLINE: A former U.S. ambassador to Ukraine, Steven Pifer says Russia's annexation of Crimea shocked the West and made it more determined to push back. U.S. and European officials are now coming up ways to help a country that was once on par economically with its neighbor Poland, but has fallen far behind.

STEVEN PIFER: The best revenge towards what Russia has done is that if, in three or four years from now, we can look a Ukraine and it's got solidifying democratic institutions, a growing economy and each day it looks a little bit more like Poland.

KELEMEN: But Ukrainians have a tough road ahead, says Pifer, now with the Brookings Institution.

PIFER: It's going to be hard and it depends a lot on Ukrainians making the right choices. But there may be an opportunity here that the West should not pass up.

KELEMEN: The U.S. is offering a billion dollars in loan guarantees. The IMF has negotiated a $14 to $18 billion package, and spokesman William Murray expects it will be approved next month.

WILLIAM MURRAY: We are confident that this program can move forward. The Ukrainian authorities have voiced publicly and privately a keen interest in getting their economic house in order.

KELEMEN: The new government in Kiev has already taken some steps, says Anders Aslund, who advised Ukraine and Russia back in the 1990s. They've let the exchange rate float and are cutting subsidies that, he says, enriched the former president's family. The next big task is cleaning up the natural gas market.

ANDERS ASLUND: Gas trading has been the big source of corruption in the Ukraine for the last 20 years and this has to be handled now. Everybody understands it.

KELEMEN: Aslund, a senior fellow at the Peterson Institute For International Economics, says Ukraine also has to fix the way the government functions. The European Union will play a role in that.

ASLUND: If you have a European association agreement to clean up the state administration - to reform it, fix the state agencies in EU countries - with their corresponding institutions in Ukraine. Reform it fully with laws and training and technical assistance.

KELEMEN: But corruption is an enormous problem in Ukraine and Russia has always been able to buy the influence it needs. Moscow can be the spoiler in other ways too, says David Kramer, a former State Department official who now runs the advocacy group Freedom House.

DAVID KRAMER: It's a huge challenge. It's really hard to imagine how Ukraine can focus on righting its economy and its political situation while part of its territory is occupied and has been annexed and while Russian forces are threatening across the border.

KELEMEN: But he says authorities in Kiev need to start somewhere, and need to make sure that they address the concerns of its citizens in the east of the country where Russia has influence.

KRAMER: There are always excuses for postponing the painful reforms that need to be undertaken. But at a certain point, the continued delay in implementing these reforms means that the situation is never going to get solved. It will be like a Band-Aid approach that never addresses the real wound. And the wound is that Ukraine has a thoroughly corrupt economy that needs to be cleaned out and needs to be rooted in rule of law and transparency.

KELEMEN: Back in 2004, in the so-called Orange Revolution, Western hopes for the country and its new leaders went unfulfilled. Kramer says this time must be different.

Michele Kelemen, NPR News, Washington.




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