Michael Hudson: Has the IMF Annexed Ukraine?

Naked Capitalism ^ | 15 February 2015 | interview w Michael Hudson

[Lorianne]

Welcome to the Michael Hudson report on The Real News Network. I’m Sharmini Peries, coming to you from Baltimore.

A ceasefire in Eastern Ukraine has been agreed to, following a marathon all-night, 17-hour negotiation between Russian President Vladimir Putin and Ukraine President Petro Poroshenko. They were flanked byother European leaders keeping vigil. Russia and Ukraine may have many differences, but what they have in common is a looming economic crisis, with oil prices taking a dive on the Russian side and a very expensive war they were not counting on on the Ukrainian side.

Joining us now to talk about all of this is Michael Hudson. He is a distinguished research professor of economics at the University of Missouri-Kansas City. His upcoming book is titled Killing the Host: How Financial Parasites and Debt Bondage Destroyed the Global Economy.

Michael, thank you, as always, for joining us.

MICHAEL HUDSON, ECONOMICS PROF., UNIV. OF MISSOURI, KANSAS CITY: Good to be here.

PERIES: So, Michael, in a recent interview published in The National Interest magazine, you said that most media covers Russia as if it is the greatest threat to Ukraine. History suggests the IMF may be far moredangerous. What did you mean by that?

HUDSON: First of all, the terms on which the IMF make loans require more austerity and a withdrawal of all the public subsidies. The Ukrainian population already is economically devastated. The conditions that the IMF’s program is laying down for making loans to Ukraine is that it must repay the debts. But it doesn’t have the ability to pay. So there’s only one way to do it, and that’s the way that the IMF has told Greece and other countries to do: It has to begin selling off whatever the nation has left of its public domain; or, to have your leading oligarchs take on partnerships with American or European investors, so that they can buy out into the monopolies in the Ukraine and indulge in rent-extraction.

This is the IMF’s one-two punch. Punch number one is: here’s the loan – to pay your bondholders, so that you now owe us, the IMF, to whom you can’t write down debts. The terms of this loan is to believe our Guiding Fiction: that you can pay foreign debt by running a domestic budgetary surplus, by cutting back public spending and causing an even deeper depression.

This idea that foreign debts can be paid by squeezing out domestic tax revenues was controverted by Keynes in the 1920s in his discussion of German reparations. (I devote a chapter to reviewing the controversy in my Trade, Development and Foreign Debt.) There is no excuse for making this error – except that the error is deliberate, and is intended to lead to failure, so that the IMF can then say that to everyone’s surprise and nobody’s blame, their “stabilization program” destabilized rather than stabilized the economy.

The penalty for following this junk economics must be paid by the victim, not by the victimizer. This is part of the IMF’s “blame the victim” strategy.

The IMF then throws its Number Two punch. It says, “Oh, you can’t pay us? I’m sorry that our projections were so wrong. But you’ve got to find some way to pay – by forfeiting whatever assets your economy may still have in domestic hands.

The IMF has been wrong on Ukraine year after year, almost as much as it’s been wrong on Ireland and on Greece. Its prescriptions are the same as those that devastated Third World economies from the 1970s onward.

So now the problem becomes one of just what Ukraine is going to have to sell off to pay the foreign debts – run up increasingly for waging the war that’s devastated its economy.

One asset that foreign investors want is Ukrainian farmland. Monsanto has been buying into Ukraine – or rather, leasing its land, because Ukraine has a law against alienating its farmland and agricultural land to foreigners. And a matter of fact, its law is very much the same as what the Financial Times reports Australia is wanting to do to block Chinese and American purchase of farmland.[1]

The IMF also insists that debtor countries dismantle public regulations againstforeign investment, as well as consumer protection and environmental protection regulations. This means that what is in store for Ukraine is a neoliberal policy that’s guaranteed to actually make the situation even worse.

In that sense, finance is war. Finance is the new kind of warfare, using finance and forced sell-offs in a new kind of battlefield. This will not help Ukraine. It promises to lead to yet another crisis down the road very, very quickly.

[mosesdapoet]

IMF = International Monetary Fund. Hudson hammers IMF policies and their effect but not who sets them or speculates who benefits when they’re made. Which is needed here.

[Krosan]

That is ridiculous. Russia is both covertly and overtly invading Ukraine and for this guy the biggest problem is Ukrainian loan arrangement. He needs to step out of his economist bubble.

When your house is on fire then refreshing the paint on the walls is not a priority.