A bloodied man empties his wallet to his creditor while being ruthlessly attacked by an unprovoked assailant. Such is the fate of Ukraine, which recently made a scheduled interest payment to private lenders as tanks rolled through its land and missiles struck its cities. Even before Vladimir Putin started bombing apartment buildings and maternity wards, Ukraine was The poorest country in Europe measured by GDP per capita – significantly poorer than Albania. Yet this war-ravaged country is saddled with unsustainable debt – and as the piles of rubble grow, so do repayments. It’s debt for Ukraine, but profits for Western hedge funds. War, for some, is the main source of money.
Since Russia annexed Crimea in 2014 – sparking a conflict in the east that had claimed thousands of lives before the current invasion – Ukraine has been forced to borrow $61bn (£46bn ) to external lenders, as calculated by the Jubilee Debt Campaign; a small part has been paid off, but what remains is about a third of the country’s total economy. Ukraine was expected to shell out $7.3 billion this year alone – more than its annual education budget. For a wealthy country blessed with peace, that would be manageable, but Ukrainians are poorer today than when the Soviet Union collapsed three decades ago. At least $100 billion in damage has already been inflicted on infrastructure – from roads to bridges, from hospitals to schools – and, as you read this, that figure only go up. Yet almost all of the financial aid given to Ukraine comes in the form of loans. Valuable funds will be diverted from rebuilding a broken country, filling the coffers of the International Monetary Fund (IMF), World Bank and private bondholders instead.
This is why Ukrainian civil society organizations have started a petition demanding that Ukraine’s debt be cancelled. They also note that much of the aid supposedly given to the country has come with strict strings attached: the IMF calls it “economic restructuring”, but it is more honest to describe it as the imposition of free market dogma , resulting, for example, in a 650% overvoltage domestic gas prices since 2014. “Previous governments had two options: either tax the big cats fairly and bring them out of the shadows, or borrow from the IMF and others,” the Ukrainian economist told me. Oleksandr Kravchuk. “They chose the latter.”
The Jubilee Debt Campaign picked up on this demand and began lobbying UK MPs. Like millions of us, Executive Director Heidi Chow had this nagging, helpless feeling of “we have to do something.” For some, this has manifested in the demand for a no-fly zone. But in practice, she tells me, this is a “shoot Russian military planes from the sky” zone, which could easily escalate into nuclear war. On the other hand, it is a tangible and extremely impactful proposal without the risk of military escalation.
So why has this requirement of common sense not been taken up by the powerful? This may be partly because Ukraine’s own government has not officially requested it, although some senior officials have. “Before the war, they were very keen on paying off their debts and improving their standing in Europe and the world,” Chow suggests. Applying for some form of debt relief is a complicated and time-consuming process. Any fears that their borrowing capacity and global reputation could be tarnished must clearly be allayed.
Yet the macabre fact is that as new loans are made – even if now unconditional – huge profits are to be made. Ukrainian bonds are trading at around 25 cents on the dollar, and so if redemptions continue, hedge funds and banks should make profits of over 300%. That the profit margins of the already obscene wealthy are inflated by the bloody slaughter of civilians should surely be cause for universal revulsion – and sufficient impetus for action.
But if the IMF and World Bank cancel Ukraine’s debt, critics may ask, doesn’t that mean less money in the pot to lend to other poorer countries? But there is a simple solution: richer countries, like ours, should contribute more to make up the shortfall. There is a precedent of sorts – the G20 debt service suspension initiative suspended or canceled nearly $11 billion of poor countries’ external debt because of Covid-19. If a pandemic is reason enough to write off debt, a war of aggression certainly is too.
When all of this ends – hopefully in failure for Putin – Ukraine will need a modern Marshall Plan, made up of grants, not loan-funded reconstruction. Currently, as the Jubilee Debt Campaign suggests, there should be a mechanism to automatically suspend debt repayment for countries experiencing severe external shocks. Ukraine is in the midst of an existential crisis – as Ukrainian social scientist Volodymyr Ishchenko told me: “Personally, I feel like the country I was born in might just disappear.” A country battered and scarred by war needs room to breathe. It’s in our power: cancel the debt.