Why Ukraine needs Russia more than ever.

Why Ukraine needs Russia more than ever.

"In little over a year, living standards in Ukraine have fallen by half, the currency has lost 350% of its value, and inflation has skyrocketed to 43%. Yet, even as the economy has collapsed, the government has insisted on economic policies that can only be termed suicidal.

By tearing up contracts with Russia in 2014, Ukraine’s defence and aviation industries lost 80% of their income. Once the pride of Kiev, airline manufacturer Antonov went bankprupt and rocket engine producer Yuzhmash is now working just one day a week.

By severing banking ties with Moscow, Kiev has denied itself investment and a vital economic lifeline – the remittances sent back home by zarobitchane, Ukraine’s migrant workers. Up to seven million Ukrainians work in Russia, sending back $9bn in 2014 – three times the total foreign direct investment Ukraine got last year.

Reckless government borrowing has exacerbated the problem. The government was able to write off 20% of its Eurobond debt last October, allowing it to negotiate for the next IMF loan tranche which was expected in December but still not been received.

But the draconian terms imposed for this small beer are often overlooked. Ukraine will be repaying this debt until 2041, with future generations giving western creditors as much as half of the country’s GDP growth, should it ever reach 4% a year.

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The destruction of Ukraine’s industrial base, which is heavily concentrated in the east, shifts the balance of economic and political power to the western regions, permanently marginalising opposing political voices. The advantages are clear. Fostering a sense of perpetual crisis allows the current government to argue that it must remain in power, to see its policies through. The only uncertainty is whether such a strategy can bear fruit before the country’s economy collapses.

This is not a policy that the west can endorse. Regardless of political sympathies, no western government should tolerate the deliberate impoverishment of the population for political gain. The risks of Ukraine becoming a failed state, and adding millions more to Europe’s burgeoning refugee crisis, are simply too high.

The best way to avoid such an outcome is to recognise that Ukraine’s economic survival depends not on western bailouts but on the renewal of Russian investment there. Western policymakers should insist that economic rationality take precedence over economic nationalism, and make that a condition of assistance.

Until that happens, it is hard to imagine anyone investing in Ukraine’s future, including its own people."

Please read the rest at http://www.theguardian.com/world/2016/mar/09/ukraine-needs-russia-nicolai-petro