The IMF Forgives Ukraine’s Debt to Russia
By Michael Hudson
“December 10, 2015 "Information
Clearing House" - The IMF’s Executive
Board met today and agreed to change the current policy on
non-toleration of arrears to official creditors. We will provide
details on the scope and rationale for this policy change in the
next day or so.”
Since 1947 when it really started operations, the
World Bank has acted as a branch of the U.S. Defense Department,
from its first major chairman John J. McCloy through Robert McNamara
to Robert Zoellick and neocon Paul Wolfowitz. From the outset, it
has promoted U.S. exports – especially farm exports – by steering
Third World countries to produce plantation crops rather than
feeding their own populations. (They are to import U.S. grain.) But
it has felt obliged to wrap its U.S. export promotion and support
for the dollar area in an ostensibly internationalist rhetoric, as
if what’s good for the United States is good for the world.
The IMF has now been drawn into the U.S. Cold War
orbit. On Tuesday it made a radical decision to dismantle the
condition that had integrated the global financial system for the
past half century. In the past, it has been able to take the lead in
organizing bailout packages for governments by getting other
creditor nations – headed by the United States, Germany and Japan –
to participate. The creditor leverage that the IMF has used is that
if a nation is in financial arrears to any government, it cannot
qualify for an IMF loan – and hence, for packages involving other
This has been the system by which the dollarized
global financial system has worked for half a century. The
beneficiaries have been creditors in US dollars.
But on Tuesday, the IMF joined the New Cold War.
It has been lending money to Ukraine despite the Fund’s rules
blocking it from lending to countries with no visible chance of
paying (the “No More Argentinas” rule from 2001). With IMF head
Christine Lagarde made the last IMF loan to Ukraine in the spring,
she expressed the hope that there would be peace. But President
Porochenko immediately announced that he would use the proceeds to
step up his nation’s civil war with the Russian-speaking population
in the East – the Donbass.
That is the region where most IMF exports have
been made – mainly to Russia. This market is now lost for the
foreseeable future. It may be a long break, because the country is
run by the U.S.-backed junta put in place after the right-wing coup
of winter 2014. Ukraine has refused to pay not only private-sector
bondholders, but the Russian Government as well.
This should have blocked Ukraine from receiving
further IMF aid. Refusal to pay for Ukrainian military belligerence
in its New Cold War against Russia would have been a major step
forcing peace, and also forcing a clean-up of the country’s endemic
Instead, the IMF is backing Ukrainian policy, its
kleptocracy and its Right Sector leading the attacks that recently
cut off Crimea’s electricity. The only condition on which the IMF
insists is continued austerity. Ukraine’s currency, the hryvnia, has
fallen by a third this years, pensions have been slashed (largely as
a result of being inflated away), while corruption continues
Despite this the IMF announced its intention to
extend new loans to finance Ukraine’s dependency and payoffs to the
oligarchs who are in control of its parliament and justice
departments to block any real cleanup of corruption.
For over half a year there was a semi-public
discussion with U.S. Treasury advisors and Cold Warriors about how
to stiff Russia on the $3 billion owed by Ukraine to Russia’s
Sovereign Wealth Fund. There was some talk of declaring this an
“odious debt,” but it was decided that this ploy might backfire
against U.S. supported dictatorships.
In the end, the IMF simply lent Ukraine the money.
By doing so, it announced its new policy: “We only
enforce debts owed in US dollars to US allies.” This means that what
was simmering as a Cold War against Russia has now turned into a
full-blown division of the world into the Dollar Bloc (with its
satellite Euro and other pro-U.S. currencies) and the BRICS or other
countries not in the U.S. financial and military orbit.
What should Russia do? For that matter, what
should China and other BRICS countries do? The IMF and U.S. neocons
have sent the world a message: you don’t have to honor debts to
countries outside of the dollar area and its satellites.
Why then should these non-dollarized countries
remain in the IMF – or the World Bank, for that matter. The IMF move
effectively splits the global system in half,between the BRICS and
the US-European neoliberalized financial system.
Should Russia withdraw from the IMF? Should other
The mirror-image response would be for the new
Asian Development Bank to announce that countries that joined the
ruble-yuan area did not have to pay US dollar or euro-denominated
debts. That is implicitly where the IMF’s break is leading.
Michael Hudson is President of The Institute
for the Study of Long-Term Economic Trends (ISLET), a Wall Street
Financial Analyst, Distinguished Research Professor of Economics at
the University of Missouri, Kansas City and author of
Killing the Host (2015), The
Bubble and Beyond (2012), Super-Imperialism: The Economic
Strategy of American Empire (1968 & 2003), Trade, Development and
Foreign Debt (1992 & 2009) and of The Myth of Aid (1971), amongst