Challenging the Accepted Wisdom on Ukraine’s Economy

The international buzzwords for rescuing Ukraine’s economy are well known: reform, austerity, foreign direct investment (FDI).

But what if the standard formula doesn’t work, and the country lacks the necessary FDI for these policy positions to make the economy grow? That is, in part, what Balazs Jarabik argues.

A non-resident scholar at the Carnegie Endowment for International Peace and an expert on Central and Eastern Europe, Jarabik believes the IMF and the World Bank’s approach is not yielding the desired results.

“What we see [in] the conflict between the Western institutions and Ukraine can be summarized very simply as the western institutions trying to do sometimes quite dogmatic policy prescriptions,” Jarabik says. This fails to take into account the “actual political situation” in Ukraine, he adds.

Photo credit: Oleksandr Shevchenko/HROMADSKE

Issues like corruption and weak rule of law still stand in the way of foreign investment in Ukraine, Jarabik says. But another “crucial obstacle” is western institutions themselves. Jarabik points out that, in the past twenty years, six of the seven IMF programmes with Ukraine have been unsuccessful, and the concept of austerity has even proven ineffective within the EU itself.

“Even star economists are saying that [austerity] has been a mistake which actually limited growth within the EU,” he says. “So now we are trying to convince Ukraine about something which already failed in the European Union.”

Moreover, Ukraine is not the first country to have experienced difficulties with FDI. Neighboring Slovakia, Hungary and Czechia — which all received heavy investment from the West after the collapse of the Soviet Union — eventually experienced “backlash against the FDI,” according to Jarabik. He believes this to be partially due to the wage disparity and the persisting “East-West” divide within the EU.

Photo credit: Oleksandr Shevchenko/HROMADSKE

Like Ukraine, in order to receive FDI, these countries have also had to deal with corruption. And, as with Ukraine, this has not been easy. As Jarabik points out, new and powerful, but unelected anti-corruption institutions in Eastern and Central European countries often clash with the democratically elected political elites. Moreover, the competency of these institutions can be affected by pressure from Western institutions to achieve results quickly.

Jarabik believes this problem results from Western institutions over-politicizing the issue of anti-corruption reform, and therefore inflating the perception of corruption, when the overall picture may not actually be so bleak — even in Ukraine.

“The actual situation has been improving and you seeing that the corruption experience of Ukrainian people is going down. But what is not moving is the perception,” Jarabik told Hromadske.

Hromadske spoke to Balazs Jarabik, non-resident scholar at the Carnegie Endowment for International Peace, to discuss Ukraine’s cooperation with Western institutions and how this is affecting the Ukrainian economy.

/Interview by Nataliya Gumenyuk

/Text by Sofia Fedeczko