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Agenda Pública and United Ukraine Think Tank present Focus Ukraine, a weekly article series analysing how the military conflict in Ukraine and the political and economic situation in the country will evolve. The articles are written by Ihor Petrenko, Dmytro Levus, Petro Oleshchuk and Oleksiy Kushch, experts of the United Ukraine Think Tank.
Military parade as a religious ritual and violation of international law as evidence of the regime’s strength
The war that Russia is waging against Ukraine is positioned by Russian propaganda as a “sacred struggle against Nazism” and a continuation of the so-called “Great Patriotic War,” that is, the part of World War II that was waged by the USSR in 1941-1945. Moreover, the main holiday of the Russian Federation is Victory Day, which is celebrated on May 9 and is deliberately opposed by Russians to the day of the end of World War II in Europe, recognized by the world, on May 8. It is the core of modern Russian identity and a central element of the civilian religion of the “great victory” that makes the vast majority of Russians aggressive idiots, deceives them and mobilizes them for war. Based on this, the events of the current Russian aggression are adapted to this date and the mythology of the “great victory,” other events are adjusted and “achievements” are planned.
Russia’s main event, in fact, a religious ritual, is the military parade on May 9 on Red Square. But the outright failure to implement plans in the war against Ukraine has led to unfortunate changes for Russia. Even the main parade on Red Square is minimalist in its equipment, as it is really lacking and needed at the front. Instead, dictator Putin confirms the correctness of the International Criminal Court’s decision to issue a warrant for his arrest, while behind him are bastards in Russian military uniforms, one of whom organized a concentration camp in Yahidne near Chernihiv, where the occupiers held more than three hundred people for a month, and another killed civilian Ukrainians near Kyiv in Bucha. The Kremlin restricted the “Immortal Regiment,” one of the inventions of the Putin era, a march of Russians with portraits of their ancestors who died in World War II. It was canceled due to fears that the number of new “heroes of the World War II” to be carried on the march would exaggerate the number of portraits of those who died in 1941-1945 and unwittingly raise the question: what about the losses? Celebrations and festivities in the regions bordering Ukraine have been limited due to the fears of governors and commandants that the announcement of an air raid during the celebration of the “great victory” could again be misinterpreted by the stinkers who gathered to celebrate: what kind of victory is it if you have to run to the shelter? In purely military terms, there was no breakthrough by the date either. After all, the Kremlin had set its troops the task of capturing Chasiv Yar in the Donetsk region by the “Victory Day” of May 9. Given that May 7 was the “inauguration” of Putin, who declared himself president of the Russian Federation after a mock election in March, this failure becomes even more symbolic and sensitive for Russia. Ukraine’s Foreign Ministry has stated that it does not recognize Putin’s legitimacy, as the imitation of Russian elections took place in the occupied territories of Ukraine with the forced involvement of Ukrainians living there. These are blatant violations of international law.
The situation remains difficult in all parts of the frontline. In addition to constant attacks on many fronts, Russia has launched an offensive from its territory in the Kharkiv region. The advance of Russian troops has been stopped at 2-5 km from the border, our defense is deployed and effectively counteracting the Russians, although there are reports that the occupiers have occupied several villages in the gray zone. So far, Russian attacks have been repelled. At the same time, the Russian invaders continue to terrorize the settlements of the Kharkiv region with massive shelling. There were heavy attacks on the border town of Vovchansk. The population is being evacuated from there. Due to constant Russian attacks on Kharkiv, underground operating rooms and intensive care units will be opened there. The city council is now addressing this issue together with the Ministry of Health. The underground departments will be built to meet the needs of a number of medical institutions. In addition, the city will expand the network of underground cultural institutions. Despite everything, there is a demand from Kharkiv residents for performances and live communication in a safe space.
It is obvious that Russia plans to continue to increase its attacks on Ukrainian infrastructure. Among the children recently wounded on a football field in Kharkiv, one boy lost a leg. In general, Russia has almost doubled the intensity of missile strikes, and the use of drones has increased fourfold. Thus, from January 1 to May 9, 2023, 466 missiles were used, and during the same period this year, 800 have already been fired. “Shaheds” were used 425 and 1664 during the corresponding periods. On May 5, the entire Orthodox world celebrated Easter. Russia considers itself a model for the Orthodox around the world. But even on Easter Day, Russia continued its massive strikes, although at night during the service, Moscow Patriarch Kirill Gundyaev spoke of awakening good feelings and creative work. During the day, three air strikes hit Kharkiv. Five Smerch MLRS missiles destroyed the Sloviansk thermal power plant in Mykolaivka, Donetsk region. Sumy region was under attack from guided aerial bombs and Shaheds. There is a partial blackout there, critical infrastructure facilities in the regional center are on backup power, and indestructibility points are being deployed. As we have pointed out, Russia is parasitic on the image of the main, or even the only, victor over Nazism, who is allowed to do anything for his past merits. Therefore, the massive air attack carried out by the aggressor country against Ukraine on May 8 was not surprising. The Russians used 76 air attack weapons – 55 missiles and 21 attack drones:1 Kinzhal aerial ballistic missile; 2 Iskander-M ballistic missiles; 4 Kalibr cruise missiles; 45 X-101/X-555 cruise missiles from Tu-95 MS strategic aviation aircraft; 1 Iskander-K cruise missile; 2 X-59/X-69 guided missiles; 21 Shahed-131/136 attack UAVs. As a result of the air defense engagement, Ukraine’s air defense destroyed 59 air targets out of 76: 33 X-101/X-555 cruise missiles; 4 Kalibr cruise missiles; 2 X-59/X-69 guided missiles; 20 Shahed-131/136 attack UAVs. The main target of the Russian attack was electricity generation and transmission facilities in Poltava, Kirovohrad, Zaporizhzhia, Lviv, Ivano-Frankivsk, and Vinnytsia regions. The enemy of the Russian Federation wants to deprive us of the ability to generate and transmit electricity. On Wednesday morning, Ukrainian energy company DTEK confirmed that three of its power plants were damaged in the strike overnight. The company said 350 rescuers and more than 100 pieces of special equipment were working to eliminate the consequences of the strikes. Ukrhydroenergo reported that two hydroelectric power plants were also out of service. In addition, the attack had an ideological component. In Zaporizhzhia, Russian Iskander missiles tried to destroy the monument to the Heroes of the Heavenly Hundred in Peremohy Park, which, incidentally, was opened in Soviet times in honor of the Victory Day holiday. In Kharkiv, Russians attacked a school stadium. Children playing soccer were injured, a boy lost his leg. Russian shelling in Kherson damaged critical infrastructure. The city was partially left without electricity. The enemy attacked the railway infrastructure of Kherson, damaging the tracks. Train traffic to Kyiv was limited to Mykolaiv, and passengers were transported by buses.
The Ukrainian Defense Forces strike at the enemy’s deep rear in the temporarily occupied territory of Ukraine. On the evening of May 10, an oil depot in Rovenky, Luhansk region, occupied since 2014, was hit. On May 11, an effective and precise strike, probably with a missile, was carried out on the Paradise Hotel and Restaurant in Donetsk, where the occupiers lived and ate. The course of the war showed Russia’s heavy dependence on the oil refining industry. On May 10, a successful drone strike was launched against the Kaluga Oil Refinery. On May 11, it became known that drones had hit the Volgograd oil refinery, damaging two oil refining units. The refinery processes oil into fuel and oil components, with a capacity of 14.8 million tons per year. Most of the refinery’s products are supplied to the southern regions of Russia, and some are exported. Earlier, on May 9, drones hit Gazprom’s oil refinery in the city of Salavat in Bashkiria. Given that this facility is 1,400 kilometers away from Ukraine’s border, this is evidence of the new capabilities of Ukrainian attack drones. At the same time, drones successfully attacked an oil depot in the village of Yurivka in the Kuban, 65 kilometers from the Kerch Bridge. Throughout the week, Russian military targets in the Kursk and Belgorod regions, the closest bases of Russian aggression, were attacked. At sea, as a result of an operation by the Ukrainian Defence Intelligence’s Group 13 unit, a Magura V5 maritime strike drone destroyed a Russian speedboat in Crimea. As the fear of Ukrainian attacks forces the occupiers to hide large Black Sea Fleet ships away from the peninsula, combat operations are underway to destroy high-speed maneuverable Russian warships illegally staying in Ukrainian territorial waters of Crimea.
The US Department of Defense announces a new $400 million aid package for Ukraine. It includes additional ammunition for Patriot and Nasams anti-aircraft missile systems; Stinger man-portable air defense systems; equipment to integrate Western launchers, missiles and radars with Ukrainian systems; additional Himars MLRS and ammunition; 155 mm and 105 mm artillery shells; anti-tank systems and anti-radar missiles, and much more. Germany announces that it will purchase three Heimar MLRS for Ukraine. Latvia will supply Ukraine with drones and radar systems of its own production. The rhythmic and systematic supply of weapons to Ukraine will determine the success of the fight against Russian aggression. Urgent action is needed from all stakeholders to ensure the prompt implementation of political decisions on arms transfers. Because Russia is preparing an offensive and powerful strikes. Weapons are the defense and life of our military.
Putin’s inauguration: why we should not expect “peace initiatives” from them
Vladimir Putin’s inauguration in 2024 marked another stage in his long tenure in power. The ceremony took place in the traditional solemn format at the Kremlin, where Putin took the oath of office and delivered a speech in which he emphasized the importance of preserving Russia’s stability and sovereignty. Despite some protests, most Russians saw this as a natural continuation of the course that Putin has been pursuing for many years. The inauguration confirmed his status as Russia’s dominant political leader, who continues to determine the country’s development vector.
If we try to identify the main ideological and political trends in Russia at the time of Putin’s inauguration, they are as follows.
First, it is the consolidation of authoritarianism and the concentration of power in the hands of the president. Russian authoritarianism tends to show signs of totalitarianism, which is expressed in pressure on culture, art, and other non-political social spheres. The authorities control which musical performers can and cannot perform. History is being actively rewritten, and education is being ideologized. One problem for Putin’s regime is the lack of a clear and well-thought-out ideology, which the USSR had.
Accordingly, the Putin regime is seeking to build a neo-imperial ideology on a new basis. A component of this ideology is the thesis of restoring Russia’s influence in the post-Soviet space and confronting the West. The Russian regime also refers to conservative values, traditionalism, and rejection of liberal ideas. The cult of a strong personality and personal loyalty to Putin, the use of patriotic rhetoric and the idea of Russia’s “special path” also play an important role in the regime’s ideological base.
In practice, this means that the Russian regime is approaching the logical completion of its own ideological system, which includes war as an integral element. And although the war is being waged exclusively against Ukraine, it is presented as a value and existential war for modern Russia, and therefore the Putin regime will not be able to simply abandon it from the point of view of the ideological foundations of its own legitimacy.
Moreover, the regime is completing the unification of the “Victory Cult” in World War II and the current aggression against Ukraine in the public consciousness into something unified and interconnected. Putin’s inauguration and the subsequent celebration of Victory Day demonstrated this to the fullest extent. In fact, for the Russian authorities, the current war is a continuation of the war of 80 years ago. And that war is recognized as the most significant for modern Russian history, which means that the current war is also acquiring a sacred character.
All of this suggests that any notions in the West about Putin’s willingness to negotiate and compromise with Ukraine seem to be devoid of real grounds. Putin is not preparing to make peace with anyone; he plans to wage war in one format or another for a very long time.
The exhibition in Moscow of captured and damaged military equipment that had previously been handed over to Ukraine by Western partners was indicative. The German and American tanks were obviously meant to illustrate to Russians the following thoughts: 1) Russia is at war with NATO countries; 2) Russia is doing it successfully. All of this should prepare Russians for the prospects of expanding such confrontation in the future.
Obviously, Putin’s regime has finally cemented its undemocratic and aggressive status toward all of humanity. The Russian leadership no longer has any opportunities to reverse the situation, and most importantly, the Russian leadership is obviously unwilling to leave the path of authoritarian imperialism.
Accordingly, Ukraine will become the target of further intensification of Russian aggression, as this is inherent in the very nature of the Putin regime, and repelling this aggression will depend solely on the capabilities of Ukraine itself.
The more losses Ukraine suffers during the war with Russia, the more the issue of writing off Ukrainian public debts becomes urgent
Moreover, this issue is moving from a purely financial and legal field to the moral one, although this category does not always fit into the regulations on debt relief.
One of the areas of debt relief is Ukraine’s debt to the IMF.
Under the new program of cooperation with the IMF, Ukraine is to receive $15.5 billion, of which $14.9 billion will be returned to the Fund to repay old debts (these are funds from the 2020 Short-Term Program for 5 years – support during the pandemic; and the 2015 EFF for 10 years).
Here we can recall a quote from IMF Managing Director Kristalina Georgieva:
“Countries moving towards debt restructuring under the General Arrangement need more certainty about processes and standards, as well as shorter and more predictable timelines. And we need to improve the processes for countries not covered by the General Rules. To support these improvements, the IMF, the World Bank, and the G20 Chair in India are working with borrowers, public and private creditors to quickly convene a global sovereign debt roundtable where we can discuss current shortcomings and build on progress made.”
Earlier, Georgieva spoke about “reaching a consensus on sovereign debt restructuring” for developing countries in the context of debt to both private (London Club of Creditors) and public (Paris Club) creditors.
In other words, debt relief/restructuring (Ukraine may qualify for both) is a topic that the IMF Managing Director often articulates in his speeches.
Moreover, the IMF has already written off the debts of three countries: Sudan, Somalia, and Liberia. And it has implemented debt relief programs for 25 poor countries that have suffered economically during the pandemic. Here is Kristalina Georgieva’s official statement on the matter:
“I am pleased to announce that today our Executive Board approved immediate debt relief for 25 IMF member countries under the IMF’s revised mechanism, the Disaster Risk Reduction Trust Fund (CCRT), as part of the Fund’s response to help overcome the impact of the COVID-19 pandemic.
This decision provides grants to our poorest and most vulnerable member countries to cover their initial debt obligations to the IMF over the next six months and will help them to direct more of their limited financial resources to providing vital emergency health and other assistance.”
Debt relief was then granted to the following countries: Afghanistan, Benin, Burkina Faso, Central African Republic, Chad, Comoros, Democratic Republic of the Congo, Gambia, Guinea, Guinea-Bissau, Haiti, Liberia, Madagascar, Malawi, Mali, Mozambique, Sierra Leone, Solomon Islands, Sierra Leone, Tajikistan, Togo, Yemen and Yemen.
As you can see, there are mechanisms for debt relief under IMF programs, and they applied to 25 countries affected by the pandemic, not just three. Of course, this is not a classic write-off.
It is a mechanism where the IMF announces the creation of a trust fund, which is formed at the expense of rich countries. These funds are then provided in the form of grants to poor debtor countries, and they, in turn, repay their loans to the IMF.
Why are there no negotiations on creating such a trust fund for Ukraine?
Under the new IMF cooperation program, Ukraine is to receive $15.5 billion, of which $14.9 billion will be returned to the Fund to repay old debts (these are funds from the 2020 Short-Term Program for 5 years – support during the pandemic; and the 2015 EFF for 10 years).
In other words, a trust fund for Ukraine could be created for $15 billion and this debt could be repaid with contributions from IMF members. This program could at least be initiated.
Then new IMF loans would have been used to stabilize the situation in Ukraine, not to refinance old debts. Moreover, Ukraine attracts new debts from the Fund at 7% and repays old ones at 2%, i.e. replaces old cheap debts to the IMF with new more expensive ones.
But let’s get back to the topic of debt relief.
Ukraine fully meets the IMF’s criteria for applying for debt relief.
Let’s quote the IMF’s methodological guidelines for debt relief:
“Approved in September 1996, the HIPC Initiative is a comprehensive, integrated, and coordinated approach developed jointly by the IMF and the World Bank to address external debt problems in heavily indebted poor countries. Once a country has met a set of criteria, the IMF Executive Board and the World Bank Board of Directors make a formal decision on the country’s eligibility for debt relief, and the international community commits to reducing its debt to a level that is considered sustainable. This stage in the HIPC Initiative is called the decision point.
Once a country has reached the decision point, it can immediately begin receiving interim relief in the form of debt service relief for its maturing debt. The next stage is the completion point, at which the full amount of debt relief is expected to be granted.
Within the framework of the Paris Club, procedures for collective renegotiation of official bilateral debt have been developed since the 1950s, when Argentina approached its creditors bilaterally. Between 1956 and 2011, 426 agreements were concluded with 89 different countries, and the amount of debt processed under the Paris Club agreements amounted to $563 billion.
In the 1980s, there was a gradual realization that some heavily indebted poor countries were facing solvency and liquidity problems.
Over time, the Paris Club granted more and more favorable terms for debt rescheduling to low-income countries.
The degree of reduction of commercial claims obligations has gradually increased: Toronto terms (1988 – 33.33 percent debt reduction); London terms (1991 – 50 percent debt reduction); Naples terms (1995 – 50-67 percent debt reduction); Lyon terms (1996 – 80 percent debt reduction); Cologne terms (1999 – 90 percent or more reduction when required under the HIPC Initiative). In October 2003, Paris Club creditors adopted the “Evian Approach” to better tailor approaches to the needs of debtors not covered by HIPC.”
After this rather lengthy quote, let’s ask a simple question: can Ukraine qualify for inclusion in the HIPC debt relief program, i.e., can it claim to bring its debt to a safe and stable level?
The public debt may reach 90% of GDP in the near future. To calculate this, we need the net worth (NPV). Given that a significant part of our debt is short- and medium-term, the NPV will not differ dramatically from the nominal value. Our exports will be at the level of USD 50 billion, and our budget revenues (without international financial assistance) will be at the level of USD 40 billion. The threshold value of NPV to exports will be more than 200% (150% is needed). The threshold value of NPV to budget revenues is only 250%. That is, Ukraine fully meets the criteria for debt relief under the HIPC procedure. It just needs to be initiated.
Although Ukraine can also apply for a simplified debt relief procedure, as was done for Sudan, when the country’s debt was forgiven in proportion to the size of Ukraine’s quota in the IMF in the amount of SDR 4.2 million (about $6 million), i.e. Ukraine spent $6 million of its own funds to write off the Sudanese debt.
The special regime of debt forgiveness for Ukraine is justified by the huge human, territorial, and economic losses that our country suffered during the war and which fall squarely within the scope of geopolitical force majeure. Moreover, this is assistance to a country that voluntarily got rid of the world’s third largest nuclear weapons arsenal and in respect of which international security guarantees set forth in the Budapest Memorandum were not fulfilled.
An unprecedented geopolitical situation requires an unprecedented financial solution.
Returning to the interest rate at which the IMF is lending to Ukraine under the new program (7%).
Isn’t it clear that lending money at such a high interest rate to a country that is in a deep economic crisis, that has lost 8 million people as refugees and people left behind in the occupied territories is simply a way to bankrupt it?
Moreover, the funds provided by the IMF to debtors are not a classic loan. That is why countries do not sign classic loan agreements with the Fund, but rather conclude memorandums. By their very nature, these funds are the IMF’s deposit with the NBU. The central bank “reserves” a similar amount in the national currency in its assets “in the name of the Fund”. In essence, this is a mutual placement of deposits between the central bank of a member country and the IMF, and in the case of Ukraine, between the NBU and the IMF.
Here is how the IMF describes this mechanism:
“IMF loans, which are made available from the general resources account, are financed largely by capital contributed by member countries on a prepaid basis; each country is assigned a quota, which is its financial obligation. A member state contributes a portion of its quota in Special Drawing Rights (SDRs) or the currency of another member state acceptable to the IMF, and the remaining portion in its own currency. An IMF loan is granted to a borrower or utilized by the borrower by purchasing foreign currency assets from the IMF for its own currency. The loan is repaid by the borrower repurchasing its currency from the IMF for foreign currency.”
In other words, the point is clear: it is an exchange of deposits. In view of this, Ukraine’s obligation to “buy back” its hryvnia from the IMF can be extended, as is constantly happening with Argentina, which is lengthening the repayment of its obligations to the IMF.
Moreover, the IMF can keep the hryvnia equivalent of Ukraine’s debt to the Fund for itself, using it in projects of post-war reconstruction of Ukraine (these funds can be used by any member of the Fund who wants to participate in such reconstruction).
On the one hand, Ukraine has foreign exchange reserves of $40 billion, so it can seemingly pay. But a “bare figure” of reserves without its correlation with domestic deficits and imbalances is nothing.
You can have $10 billion in reserves and $5 billion in problems, or $40 billion in reserves and $100 billion in problems. Which situation is better?
The IMF forecasts Ukraine’s trade deficit in 2024 at $40 billion. Ukraine’s public external and guaranteed debt is $100 billion. The state budget deficit for 2023 reached UAH 1.33 trillion. And Ukraine continues to wage a grueling war. Under these circumstances, $40 billion in reserves would cover only 40% of the external debt and the annual budget deficit (or annual negative trade balance).
If we take into account the extended principles of reserve adequacy in Ukraine, taking into account potential shocks (the Reddy, Greenspan principle, the Jean and Rancière model), the NBU’s reserves cannot be considered sufficient, let alone excessive.
In terms of debt relief, it is worth reading such scholars as Kenneth Rogoff (a long-time consultant to international financial organizations) and Carmen Reinhardt (the world’s most cited female economist). In their articles, they write about the inevitability of partial debt relief for poor countries that find themselves in a debt crisis due to force majeure: pandemics, natural disasters, wars.
By the way, the IMF Managing Director Kristalina Georgieva is now of the same opinion.
As far as we understand it, the problem with debt relief for Ukraine is that Ukraine’s example may be followed by countries in Africa, Asia, Oceania, and Latin America that take loans from the Fund.
This is why a special debt relief protocol should be developed for countries that lost a significant portion of their human, economic, and territorial potential during the war. And start with Ukraine.