Monday, July 28, 2014

Ukraine's economy is falling apart. Yahoo/Reuters.

A coal mine in Donestk, Ukraine. Yahoo/Reuters

The civil war in Ukraine is having a major impact on the Ukrainian economy. A combination of the fighting and a lack of explosives for coal mines have crippled heavy industry in the east. Many workers have fled and the ones that remain are much less productive. Sanctions from Russia, combined with the loss of tax base and industry from Crimea, have also crippled the Ukrainian economy, which was in dire straits before the war. Currently wages for workers and military units are being partially paid by Ukrainian Oligarchs.

My Comment:
Ukrainians are already feeling the economic pain of this war. The article downplays how significant the issue is. Ukraine is desperate for cash and if they don't get it soon there is a very good chance of losing the war, even without Russian interference. Once they run out of cash they won't be able to pay their troops and pensioners or keep the lights on. That would lead to chaos and perhaps even another revolution. The IMF has loaned some money, but not nearly enough, and I doubt any foreign investors will pony up the cash when the security situation is so poor. The EU has their own economic problems and I doubt there is much domestic support in the United States for giving Ukraine money. 

Of course this plays right into Putin's hands. I have mentioned many times on this blog that Putin is playing the long game. He knows that every day the Ukrainians are fighting this war they go deeper in debt. And once winter hits he can cut off their natural gas supplies, which would be a disaster. The Ukrainians would either have to negotiate or change governments yet again. I am sure the Ukrainians know this, which is why they are pushing so hard to capture Donetsk. They need to end this war in victory before the end of fall if they expect any chance of their economy surviving.  

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