Ukrainian Finance Minister On Making Change Happen In Ukraine

Finance Minister of Ukraine and HKS alumna, Natalie A. Jaresko MPP 1989, participated in a conversation with Future of Diplomacy Project Faculty Director R. Nicholas Burns titled “Ukraine: Making Change Happen” on September 23. Minister Jaresko commented on the current state of economic reforms and debt restructuring in Ukraine, pairing her incisive analysis with descriptions of personal experiences working at a high-level in governments in both the US and Ukraine.

“A difficult start”: policy challenges and personal challenges

“Being inside a strange bureaucracy is a challenge; you find yourself in an environment that is completely alien,” stated Minister Jaresko on the subject of her first few months in office as Finance Minister of Ukraine. With less than $200,000 in the Treasury and an enormous debt overhang, Minister Jaresko spoke of the overwhelming policy challenges she and the Treasury confronted from the outset. Minister Jaresko insisted that the Ukrainian government needed to find a way to fund its defense budget, in addition to a slew of other commitments such as pensions, health care, social security, and debt repayment. “We needed to find a way to close the $40 billion four-year gap,” she declared.

The debt restructuring deal - a “win-win” deal:

In order to fund the $40 billion gap, Minister Jaresko revealed that Ukraine sought assistance from the IMF and other international bodies such as the EU and the World Bank, as well as the US. The IMF Extended Fund Facility provided them with $17.5 billion while the EU, World Bank, and US combined assembled $7 billion in assistance. Despite Ukraine’s strong credit history - “without default, without moratorium, without violating IMF targets” - the Minister lamented how the remaining $15.3 billion gap was left with no one willing to finance: “there’s a certain amount of Ukraine fatigue in many areas of the West; not many were willing to cough up the funds.” “We determined with the IMF that it had to be a private sector debt refinance,” concluded Minister Jaresko.

The Ukrainian Finance Minister fleshed out the terms of the $18 billion debt restructuring deal agreed upon with private-sector creditors such as Franklin Templeton: with a “four-year time out” on principle payments; a 20% debt reduction; no payments until 2012, contingent on GDP growth, the recent agreement was portrayed by the Minister as a “win-win” deal. “I think it’s a realistically good situation for Ukraine,” declared the Minister. She also added that the deal was timely, solving the pressing issue of a debt repayment due on September 23rd, which Ukraine would not have been able to meet.

More help needed:

Minister Jaresko revealed frankly that the $40 billion deal, though enough to stabilize the economy, will not be enough to achieve real growth. She recognized the substantial support that the international community has already given Ukraine but reinforced the notion that Ukraine needed more assistance and investment opportunities. “The IMF is at its limits but I’m encouraging everyone else to do more. What we really need is investment; it’s very hard to attract foreign investment with a war going on.”

War with Russia:

“We don’t want anything to forget about the war but we want everyone to forget about it too; it’s a hard balance to strike,” revealed Minister Jaresko about the current conflict between Russia and Ukraine in Crimea. Minister Jaresko described Russia’s aggression in the Crimea as a form of “hybrid war” with economic, military, psychological, and informational dimensions. She warned that Russia’s actions also bear deep geostrategic implications: “this is not just about Ukraine.” It’s to some extent about breaking the transatlantic union.”

Ukraine and the EU:

Minister Jaresko spoke confidently about Ukraine’s ability to shift its economy toward exports to the neighboring European Union. Despite Russian threats to cease all trade with Ukraine, Minister Jaresko insisted that the EU-Ukraine ‘deep and comprehensive free-trade agreement’ (DCFTA), which will come into effect on 1 January 2016, would allow Ukraine to become “the most competitive platform for export in the European Union.” Minister Jaresko concluded her discussion by reiterating the significance of recent economic reforms and deals: “the bottom line is that Ukrainian’s sovereignty and territorial integrity depends on economic success.” “The challenge [ahead] is durability of reforms.”