Lawrence H. Summers, the Charles W. Eliot university professor
at Harvard, is a former treasury secretary and director of the National
Economic Council in the White House. He is writing occasional posts, to be
featured on Wonkblog, about issues of national and international economics and
policymaking.
I have spent the last two days in
Kiev attending the Yalta European Strategy meeting, where I have had the chance
to discuss Ukraine’s economic reform efforts with key officials, including the
finance minister and prime minister. I was encouraged to see a country where,
despite huge challenges, including Russia’s war of aggression against Ukraine,
economic reforms are being carried out and receiving support from the
international community.
The Ukrainian parliament will
this week vote on a historic debt reduction agreement that finance minister
Natalie Jaresko negotiated with Ukraine’s private-sector creditors. The case
for approval is overwhelming, both because Ukraine has made a good deal and
because disapproving the deal would be catastrophic for Ukraine’s economy. But
approval of the debt deal is only one component of the ambitious economic
cooperation among Ukraine, Europe and the United States – cooperation that is
essential to the geopolitical moment.
I have been watching debt negotiations closely
for more than 30 years, since the Latin American crisis of the 1980s. Ukraine
has gotten as good and fast a deal as any I have ever seen.
The deal has many virtues:
It reduces the principal value of Ukraine’s debt
and eliminates principal payments for the next four years.
It unlocks substantial support from the
International Monetary Fund and other international financial institutions on a
large-scale.
It brings forward the day when Ukraine can
attract significant private capital flows.
It establishes clear principles that will enable
Ukraine to defer all principal payments on its obligation coming due to Russia.
Even if Ukraine’s economy does very well, the
“value recovery instrument” issued as part of the debt deal, which aligns debt
repayment with economic growth, is shrewdly designed so that the vast majority
of future growth will still flow to the Ukrainian people, not to its creditors.
This is because: (i) the instrument only kicks in at scale in a decade; (ii) it
is subject to repurchase on the open market and to subsequent renegotiation;
and (iii) it is carefully designed to ensure that only the initial benefit and
not the continuing benefit of Ukraine’s growth flows to creditors.
In the unlikely event that Ukraine’s parliament
disapproved the deal, all these benefits would be lost. International financial
support would dry up as Ukraine would be seen as unable to carry through on
commitments. Confidence in the stability of Ukraine’s currency and banking
system would be put at risk.
And its leverage vis-a-vis its debt to Russia
would vanish.
So I hope and expect that the Ukrainian
parliament will ratify the debt deal in the very near future. To paraphrase
Churchill, this may not be the end, or even the beginning of the end of
Ukrainian economic reform, but it may be the end of the beginning.
Make no mistake – the United States and Europe
have an immense stake in Ukraine’s economic success. Our leaders rightly assert
that military force is often not the right solution to international conflict.
Enabling Ukraine to provide greater improvements in living standards for its
citizens than Russia does would be a major triumph for the West. In this regard
what we do forUkraine is
likely more important than what we do to Russia.
Support for Ukraine should not be seen as
foreign assistance to a striving economic reformer, though it is that. Rather,
with Ukraine invaded, support should be seen as investment in forward defense
of core U.S. and European security interests. If Ukraine succeeds economically,
investments will pay for themselves several times over as loans are paid back
with interest, and as Russia’s government is both deterred by Ukraine’s
stronger economy and pressured by its economic example.
Historians will wonder why the international
community has invested more than 10 times as much money in supporting a
recalcitrant Greece as in supporting a reforming Ukraine, since the start of
their crisis. Perhaps intra-European Union loans are in some special category,
but as of this moment the IMF’s potential exposure to Greece is $41 billion
compared to only $22 billion for Ukraine.
Now is the moment for Ukraine at long last to
embrace the market and the rule of law. It has the best, most market-oriented
economic team in its history. And it is the time for global community to do
whatever it takes—much more than is being done today—to provide support at a
critical juncture.
No comments:
Post a Comment