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Spiteful Faces and Suicidal Tendencies

Spiteful Faces and Suicidal Tendencies

Having spent the last few days talking to Ukraine experts, I have come to the conclusion that in this brewing crisis there is a Heaven-sent opportunity for the West to prove that it has something indispensable to offer to the world. At the same time, two immense obstacles threaten Ukraine’s future: Russia’s Vladimir Putin, who wants both Ukraine and the West to fail, and right-wing Republicans in the U.S. Congress, who can’t be bothered with what happens to Ukraine.  

The opportunity is easily enough described: Ukrainians took to the streets to cast out a hated pro-Russian dictator and now aspire to join the other former Soviet states — including Georgia, Moldova, and the Baltic nations — that have moved towards the West. Their interim government is prepared to impose the kind of sacrifices necessary to qualify for Western assistance. And European and multilateral institutions are prepared to offer billions to keep the new Ukraine afloat.

Ukraine matters because it is strategically located between Europe and Russia and because, with 45 million people, it is a lot bigger than all the other Western-oriented, ex-Soviet states combined. But Ukraine is also a test case of the Western model of assistance, which uses the promise of funds to extract democratic and free-market reforms. That’s why, at a moment when it is preoccupied with bolstering its own weak members, the European Union announced last week that it would furnish Ukraine with $15 billion in loans and grants.

That bitter Western medicine has done wonders for any number of ailing countries, including Turkey and Mexico, but in recent months the model has been challenged as never before.  In an article last December, I described a phenomenon I called "The Autocrats’ Emergency Bailout Fund." These were cases where wealthy authoritarian leaders had dipped into their sovereign wealth fund to bail out fellow dictators.

Last summer, Saudi Arabia, Kuwait, and the UAE agreed to spend $12 billion propping up Egypt’s military government after the generals deposed a democratically-elected, though deeply unpopular, government. Then Putin rescued Ukraine from bankruptcy with an infusion of $15 billion. Both interventions allowed the enfeebled regime to spurn the International Monetary Fund and its demanding conditions (though the UAE has urged Egypt to renew negotiations with the IMF). Both favored the status quo over reform.

This is why Ukraine makes for such a powerful case. The country’s crisis was precipitated when President Viktor Yanukovych refused to make the political and economic reforms demanded by the IMF and instead turned to Putin. Now Yanukovych is gone, Putin has invaded and effectively annexed the Crimea, and the new Ukrainian regime, facing bankruptcy later this year, has no salvation save the West. An IMF team is now in Ukraine, sounding the depths of the country’s economic failure. Prime Minister Arseniy Yatsenyuk has already devalued the currency and made deep budget cuts, as the IMF has demanded; he has said "we will fulfill all the conditions, I repeat, all the conditions" for IMF funding.

The experts I talked to were remarkably optimistic about Ukraine’s willingness to make the tough choices needed to modernize the economy, despite years of corruption and dithering and the entrenched position of a handful of oligarchs. "The advantage of having had terrible policies is that it’s very easy to improve them," says Anders Aslund, a former advisor to Ukraine and now a fellow at the Peterson Institute for International Economics. Aslund asserts, for example, that of the $4 billion which Ukraine spent annually to subsidize the cost of gas, $3 billion went to line the pockets of the ruling clique; the $1 billion which the United States has already pledged to Ukraine could compensate those who truly depended on the subsidies. (Some portion of the international funds will also have to go to pay off Ukraine’s debts to Gazprom, the Russian firm which supplies its natural gas, which is now almost certain to jack up the price.)

Aslund points out that states must reform in the immediate aftermath of democratic change, as Georgia did. Ukraine failed to do so after the Orange Revolution, in 2004; now it has a second chance. The Arab Spring has, of course, taught us to distrust the moment of euphoria; overthrowing a regime is nothing compared to shaping a new one that answers to people’s needs. Ukraine has barely begun to address the immense gulf between its Europeanized west and its Russophone east; right-wing nationalists stand ready to exploit that division. Ukraine will thus be extremely vulnerable to the tension — and one that is rapidly growing — between Russia and the West.

Vladimir Putin has already jeopardized Ukraine’s future by invading Crimea. Potential investors will have to think twice before risking their capital. If Putin sends troops into eastern Ukraine, as he now seems prepared to do, he would put Ukraine on a war footing in which the program of reform would be quickly thrown overboard. Will he? Nicu Popescu, a Ukraine expert with the European Union Institute for Security Studies, points out that Putin "tried everything short of military intervention" before concluding that he had no other effective leverage. He may up the ante once again unless President Barack Obama and his European allies can raise the price of aggression beyond what Putin feels he can afford.

The United States is the closest thing Ukraine has to a security guarantor but it also plays a crucial role in the planned economic rescue. As the largest contributor to the IMF, Washington has the most important voice in shaping bailouts. President Obama has given strong support to reforms that would double the funds available to members while modestly increasing the authority of the emerging powers at the expense of Europe and the United States. Ukraine would be able to draw an additional $600 million in "rapid-financing" funds to cover immediate shortfalls, and could receive an additional $7 billion over three years. Congressional Republicans, however, have refused to support the reform, either because minuscule sums will be transferred from the Pentagon budget or because it allegedly reduces American influence.

Of course, nothing would reduce American influence more effectively than single-handedly blocking a reform that would double the IMF’s emergency lending power and satisfy the demand of rising powers for greater authority. The $1 billion in loan guarantees the United States will extend to Ukraine will be dwarfed by the reduction in available IMF funds. Administration officials have testified in Congress, and say in private, that Washington will lose its ability to shape the rescue package for Ukraine if it is seen as the obstacle to IMF reform. For this reason, those Republican leaders who actually care about the world, like Senators Lindsey Graham and John McCain, have expostulated with their brethren to pass the bill, while those who don’t care, or care more about a doctrinal haggle, have dug in their heels.

Putin poses a much graver threat to Ukraine than Eric Cantor does. The Republicans may do more damage to America’s global influence than they will do to Ukraine. The Russian threat has united Europe, and the Europeans will take the lead in ensuring Ukraine’s economic future. This is, finally, the hour of Europe. At this supreme moment when rival models of governance clash in the heart of Eurasia, the United States will stand to the side, reinforcing the view that it has lost interest in Europe and that it prefers to lead from behind, if at all. American exceptionalism will look increasingly like a euphemism for American isolationism.

The West has an immense stake in crafting a good outcome for the Ukrainian people, who have paid in blood for the right to determine their own future. Do congressional Republicans really believe that a diminished American role is in the interest either of Ukraine or of the United States?