Amid Decisive Talks With Creditors, Ukraine Tries to Secure Its Economic Future

Ukraine’s struggle to keep its economy intact has been both a financial fight with creditors to trim its debt and an image battle to lure new investment to the cash-strapped country. Kiev took an important step Monday towards restructuring $23 billion of foreign debt by submitting new proposals to its creditors. But as Ukraine awaits their response to secure its short-term economic survival, the heavily indebted country is also looking long-term: trying to rebuild its broken image to attract international business.

Ukraine’s economy might be beaten and bloodied after 18 months of war and upheaval, but Ukrainian officials insist the country is on the mend and open for business. “We are a democracy and we are serious about reform. Hopefully people can see that Ukraine has chosen a business-friendly direction,” Roman Nasirov, head of the state fiscal service of Ukraine, told Foreign Policy during a July visit to Washington.

The Ukrainian government might have a vision, but it doesn’t have time. Currently, the International Monetary Fund is keeping the Eastern European country afloat, dispersing $1.7 billion in fresh funds on July 25. That came on top of $5 billion already given to Kiev under a $17.5 bailout package, which it said will continue whether or not Ukraine comes to terms with its creditors. But securing access to a broader $40 billion IMF package to stabilize the country’s economic future requires debt restructuring. Ukrainian Finance Minister Natalie Jaresko, told Reuters on Monday that she expected a decision to be announced by July 30.

Negotiations on debt restructuring, which have dragged on for four months, would be an important financial lifeline, but Ukraine’s economic prospects remain stunted without attracting outside investors.

To bring in investment, Kiev is opening up its state-owned companies to investors as part of a privatization push. But the investment pitch risks falling on deaf ears.

“A big part of the forum is to battle perception,” said Nasirov, who added that concerns over fighting in Donetsk and Luhansk was a barrier when luring investors. Following protests that ousted former Ukrainian President Viktor Yanukovych in February 2014 and accelerated following the outbreak of hostilities in eastern Ukraine in two months later, the Ukrainian economy took a major hit, with GDP contracting by 6.8 percent in 2014, and that it may shrink by another 9 percent in 2015, according to the IMF.

“We are at war, but it is confined to a small part of Ukraine. The rest of the country still moves ahead as normal and is open for business,” said Nasirov.

The economic forecasts may be dreary, but for Yevgen Sysoyev, a managing partner at the venture capital firm AVentures, Kiev’s candid call for investment is an important milestone for Ukraine. “This is the first time that I ever heard Ukrainian officials be so honest about the government’s problems,” he said. For Sysoyev, the government’s straight talk is an encouraging sign. “Investors want transparency and that is what Kiev is giving them right now.”

Transparency or not, Kiev’s hands will be tied unless it manages to get a much needed influx of capital. On July 1, Russian energy giant Gazprom halted gas supplies to Ukraine after a breakdown on pricing talks. The state energy firm Naftogaz, which produces, imports, and distributes natural gas throughout Ukraine has compensated for the shortfall by importing gas from the European Union, but the decisive issue is once again whether Ukraine can muster the necessary cash to keep enough gas in storage for the winter.

“For us, the crucial thing is to make sure we have enough money to keep buying gas,” Andriy Kobolev, CEO of Naftogaz, told FP in a recent interview. Naftogaz and Gazprom remain embroiled in an indefinite legal battle, but reaching consensus with Ukraine’s creditors is crucial for being able to keep buying European gas.

Whether Ukraine’s cash-strapped officials can attract the necessary investment and reach a solution for its massive debts remains to be seen. But like its empty coffers, time is running out for Kiev.

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