Michael Hudson: Losing Credibility – The IMF’s New Cold War Loan to Ukraine

By Michael Hudson, a research professor of Economics at University of Missouri, Kansas City, and a research associate at the Levy Economics Institute of Bard College, who publishes regularly at his website. His latest book is “The Bubble and Beyond

In April 2014, fresh from riots against the kleptocrats in Maidan Square and the February 22 coup, and less than a month before the May 2 massacre in Odessa, the IMF approved a $17 billion loan program to Ukraine’s junta. Normal IMF practice is to lend only up to twice a country’s quota in one year. This was eight times as high.

Four months later, on August 29, just as Kiev began losing its attempt at ethnic cleansing against the eastern Donbas region, the IMF signed off on the first loan ever to a side engaged in a civil war, not to mention being rife with insider capital flight and a collapsing balance of payments. Based on fictitiously trouble-free projections of the ability to pay, the loan supported Ukraine’s currency, the hryvnia, long enough to enable the oligarchs’ banks to move the money quickly into Western hard-currency accounts before the hryvnia plunged further and was worth even fewer euros and dollars.

This loan demonstrates the degree to which the IMF is an arm of U.S. Cold War politics. The loan terms imposed the usual budget austerity, as if this would stabilize the war-torn country’s finances. The financings obviously were devoted mainly to rebuilding the army. The war-torn East can expect to receive nothing even nothing even though its basic infrastructure has been destroyed for power generation water, and hospitals. Civilian housing areas that bore the brunt of the attack are also unlikely to profit from the IMF’s uncharacteristic generosity.

A quarter of Ukraine’s exports normally are from eastern provinces and sold mainly to Russia. But Kiev has been bombing Donbas industry and left its coal mines without electricity. Nearly a million civilians are reported to have fled to Russia. Yet the IMF release announced: “The IMF praised the government’s commitment to economic reforms despite the ongoing conflict.” No wonder there was almost no comment in the news or even the business press!

The loan is bound to create even more infighting among IMF staff economists than broke out openly at their October 2013 annual meeting in Washington. Dissension over the disastrous IMF $47 billion loan to Greece – at that time the largest loan in IMF history – prompted a 50-page internal IMF document leaked to the Wall Street Journal. Acknowledging that the IMF had “badly underestimated the damage that its prescriptions of austerity would do to Greece’s economy,” IMF staff economists blamed pressure from eurozone countries protecting their own “banks [that] held too much Greek government debt. … The IMF had originally projected Greece would lose 5.5% of its economic output between 2009 and 2012. The country has lost 17% in real gross domestic output instead. The plan predicted a 15% unemployment rate in 2012. It was 25%.

The IMF’s Articles of Agreement forbid it to make loans to countries that clearly cannot pay, prompting its economists to complain at their Washington meeting that their institution was violating its rules by making bad loans “to states unable to repay their debts.” One official called its Debt Sustainability Analysis, “‘a joke,’ a [European] commission official described it ‘a fairy tale to put children to sleep’ and a Greek finance ministry official said it was ‘scientifically ridiculous.’” In practice the IMF simply advanced however much a country needed to pay its bankers and bondholders, pretending that more austerity would enhance the ability to pay, not worsen the debt trap, while Kiev also used the loan for military expenses to attack the Eastern provinces.

This raises the question of whether the IMF’s loan is legally an “odious debt,” being made to a military junta and stolen by government insiders. John Helmer’s Dances with Bears calculates that “of the $3.2 billion disbursed to the Ukrainian treasury by the IMF at the start of May, $3.1 billion had disappeared offshore by the middle of August.”

Unlike the IMF’s most recent disastrous loan to Cyprus, the IMF did not reveal its reasoning. But it made it clear that the National Bank of Ukraine (NBU) – its central bank – was simply turning money over to the kleptocrats who ran the country’s banks as part of their conglomerates, and funding the government’s military attack on the East: “The proportion of government securities and loans to banks increased from 28 percent of NBU total assets at end-2010 to 56 percent at end-April 2014.” The financial situation was getting worse. Facing rising insolvency risks, Ukraine’s leading banks were reported to need another $5 billion over and above the IMF’s $17 billion commitment.

In preparation for October’s scheduled elections, the eastern provinces are in no condition to vote, and the junta has banned the Communist party and also banned TV and media reporting that it does not like. The leading pro-war parties are polling very low even in the West (as of early September). There are warnings of a coup by the Right Sector and allied neo-Nazi Ukrainian nationalists, headed by the oligarch Ihor Kolomoyskyy, who has fielded his own private army. From Johnson’s Russia List* (no online version):

A defeat in war frequently leads to regime change. The spectre of a coup is once again roaming the streets and squares of Kyiv. Surviving National Guard fighters are threatening to turn their weapons on Poroshenko. A third Maydan [Independence Square protest movement] is taking shape, which is to sweep aside the present regime. The instigators of this Maydan are militants from the punitive battalions created with Kolomoyskyy’s money. It is obvious that the oligarch is playing his game against Poroshenko. Subordinate to him Kolomoyskyy has quite a strong private army capable of carrying out a coup.

IMF- and US-backed Privatization Plans for Ukraine

Ukraine’s main problem is that its debt is denominated in dollars and euros. There seems only one way for Ukraine to raise the foreign exchange to repay the IMF and NATO creditors rounded up to help Westernize the economy: by selling its natural resources, headed by gas rights and agricultural land.

Here the shadowy figure of Kolomoyskyy resurfaces, with support from the United States. Recent Senate Bill 2277 “directs the U.S. Agency for International Development to guarantee loans for every phase of the development of oil and gas” in Ukraine, Moldova and Georgia.

Vice President Biden’s son, R. Hunter Biden, recently was appointed to the board of Burisma, a Ukrainian oil and gas company registered in Cyprus, long a favorite for post-Soviet operators. The firm has enough influence over Kiev politics to make prospective gas fracking lands a military objective. From the PEU, citing an Economic Policy Journal report**:

Ukrainian troopers help installing shale gas production equipment near the east Ukrainian town of Slavyansk, which they bombed and shelled for the three preceding months, the Novorossiya news agency reports on its website citing local residents. Civilians protected by Ukrainian army are getting ready to install drilling rigs. More equipment is being brought in, they said, adding that the military are encircling the future extraction area.

The Western press has failed to convey Ukraine’s East/West hostility to the gas and agricultural issues, but one report notes: “The people of Slavyansk, which is located in the heart of the Yzovka shale gas field, staged numerous protest actions in the past against its development. They even wanted to call in a referendum on that subject. … Countries like the Czech Republic, the Netherlands and France have given up plans to develop shale gas deposits in their territories. Not only them but also all-important Germany, which two weeks ago announced it would halt shale-gas drilling for the next seven years over groundwater pollution concerns.” U.S. and IMF backing seems intended to help reduce European dependence on Russian gas so as to squeeze its balance of payments as part of the New Cold War deterrent.

But it has involved a potentially embarrassing U.S. alliance with Kolomoyskyy as reportedly the major owner of Burisma through his Privat Bank. Robert Parry points out he “was appointed by the coup regime to be governor of Dnipropetrovsk Oblast, a south-central province of Ukraine. Kolomoysky also has been associated with the financing of brutal paramilitary forces killing ethnic Russians in eastern Ukraine.”

The other natural resource to be sold off is farmland. Already there is heavy Monsanto investment in genetically engineered grain. A recent report by the Oakland Institute, Walking on the West Side: the World Bank and the IMF in the Ukraine Conflict, describes pressure to deregulate Ukrainian agricultural land use and promote its sale to U.S. and other foreign investors. In particular it notes that “IFC advised the country to ‘delete provisions regarding mandatory certification of food in the listed laws of Ukraine and Government Decree,’” and “to avoid ‘unnecessary cost for businesses’” by regulations on pesticides, additives and so forth.

What makes this so puzzling is that neither Russia nor many European countries accept genetically engineered foods. It would seem that the only way Ukraine can export this food is if U.S. diplomats pressure Europe to drop its anti-GMO labeling. This threatens to drive yet another wedge between the United States and European NATO members.

It will be expensive to restore power and water facilities that have been destroyed by the Kiev forces in Donetsk, which faces a cold dark winter. Kiev has stopped paying pensions and other revenue to the Eastern Ukraine, all but guaranteeing its separatism. Even before the Maidan events the local population sought to prevent gas fracking, just as Germany and other European countries have opposed it. Also opposed is the appropriation of land and other properties by Ukrainian kleptocrats and especially foreigners such as Monsanto for genetically modified seeds – again, just as Germany and other European countries have opposed crops produced by GMOs.

U.S. Stratagems to Save Ukraine from Having to Pay Its Debts to Russia

The “inner contradiction” in the IMF loan is that Ukraine owes the entire amount to Russia for gas arrears and current needs as winter nears, and also for the euro loan by Russia’s sovereign wealth fund on strictly commercial terms with cross-defaults if Ukrainian debt rises above 60 percent of GDP. Yet U.S. Cold War strategy is to minimize payments to Russia out of IMF and NATO “reconstruction” lending.

In the wake of the New Cold War confrontation in mid-2014 after Russia re-absorbed Crimea, the Peterson Institute for International Economics, floated a proposal by former Treasury official Anna Gelpern to deprive Russia of legal means to enforce its claims on Ukraine. “A single measure can free up $3 billion for Ukraine,” she proposed. Britain’s Parliament might pass a law declaring the $3 billion bond negotiated by Russia’s sovereign wealth fund to be “foreign aid,” not a real commercial loan contract worthy of legal enforcement. “The United Kingdom can refuse to enforce English-law contracts for the money Russia lent,” thereby taking “away creditor remedies for default on this debt.”

The problem with this ploy is that Russia’s sovereign wealth fund lent Ukraine euros with strict financial protection aimed at limiting the country’s overall debt to just 60 percent of its GDP. If debt rises above this level, Russia has the right to demand full immediate payment, and this may trigger cross-default clauses in Ukraine’s foreign debt.

As recently as yearend 2013, Ukraine’s public debt amounted to just over 40 percent – a seemingly manageable $73 billion. But in view of the fact that Ukraine had only a B+ rating – below Russian sovereign fund normal limit of requiring at least an AA rating for bond investments – Russia seems to have acted in a prudent financial way in inserting protection clauses precisely to distinguish its investment from general purpose aid.

Waging civil war is expensive, and Ukraine’s currency is rupturing. The black market exchange rate already is reported to have plunged by one-third. If recognized officially (once the kleptocrats have moved their money out at IMF-supported hernia rates), this would raise the country’s debt/GDP ratio to the 60 percent threshold making the debt to Russia payable immediately. Unlike foreign aid, Russia’s loan gives it “power to trigger a cascade of defaults under Ukraine’s other bonds and a large block of votes in any future bond restructuring. This is because all of the government’s bonds are linked among themselves. When one bond defaults, the rest can do the same.”

What the U.S. Government classifies as foreign aid also typically takes the form of loans to be repaid, and insists on matching funds in local currency, e.g. for Public Law 480 food exports. Congress insisted already during the Kennedy Administration that the U.S. balance of payments, and specifically its farm exports, must benefit from any such “aid.”

Reviewing the possibilities of how to prevent IMF and NATO credit from being paid to Russia for its bondholdings and gas arrears, Prof. Gelpern points out that “governments do not normally sue one another to collect their debts in national courts.” If this should occur, the pari passu rule would prevent some debts from being annulled selectively. She therefore raises another possibility – that Ukraine may claim that its debt to Russia is “odious,” addressing the situation where “an evil ruler signs contracts that burden future generations long after the ruler is deposed.” She suggests that “Repudiating all debts incurred under Yanukovich would discourage lending to corrupt leaders.”

The double standard here is that instead of labeling Ukraine’s long series of kleptocratic governments odious, she singles out only Yanukovich, as if his predecessors and successors are not equally venal. But an even greater danger in declaring Ukraine’s debt “odious”: It may backfire on the United States, given its long support for military dictatorships and kleptocracies. Ukraine’s sale of bonds to Russia’s sovereign debt fund and its contracts signed for gas purchases were negotiated by a democratically elected government, at prices that subsidized domestic industry and also household consumption. Unlike the case with Greece, there was no removal of a national leader to prevent a public referendum from taking place over whether to approve the loan or not. If this debt is deemed odious, what of Eurozone loans to Ireland and Greece or U.S. loans to Argentina’s generals installed under Operation Condor?

Gelpern acknowledges that Ukrainian refusal to pay the bonds by invoking the odious debt principle “is fraught with legal, political and market risks, all of which would play into Russia’s hands.” This leaves the most promising solution to hurt Russia to be the above-mentioned ploy for Britain’s Parliament to pass a sanctions law invalidating “the Yanukovich bonds.” Such a sanctions law would reduce Russia’s “ability to profit from selling the debt on the market” simply by denying Russia legal rights to grab Ukrainian assets.

Gelpern concludes her paper by suggesting a universal principle: that contracts “used to advance military and political objectives … should lose their claim to court enforcement.” This opens a can of worms in view of the fact that “[t]he United Kingdom and the United States have both used military force in the past to collect debts and influence weaker countries. Is it legitimate for them to punish Russia for doing the same?” Are not the vast majority of inter-governmental debts either military or political in character? On this logic, shouldn’t most inter-governmental debts be wiped out? Do not Gelpern’s arguments cited for not paying Russia serve even more to provide a legal basis for nullifying Ukraine’s debt to the IMF and subsequent NATO loans on terms that force it to forfeit its natural resource rights for gas and land to foreign investors?

The legal review ostensibly seeking reasons to isolate Russia economically thus has the seemingly ironic effect of showing the legal and political difficulties in trying to achieve this. If Ukraine borrows from the IMF and/or EU, and then breaks up – with the East becoming independent – who will be obliged to pay? Certainly not the East, attacked by the military coup leaders.

So we are brought back to this month’s financial news in preparation for next month’s IMF annual meeting: Where then does the Ukrainian loan leave the IMF’s credibility?

* Marina Perevozkina and Artur Avakov, Moskovskiy Komsomolets, September 4, 2014, from Johnson’s Russia List, September 6, 2014 #14. They add that Putin has ordered Kolomoyskyy’s property in Crimea and Moscow to be sequestered.

** The report adds: “Further supporting the “natural gas motive” is the fact that it was Vice President Joe Biden who demanded that President Yanukovych pull back his police on Feb. 21, a move that opened the way for the neo-Nazi militias and the U.S.-backed coup. Then, just three months later, Ukraine’s largest private gas firm, Burisma Holdings, appointed Biden’s son, Hunter Biden, to its board of directors.

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  1. John

    The GMO issues has been a long standing argument between Europe and Washington. The US side has sharpened their tone in the last few weeks on the merits of GMOs. The problem is here in Europe we have ignored the science. We have let the NGOs and farming lobbying groups put hysteria into the discussion. People believe their misinformation. The other issue to consider most other countries use GMO crops such as Brazil. The way I see it the Americans have every reason to raise the stakes. Disclosure — I am familiar with GM science but have no financial interest in the GM industry. Due to climate change, Euope at some point is going to have to consider GMOs.

    Typical Obama he does not fight. He has done nothing to go public here and discuss GMOs. Europeans eat quite a bit of GM foods whether they realize it or not. Trust me, the TTIP food scare hysteria is a real threat to the discussions. That seems to be the one thing Europeans will stand up to. And is the food chain here is as safe as everyone is led to believe? No. The industry is self monitoring just like in the US and is prone to problems. Inspector budgets do get whacked.

    The EC is going further to push for nano food labeling by the end of the year and it seems aimed to stymie TTIP.

    Curious to know who Obama will blame once the trade talks unravel because I think they will over the GMs. The EU trade negotiators will try to sneak in the US demands but it won’t fly at the national level.

    We see suppliers requesting raw materials only from select countries. My guess is the farmer lobby here may want Ukraine wedded to GMO so it does not compete with local French farmers. As best I can tell the EU is not importing any raw food materials from Ukraine…. because the saying goes…. Ukraine crops are inferior.

    1. Fíréan

      “Ukraine had exported over 25% of agricultural products to EU countries” (year 2012) This includes grains, sugar and poultry.
      ( source: http://www.agro-expo.com/AGRO_News_Archive.html ).

      A result of the 8th meeting of EU-Ukraine Dialogue on agriculture and rural development, december 2011, was the establishment of the EU-Ukraine Agricultural Support Fund.
      Among main issues that experts continue to examine closely in the framework of the Dialogue are:

      – development of rural areas in Ukraine and the EU;
      – reforms of agricultural sector in Ukraine;
      – program of reforms of EU Common Agricultural Policy;
      -evaluation of agricultural markets;
      -use of GMO;
      – organic farming;
      – food security.
      (source: http://ukraine-eu.mfa.gov.ua/en/ukraine-eu/trade-and-economic/agriculture )

    2. Banger

      It is hard to evaluate the science on GMOs because so much of it is funded by those that favor it so I’m highly skeptical of any science that favors large corporate interests. The whole GMO issue is folded into the issue of current industrial farming that is dependent on highly toxic herbicides and insecticides and ignoring long term environmental effects and the depletion of water supplies. This system is not, as currently constituted, sustainable and treats life as if it were inanimate. Technology and scientific advances offer us less toxic ways of feeding ourselves but, as is the case with Big Pharma, Big Energy and so on, these groups have ensconced themselves into political power and are able to suppress new methods and ideas and keep their stranglehold on our political economy through the use of force. These guys could even be right but their authoritarian and monopolistic greed makes them the enemy of those of us who are antiauthoritarian and anti fascist.

    3. EoinW

      Go public in support of GMOs? Why should Obama go public when the entire GMO industry has operated on secretly imposing their product into the food chain? What you consider hysteria is simply people be given a choice and exercising it. I realize this appears to be a negative to any elite wishing to force his views on everyone else. No need for you to be unhappy as you’ve had many great victories already. We were never given a choice in Canada. Plus we’ll never see GMO labeling as GMOs will contaminate the clean food supply long before that happens. I’m sure Europe will succumb eventually because average people don’t have the influence Monsanto has. Just spare me this pretense to be fair minded and want a serious discussion. GMOs were IMPOSED on North Americans without any discussion. Stop pretending the side of the food Nazis is so reasonable.

    4. John Zelnicker

      John — Re: the science of GMO crops, see http://www.collective-evolution.com/2014/07/15/new-study-links-gmos-to-cancer-liverkidney-damage-severe-hormonal-disruption/

      This study was originally published in a peer-reviewed journal in Novmeber, 2012, then retracted by the publisher due to commercial pressure and recently re-published with updates.

      It is the first link in a Google search for “GMO pesticide liver disease” and there are many more. I have also read about high rates of liver and kidney disease in India found in farmers and other people living near GMO crop fields. I think that article was on Alternet, but I can’t seem to find it right now.
      All the science needs to be considered, not just the studies done by those with a commercial interest in the results.

      1. TedWa

        On GMO’s – In the EU their FDA sides with the people and caution while in the US the FDA sides with the side of commerce. No concern about possible generational effects or glysophosphate and indications of a relation to many diseases including autism. Monsanto came up with a yellow rice that supposedly supplies Vit A sorely needed by many countries whose food staple is rice. Nevermind the studies that show that the Vit A in the rice is mostly non-absorbed, all that needs to be done is to teach the people with these Vit A deficiencies to plant more vegetables high in with Vit A. Easy. We really don’t need GMO’s. GMO’s are an overly complicated solutions to easy to solve organic problems. We have enough food to feed the world 1.5 times over and yet there is starvation. Monsanto will not solve the starvation problem, they are clearly not a charity, so there will still be starvation because of a lack of money. Heck, leaving Monsanto et al in charge of the worlds agriculture would probably increase starvation since these kleptocrats don’t care about anything but profit.
        They still haven’t settled all the claims over the use of Agent Orange in Vietnam and it’s generational effects.

    5. susan the other

      The US will most certainly start importing GMO crops from Ukraine as soon as possible. We already risk our health eating corn chips. This is just another corporate offshoring to avoid regulation and controversy. We are going to eat it in more ways than one. Interesting little piece of info today in a Charles Hugh Smith post listing all the corruption in China – the communist cronies all buy their food from “secret organic farms” because China’s regular food supply is so filthy and toxic. If Monsanto is so desperate to do an end run around the TTIP, stirring up the Ukraine, the bread basket of southern Europe, is a good way to do it. And all that frackin’ goin on – is curious in light of a few reports in the business news here lately that fracking is folding up its tent and sneaking away. And voila! the price of oil is coming down. Our determination to go into Ukraine seems almost desperate. Hence the IMF and its generous odiousness.

    6. gordon

      Is the GMO “science” really the issue? If people don’t want it, isn’t that enough? Since when, for example, do electors have to justify their vote for one candidate or another? It would be fun to see elections on the basis of “Your vote is only valid if you can write a 2000-word fact-based justification for it!”

    7. frosty zoom

      “We have let the NGOs and farming lobbying groups put hysteria into the discussion.”

      obviously! i mean these crops have been tested for thousands of years and their evolutionary consequences are fully understood.

      and nothing every went wrong..

    8. Fiver

      Amongst the debris this stunning eruption of nonsense we find this clue: “Due to climate change, Euope at some point is going to have to consider GMOs.”

      It is precisely this technoid engineering disposition of mind that we must restrain and direct with the utmost care, it being evident Climate Change itself is the enormous aggregate of impacts resulting from the historically very rapid, entirely unexamined deployments and growth of the fossil fuels industries, especially post-WWII. These impacts, for generations down-played or denied now pose a direct and imminent threat to the survival of humankind, and more importantly, most or all of the astonishingly beautiful, sacred product of evolution of life on this planet for the last 65 million years.

      We discovered how truly stupidly we used these resources only after many decades of use on a huge scale. John now proposes to follow the same, unbelievably wrong-headed pathway. We have so quickly converted so much of the global food supply to these absolutely superfluous GMO products we’ve created enormous risk where none before existed of global failures of food supply due to any of a bevy of potential natural or man-made crises based on GMO monocultures.

      The foods we grew and ate prior to GM were the product of millions of years of natural evolution (changing with the various climates, and flora and fauna the earth affords) and at least 10,000 years of human learning and cultivation, etc. GMO foods are on that scale completely untested, yet the current generation of wizards believes 25 years total experience, with all negative evidence effectively suppressed, is more than long enough to commit the entire global food supply to it.

      Europeans, or more properly, thinking people everywhere, are not being anti-science, ignorant, foolish or superstitious when they demand food that has not been engineered – and especially so when it is completely unnecessary, carries huge potential for risk, and can only be maintained as a ‘preference’ by legally forcing farmers to become dependent on GMO seed, forcing Governments to accept GMO or face counter-measures, and marketed via stealth (no labels) or with large helpings of bullshit.

    9. Broken Table

      ‘ …loan supported Ukraine’s currency, the hryvnia, long enough to enable the oligarchs’ banks to move the money quickly into Western hard-currency accounts before the hryvnia plunged further and was worth even fewer euros and dollars.’

      Hugh? You dissappove? Doesn’t sound logical.

      ‘Ukraine’s main problem is that its debt is denominated in dollars and euros.’

      If you have a loan you have to pay back denomenated in foreign currency and your currency is tanking, don’t convert it to your currency. Keep the least depreciating currency. Or, buy it back while you still can!

      History is littered with problems of countries with deprciating currencies struggling to pay back foreign denomenated loans.

  2. Fíréan

    A very good article and – though you don’t need me to say it – well written too. Thank You to the author for writing it up, and thank you for posting it here. The information imparted ought be given as wide a coverage as possible.

  3. proximity1

    This is eye-popping stuff. Thanks for posting it. By the way, my attempts to access the Gelpern (policy brief (PB) ?) proposal link didn’t work. Was the relevant article (Number PB14-20) “Debt Sanctions Can Help Ukraine…” (August 2014) ?

  4. proximity1

    PS– Maybe someone should tell Robert Kaplan that it might be a good idea to reassess the view he expresses in a speech to the Naval War College that, paraphrasing him, the really grand issues of the near future surround U.S.-Pacific-rim-nations relations and, particularly, e.g. what to do about China.

  5. proximity1

    RE: A. Gelpern’s Policy Brief (PB14-2) August 2014,
    This link,
    should lead readers to the page which leads to the paper’s .pdf hyperlink. Trying the direct link to the .paper’s .pdf didn’t work for me for whatever reason.

    If that fails, then, from the site’s home-page, clink on “Publications” in the upper menu, then on “Policy Briefs” and etc.

  6. Banger

    I think we are in one of those very interesting junctures in history where we are fully establishing a new paradigm. I think the Ukraine situation offers the most noxious forces in the West a way to assert their will on events. I don’t believe anything about that situation is resolved or on the way to being resolved but it is a historical boundary line between one historical era and another.

    The process that began in full-force starting with the 9/11 attacks has been to make law both domestic (in the case of the U.S.) and international obsolete as a principle for organizing society. To put it another way–what is written law matters less and less–what counts is who enforces law and what laws they enforce. In the U.S. the elites are not, de facto subject to most laws than, say, the poor are subject to. Your exposure to law-enforcement depends on your wealth/status/neighborhood. In the same way, a country is subject to international law based on their relative economic and military power as well as “neighborhood.” The name of this age should be called “we don’t need no stinkin’ badges” because, ultimately, it is force that rules. We aren’t completely there yet but Ukraine is an example of how this can work. Thus IMF rules, matters of international law and so on have no bearing on Ukraine. What happens there is dependent on whoever holds the whip hand. Even if “bad” precedents are set there that could theoretically “harm” the U.S. it doesn’t matter. The U.S. officially does not recognize international law as such.

    1. Brindle

      “The name of this age should be called “we don’t need no stinkin’ badges” because, ultimately, it is force that rules”

      Force camouflaged in a free markets & democracy glossolalia, delivered by the corporate/govt news orgs. The average citizen is left dazed and bewildered and almost unconsciously follows the party line. There are rays of hope, though.

      1. psychohistorian

        Tell me about those rays of hope, please. I only see ongoing misapplication of faith and not wanting to take responsibility for actions.

        Thanks Michael for doing a good job of fleshing out the conspiracy of global control inherent in the IMF loans to Ukraine. It shows the iron fist coming out of the velvet glove…..all sick positioning before the grand debt jubilee, IMO.

    2. EoinW

      Thus it’s a no win situation for Russia. They cannot expect any justice, regardless of whether the rules favour their position or not. The 1% in the West will simply ignore what rules are inconvenient. Give the Russians their due for trying to do things the right way. Ultimately might is right and rule of law will no longer matter. One wonders if over time such might may come back to haunt our 1% as the might of the mob asserts itself.

      1. Banger

        We should not discount the possibility that various powerful forces favor some kind of international law for their own reasons and could support, covertly, the Russian position. Not everyone is happy with the so-called “law of the jungle” regime the U.S. seems to favor. Among these are many FP professionals in Washington.

        Right now it appears, on the surface, that the NATO has painted itself in a corner in Ukraine–if that turns out to be the case the political balance, in Washington itself, could change because Washington is so closely identified with the coup.

        1. susan the other

          Stuff on RT explained the situation thusly: NATO is a defensive organization. It doesn’t (by its own charter) do offensive operations. And “spearhead” is a military term used in offensive operations. So NATO’s spearheading off into the Ukraine, and some say beyond, is clearly an offensive move. It’s obviously not just oil and gas and the Caspian, and the bread basket, and the hopeless politix of a post WW2 country without a soul, because clearly we, and probably the UK, want to push Russia back and force them to put their missiles where their mouth is or shut up. It’s nutty. Or it’s theater. I’m thinkin’ it might be theater and both we and Russia are in on it. Who knows? The objective would be a more orderly world in some aspects. None of ’em need no stinkin’ democracy either.

          1. Banger

            Much of what happens is partly theater–but the Ukraine situation seems fairly substantial. I actually don’t understand why the West seems so hell-bent on controlling the Ukraine–seems so out of proportion the natural resource angle just doesn’t make sense.

            1. OpenThePodBayDoorsHAL

              It doesn’t have to make sense, it just has to make money. War making used to be about ideologies and gaining resources and treasure…now it’s the war making itself that is the treasure, who cares what happens to the people and the countries underneath the bombs. Great investment idea: find the next country the Anglo-American Permanent War Juggernaut will select next, and invest in the stock markets of the adjacent countries, worked a treat for Pakistan & Turkey. You might even refine it a bit, if it’s a mostly land war then buy tank manufacturers, if American air power is required to blow the arms off of five-year old children, then it’s drone and missile manufacturers, great news, more jobs in Akron and Houston and Spokane. Or how about this idea, folks, courtesy of the Weather Underground: “we seek the violent overthrow of the United States Government if they do not stop this war immediately”. Conscience much?

    3. Synopticist

      The very casual suggestion that the British parliament overturn a longstanding series of legal principles so that the Ukrainians can stiff the Russians for 3 billion was striking. It wouldn’t matter that that would make a mockery of both UK politics and law, and cost us a massive banking profit centre which would only benefit New York.

      The priority is screwing Putin, so, lets go with that plan, yeah?

    4. washunate

      Great comment Banger. I find it interesting to think about how much was in place before 9/11. I really think the post-bretton woods international system had collapsed by the early 1990s and we’ve been in this ‘new’ paradigm of fraud and force under a rather thin veneer of law for a couple decades now. NAFTA, currency crises, LTCM, media consolidation, financial deregulation, DMCA, NATO expansion, drug war, prison population, Enron, housing bubble, tech bubble, LESO/DOD 1033, etc., were all events happening in the 90s. By the time of the Battle in Seattle police state in 1999 and Bush v. Gore Supreme Court saga in 2000, relatively large numbers of people were coming to the conclusion that things were fundamentally messed up. And that was while the oldest Millennials weren’t even out of college and GWOT hadn’t even started yet.

      Rather than a notable catalyst like 9/11, I think the authoritarian creep has been a rather long and deliberate process, making the ‘new’ paradigm actually a lot older and more fragile than it may appear, especially to those who really only started noticing problems in the 2007-2009 time period.

      1. Fiver

        I suggest it is precisely the long-sought collapse of the Soviet Union that invited every slimy character in the US and West to charge straight for Pandora’s Box to bust it wide open, giving us the neocons, financialization, offensive (both senses) NATO, the war on environmentalism, the dismantling of the social contract (so-called ‘Welfare State’) and the explosive combination of increasingly lawless multinationals’ corporate globalization, high-tech communications growth and always gigantic military/security budget that together very rapidly concentrated power to an extent never before imagined. By the time Clinton was being impeached the worst of the worst in the US corporate and State elite had the power to extort anyone in the US or any other developed country via ‘intelligence’-gathering technology they now claim was ‘found deep in the basement on a shelf in the corner’ gathering dust until after 9/11 happened. I think that’s the explanation for the Supreme Court decision re Bush vs Gore – and much else since.

    5. proximity1

      I agree that there are many things going on that quite reasonably give the impression that ours is a water-shed period but I think that in fact the paradigm isn’t new. We’re seeing instead variations on very old themes of power politics and the most important “new” features pertain to the fact that this is 2014, rather than 200, and our technologies and the strains from a vastly greater world population coupled with vastly greater environmental degredations, present a new context in which those old themes resonate. Might-makes-right, divide-and-rule, hypocrisy and self-delusion, the primacy of wealth and dishonesty—all these are just as relevant today as they were two milennia ago.

      So I discount the usefulness of a concept of an historical boundary-line as useful to our analyses. The record and memories of past events infuse the present, making hash of conceptual boundaries in an arbitrary course of events. In this iteration of power politics, Putin’s regime is no more respectful of norms of law and principle than are the lawless and unprinciples forces ranged (momentarily) against him. Not that long ago, “the West” was happy to work with Putin. He hasn’t changed in any fundamental way and “the West” power-structure and ambitions haven’t either. There is plenty of hypocrisy in all of the interested parties. Meanwhile, ordinary citizens–Russians no less than Americans or Europeans– everywhere remain politically-disarmed spectators to the abuse of power and to institutional order’s collapse into growing chaos.

  7. financial matters

    Very nice analysis of real-time theoretical and practical US shock doctrine in action. It would seem that Putin with the support of some democratically elected European leaders (not technocrats) would have the best chance of getting some control over the oligarchs.

  8. Jim Haygood

    ‘Ukraine’s main problem is that its debt is denominated in dollars and euros. As recently as year-end 2013, Ukraine’s public debt amounted to just over 40 percent – a seemingly manageable $73 billion.

    ‘Waging civil war is expensive, and Ukraine’s currency is rupturing. The black market exchange rate already is reported to have plunged by one-third. … This would raise the country’s debt/GDP ratio to the 60 percent threshold making the debt to Russia payable immediately.’

    Reinhart and Rogoff pointed out in their book on sovereign debt that countries with a history of defaults (and therefore a credibility problem) can get into trouble at debt/GDP ratios as low as 50%, which would be of no concern in a rich developed country. This is particularly so when the debt is denominated in foreign currency, and when there is additional (often opaque) domestic debt to be serviced.

    Taking a two-decade view, one could summarize the progression of degeneracy:

    1. Clinton subverts the defensive NATO treaty with aggressive ‘out of area’ operations in former Yugoslavia, 1996.

    2. Bush subverts international law by invading Iraq on false premises, as well as involving NATO in another disastrous ‘out of area’ operation in Afghanistan.

    3. Obama and his NATO henchmen (with 40% of the votes in the IMF) subvert the IMF by using it as a vehicle for financing one side in a civil war.

    Nice work, guys. International law lies in ruins, and Ukraine is headed for the wrecking ball. USA #1!

    1. JerseyJeffersonian

      Yes, I was just about to raise Bill’s Excellent Yugoslav Adventure to add to Washunate’s list of measures that added to the unraveling of international law, or even, as you point out, to the undermining of the mandate of an alliance stipulated ab initio as a defensive alliance. Of course, given that the ostensible “threatening” force against whose baleful intentions the alliance had been justified, the USSR, no longer existed, the pretext under which the alliance had come into existence was in the process of being fatally undermined.

      Oh, that would never do. The continued excuse for American occupation in Europe – let’s call a spade a spade, shall we – was evaporating before the Deep State’s eyes, and they had to Do Something. So they blew their dog whistles, and got the Germans and the Vatican to answer the call to back the NeoUstashe in Croatia, reinstituting old familiar ties, and aiming them against the Serbs, Orthodox and traditional allies of Russia. Then the CIA brought in the jihadis as another proxy force to stir some shit. Next, make sure that the western NGOs only talked about bad acts from the Serbs, completely whitewashing the bad acts of the Croatians and the Muslim Bosnians, amplifying all of this in the echo chamber of the western media (my, my, remind you of anything recently?). Wind it up, and watch it go.

      In all of the ruckus, the R2P contingent, useful idiots for the NeoCons that they are, was busy justifying the illegality of the misuse of the supposedly defensive NATO alliance to “save the innocents”, but which had the effect of “incidentally” and “regrettably” killing a bunch of Serbian innocents, of course. You know, I don’t recall any genuine remorse expressed by these people over that last thing, since once the R2P bunch get the bit between their teeth, they don’t really give a shit about killing people even tangentially associated with the “bad guys” of the piece that they have drawn. They just don’t give a shit, sanctimonious little hypocrites that they are. They spring from the same soil as the NeoCons, so I don’t know what would be surprising about that.

      And of course, since the Europeans “failed to rise to the occasion in their own backyard”, they could be painted as infantile and pusillanimous, manifestly requiring the intervention of the US to right the situation (largely instigated and worsened by covert actions of…the US). Another lease on life for occupation, and “leadership”.

      This was a watershed event, and it has been too little remarked that pernicious lessons were thereby learned by the NeoCons that would be embolden them to widespread aggressions in the succeeding years. The Middle East, North Africa, Western and Central Asia, Ukraine – poison fruit of the poison tree of aggressive war, the absolute antithesis of the lessons supposedly learned from the oft-cited example of WWII – wars and subversions launched by the US, whose very own Supreme Court Justice Jackson forcefully spoke on the unlawfulness of aggressive war during the Nuremberg Trials at the conclusion of WWII. Ironic, no?

      1. Fiver

        Solid comment – could not agree more with respect to the incredible hypocrisy of those citing R2P as the justification for large-scale covert or overt offensive military operations, the US covert intervention in Syria being a massive, criminal case in point. Not a single instance of its invocation since Rwanda even remotely resembles the conditions and events that led to the horrific ethnic slaughter that gave some popular moral credence to the R2P concept. Clearly the Canadians, who pushed hard for the creation of R2P as a result of their own UN experience in Rwanda, have failed entirely to face the ugly truth of R2P’s instant capture by neocons and their allies for the purposes of offensive war.

  9. Steven

    The loss of credibility extends FAR BEYOND the IMF and its loans. It engulfs the full spectrum of Western governmental and social institutions including the foreign policy makers and the ‘free’ press they manipulate to sell their policies to their respective constituents. The credibility of these institutions in the U.S. Was severely damaged if not destroyed by the careless, even contemptuous, ‘public diplomacy’ advanced by the GW Bush administration and its effort to sell yet another war to the American public – a public which seems to have no problem deriving its livelihood making weapons to destroy and kill beyond its borders but grows weary after reading about death and defeat of its favorite team day after day, year after year. To be fair, maybe it is if not the first stirrings of conscience at least a realization they will need that ‘team’ to help ward off – insofar as possible – retribution from karma, divine justice or that Christian God in which so many of them profess to believe.

    It is a little late for the 3000 or so east Ukrainians (oops, I mean “rebels”) and a long list of others but maybe the public will start asking the neo-cons and those pushing for world-wide US military full-spectrum dominance: “For what will it profit a man if he gains the whole world and forfeits his soul?”

    1. Chauncey Gardiner

      I agree with you, Steven. The IMF isn’t the only entity to lose credibility in this manufactured mess. There is simply no vital U.S. national interest behind policies that are being deployed in Ukraine. Instead, USG policies are clearly centered on assuring another resource grab by U.S. transnational corporations, diminishing Russia’s economic influence in Europe, depriving Russia of export revenues, isolating Putin politically, and possibly even damaging Europe economically.

  10. Fiver

    Interesting piece from Professor Hudson – in particular the role of the IMF, which I am pleased to see he emphasizes as being US-controlled, a key distinction, in my view, when discussing that Demon From Another Age’s moves.

    The idea that the US, EU, IMF, Ukraine or anyone else could opt to solve this debt problem with an illegitimate legal decision effectively nullifying Russian claims re Ukraine must surely appeal to some of these Western ‘leaders’ but, assuming it doesn’t provoke an immediate re-ignition of violence, this would surely be a huge provocation, and while, as there is no doubt whatever the Russians are owed a great deal of money, such a stance would effectively destroy the basis for any future Ukraine/Russian economic relationship.

    At some point the US/Ukraine/NATO/EU are going to inflict so much damage it destabilizes the very thinking of one or more or many key players – that’s the idea, of course, but the overwhelming belief is that this pressure will break the will of the opponent and change will be in the direction of compliance. What if it isn’t? What if the leadership in Kiev just went “Poof” or Putin was assassinated? Good grief, if anyone thinks ISIS is an enemy to fear in the US, might that anyone dare to imagine what ‘blowback’ from Russia could look like should this really hurt a lot of powerful people in a ruined Russia?

    And what for? A Ukraine ruined, looted and left with nothing but more debt to show for it.

    1. proximity1

      …”in particular the role of the IMF, which I am pleased to see he emphasizes as being US-controlled, a key distinction, in my view, when discussing that Demon From Another Age’s moves. ”

      I think it’s true beyond all question that, as the article states, “the IMF is an arm of U.S. Cold War politics” and, moreover, this fact is a veritable keystone fact in the over-arching nexus of political power and its economic infrastructure. Without its frame, nothing in geopolitics makes sense.
      Then, going on, as I understand you, that fact also constitutes ” a key distinction, in [your] view, when discussing that Demon From Another Age’s moves.” So, I’d ask you, suppose that you’re faced with a Russian who says, “The West sees Putin through rose-colored glasses, in failing to transcend his KGB origins, he’s still behaving like a Lt. Col. from that organisation and persisting in crushing liberty just as he did earlier in his career. Meanwhile, not everyone in Russia is prepared to put up with Putin’s behavior. We no longer want to be slaves, even if that’s what best suits the West. We demand our right to be free.” ?

      How would you reply to such a Russian?

      Note to Lambert for “Links” purposes :
      Novaya Gazeta’s website’s English-language edition: http://en.novayagazeta.ru/

  11. proximity1

    …”in particular the role of the IMF, which I am pleased to see he emphasizes as being US-controlled, a key distinction, in my view, when discussing that Demon From Another Age’s moves. ”

    I think it’s true beyond all question that, as the article states, “the IMF is an arm of U.S. Cold War politics” and, moreover, this fact is a veritable keystone fact in the over-arching nexus of political power and its economic infrastructure. Without its frame, nothing in geopolitics makes sense.
    Then, going on, as I understand you, that fact also constitutes ” a key distinction, in [your] view, when discussing that Demon From Another Age’s moves.” So, I’d ask you, suppose that you’re faced with a Russian who says, “The West sees Putin through rose-colored glasses, in failing to transcend his KGB origins, he’s still behaving like a Lt. Col. from that organisation and persisting in crushing liberty just as he did earlier in his career. Meanwhile, not everyone in Russia is prepared to put up with Putin’s behavior. We no longer want to be slaves, even if that’s what best suits the West. We demand our right to be free.” ?

    How would you reply to such a Russian?

    Note to Lambert for “Links” purposes :
    Novaya Gazeta’s website’s English-language edition: http://en.novayagazeta.ru/

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