Michael Hudson: Ukraine’s “Operation Vulture” and Labor Protests

Posted on by

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. His latest book is “The Bubble and Beyond.”

Ukraine’s collapse since the February 2014 coup has become an umbrella for grabitization. Collateral damage in this free-for-all has been labor. Many workers are simply not getting paid, and what they actually is being paid is often illegally low. Employers are taking whatever money is in their business accounts and squirreling it away – preferably abroad, or at least in foreign currency.

Wage arrears are getting worse, because as Ukraine approaches the eve of defaulting on its €10+ billion London debt, kleptocrats and business owners are jumping ship. They see that foreign lending has dried up and the exchange rate will plunge further. The Rada’s announcement last week that it shifted €8 billion from debt service to spend on a new military attack on the country’s eastern export region was the last straw for foreign creditors and even for the IMF. Its loans helped support the hryvnia’s exchange rate long enough for bankers, businessmen and others to take whatever money they have and as many euros or dollars as they can before the imminent collapse in June or July.

In this pre-bankruptcy situation, emptying out the store means not paying workers or other bills. Wage arrears are reported to have reached 2 billion hryvnia, owed to over half a million workers. This has led the Federation of Trade Unions of Ukraine to picket against the Cabinet of Ministers on Wednesday (May 27). More demonstrations are scheduled for the next two Wednesdays, June 3 and 10. According to union federation Deputy Head Serhiy Kondratiuk, “the current subsistence wage of UAH 1,218 is 60% less than the level set in Ukrainian law, which is confirmed by the calculations of the Social Policy Ministry…the subsistence wage in the country should exceed UAH 3,500 a month, but the government refuses to hold social dialog to revise standards.”

The Scenario That is Threatened

Emptying out Ukrainian business bank accounts will leave empty shells. With Ukraine’s economy broken, the only buyers with serious money are European and American. Selling to foreigners is thus the only way for managers and owners to get a meaningful return – paid in foreign currency safely in offshore accounts, outside of future Ukrainian clawback fines. Privatization and capital flight go together.

So does short-changing labor. The new buyers will reorganize the assets they buy, declare the old firms bankrupt and erase their wage arrears, along with anyother bills that are owed. The restructured companies will claim that bankruptcy has wiped out whatever the former firms (or public enterprises) owed to workers. It is much like what corporate raiders do in the United States to wipe out pension obligations and other debts. They will claim to have to “saved” Ukrainian economy and “made it competitive.”

Operation Vulture

The Pinochet coup in Chile was a dress rehearsal for all this. The U.S.-backed military junta targeted labor leaders, journalists, and potential politicalleaders, as well as university professors (closing every economics department in Chile except for the Chicago “free market”-based Catholic University). You cannot have a “free market” Chicago-style, after all, without taking such totalitarian steps.

U.S. strategists like to name such ploys after predatory birds: Operation Phoenix in Vietnam, and Operation Condor in Latin America that targeted “lefties,” intellectuals and others. A similar program is underway against Ukraine’s Russian speakers. I don’t know the code word being used, so let’s call it Operation Vulture.

For labor leaders, the problem is not only to collect back wages, but to survive with a future living wage. If they refrain from protesting, they simply won’t get paid. This is why they are organizing a growing neo-Maidan protest explicitly on behalf of wage earners – so that the junta’s Right Sector snipers cannot accuse the demonstrators of being pro-Russian. The unions have protected themselves by seeking support from the UN’s International Labour Organization (ILO), and from the International Trade Union Confederation in Brussels.

The most effective tactic to tackle the corruption that is permitting the non-payment of wages and pensions is to focus on the present regime’s foreign support, especially from the IMF and EU. Using labor’s grievances as an umbrella to demand related reforms could include warnings that any sale of Ukrainian land, raw materials, public utilities or other assets to foreign buyers can be reversed by future, less corrupt governments.

In labor’s favor is the fact that the IMF has violating its Articles of Agreement by lending for military purposes. As soon as its last loan was disbursed, Poroshenko announced that he was stepping up his war against the East. This brings the IMF loan close to being what legal theorists call an Odious Debt: debts to a junta taking power and looting the government’s Treasury and other assets in the public domain, leaving future governments to pay off what has been stolen.

Labor’s fight for a living wage is not only for retroactive shortfalls, but to put in place a recovery plan to protect against the economy being treated like Greece or Latvia, neoliberal style. U.S. strategists have been discussing whether they could dismiss the $3 billion that Ukraine owes Russia this December as an “odious debt”; or, perhaps, classify it as “foreign aid” and hence not collectible in practice. Ironic as it may seem, the Peterson Institute of International Economics, George Soros and other Cold Warriors have provided future Ukrainian governments with a repertory of legal reasons to reconstitute their economy foreign-debt free – leaving the government able to pay wage and pension arrears.

The alternative is for international creditors to win the case for putting foreign bondholders, the IMF and European Union first, and sovereign rights to prevent self-destruction second.

Print Friendly, PDF & Email


  1. Brooklin Bridge

    From John Kerry’s assertion that countries should never invade other countries without provocation to Obama’s assertion that the TPP is the most liberal trade bill ever, we may be lacking in water (in places), but we are drowning in irony and Michael Hudson never ever disappoints in bringing that to the fore.


    […] the Peterson Institute of International Economics, George Soros and other Cold Warriors have provided future Ukrainian governments with a repertory of legal reasons to reconstitute their economy foreign-debt free – leaving the government able to pay wage and pension arrears.

    all while these same entities are salivating over their own privatization and asset stripping projects is not only priceless, but says a great deal about just how advanced (ludicrous) the stage of our systemic corruption has become. Sheer frenzy.

    1. susan the other

      I know. I read it twice and concluded I couldn’t understand it. The neocons scrambling to establish a legal way to protect sovereign governments and make them debt free?? (that’s MMT – not neocon)… crazy world. NPR had a thing on the self-defeating result of austerity this morning; also a propaganda oxymoron. A sea change? If this were algebra, “vulture” would have to be at least two variables. Pre and immediately-post debt. So really, still preemptive debt because time is of the essence. “Must solve by sovereign monetary management,” Pete Peterson’s note to self… and, “Vultures” are birds that buy debt for 3 cents on the dollar and claim the full monty. For odious, but legal, reasons. It’s not odious if it’s legal. This weird mixture of ideologies is a lot like mixing batter.

      1. Alejandro

        I agree, Susan, this is a crazy world…as far as vultures, the fact that what they do can be legal makes it all the more odious…they really are the most despicable of all the predatory banksters.

        1. OpenThePodBayDoorsHAL

          We have plenty of laws that cover this stuff, if I recall my Civics 101 class however, there’s an outfit called the Judicial Branch that is supposed to enforce those laws… so let’s stay focused on the root problem. Of course banks will steal, spooks will spy, and corporations will cheat, but when they know for a certainty that nobody will do the slightest thing about it, well…then we are truly f*cked.

          1. Alejandro

            True… In that spirit and subscribing to the recent theme of “walking and chewing gum at the same time”, ‘we’ can make the members of that other outfit called the Legislative Branch that is supposed to change the laws that don’t work , know what’s NOT acceptable while pursuing other means of closing the gap between legality and a “just” society…on the latter note, if linking justice with the law is a worthy pursuit, then the doctrine of odious debt is as noble and righteous a cause as can be…

    2. digi_owl

      I have taken to sort between social liberal (gay/female rights etc) and economic liberal (allowing capitalists to scam, cheap and pollute in the name of profits).

      So it may be economic liberal, but it sure is not social liberal.

  2. Northeaster

    Liveleaks has some of the best daily coverage of the fall of The Ukraine. All is well though, because Hunter Biden now sits on the Board at Gazprom, and I’d imagine after the dust settles in a year or two, there will be a nice new shiny gas line – controlled by Russia of course.

      1. Northeaster

        Yes, Russians still take over though, but not before The West takes whatever is left and not nailed down and taken from Ukraine.

        1. OIFVet

          A geopolitical version of “sloppy seconds”? Seems to be the one thing the US can still pull off reasonably well… BTW, keep up with the news. Gas transit through Ukraine is kaput beginning 2019. Which is why Biden Sr. is so bent out of shape, he thought Hunter would forever be the toll collector and close the toll road at the US imperial whim. Now it ain’t working out so well so on to plan B: leave nothing behind.

        2. NotTimothyGeithner

          Putin is too smart for that. He’ll seal the border up tight. Once the smart skipped town or separated, he’ll let the EU keep the nazis and the various problems associated with the well armed and angry.

  3. Gerard Pierce

    I’ve said it before as a sort-of joke (kidding on the square) that the Russians should sell their Ukrainian dept to Greece for $1 and future considerations to be specified whenever.

    The Greeks in turn would use the proceeds to pay off the “Entertainers Formerly Known as the Troika”.

    This particular plan should be called “Operation Plucked Chicken” and should be implemented precisely at the time when default would otherwise be unavoidable.

    What good is international diplomacy if you don’t have a sense of humor?

        1. timbers

          It’s common to be told “you love (or admire) Putin” in discussions of what is going in Ukraine/Russia and U.S. policy, as in anyone who said there were no WMD in Iraq and we should not invade, was a Saddam lover/supporter.

  4. Jim Haygood

    ‘The Rada’s announcement last week that it shifted €8 billion from debt service to spend on a new military attack on the country’s eastern export region was the last straw for foreign creditors and even for the IMF.’

    This is precisely what Michael Hudson, John Helmer, and numerous NC commentators forecasted would happen before this corrupt and illegal IMF loan was granted. Ukraine’s squalid shell game with foreign loans was as inevitable as a hungry bear ripping into a garbage can full of food scraps.

    Remind me who were the US KongressKlowns behind the goofball idea of having the US Treasury guarantee two billion dollars of unrepayable loans for our best buddies ever, the heroic Ukies. The Panamanian fascist John McShame comes to mind. But as ZZ Top used to sing, ‘Now I might be MISTAKEN … uh haw haw haw.’

  5. David

    When the US cant win, then the end game is to leave….nothing – destroy and sell everything for pennies and let everyone litigate the title to the assets for ten years and what the definition of a legitimate liability really is. Presumably the labor leaves for Russia so the land is cleared out and the US tries again after 2025.

    Ukraine will be a future Power Point Presentation of why a country should get rid of the Termite Colonies of US sponsored NGO’s to maintain the public order and avoid chaos.

      1. Gerard Pierce

        The short , reasonably accurate version is that the Revolution ate it’s children two or three times before Napoleon became necessary.

        Napoleon hated the aristocracy. At one time he decided to teach the people a lesson by ennobling the stupidest of his relatives, expecting the people to get the idea and reject the whole idea of aristocracy.

        It didn’t work because even the dumbest aristocrat had power which could be used by others, so they wined them, dined them and supported them.

        Apparently Napoleon gave up on educating the people and went back to conquering stuff.

      2. JTMcPhee

        Maybe not for XVI and Marie Antoinette, but as I recall it a whole lot of the French aristocracy and its clergy connections decamped to other monarchies with huge amounts of wealth. To eventually have a little payback in the “Bourbon restoration.”

        And another model example for the current crop of pseudo-“Ukranian” Klepto-looters is the behavior of the Third Reichists who were all Teutons Win Or Die until the Russians came knocking (and getting a little of their own back by bombing and blasting and raping and looting BACK.) At which point the Big Brave Nazi High Command, and quite a ways on down the chain of command, found their way aboard U-boats and ships and planes and stuff, to depart for comfortable gigs in Central and South America. And never let us forget the Hand of Friendship that our ruling elite’s state security extended to so many of them, “bringing them in from the cold” in service of all the nearly infinite number of little stratagems and trickeries and deceits and abuses that long pre-dated in their nativity both WW II and the Cold War.

        Maj. Gen. Smedley Butler, you didn’t know the half of it… http://en.wikipedia.org/wiki/Business_Plot “Alleged,” my arse.

        1. MyLessThanPrimeBeef

          Scary to think that that was what the Leader proposed: “Let’s fight the commies together.”

          But only if you accept that we offer exceptional upward mobility, so you can start from the bottom, with others in the melting pot.

          “It was Barzini (in this case, communists) all along.”

    1. rexl

      Really, just like when our American leaders did not let the news cameras into Dover to see the caskets return from Iraq?
      Western success would be withdrawal from their Nazi allies in Ukraine.

      1. digi_owl

        Need to stay in there until all the wealth has been extracted.

        And writing that i am reminded of the claim that the Vietnam War went on until Shell etc had mapped out all the oil fields of the area and run of with the data…

    2. sam s smith

      The law applies to all causualties in peace time, not just those killed in the Ukranian conflict.

      I believe there is a similiar law in the United States and Great Britain.

      1. OIFVet

        Hardly snark, it’s a hanging curveball and he actually believes it. I couldn’t be bothered, must be getting mellow. Oh wth: must be the result of the momentous victory at Debaltsevo by the glorious Ukie fighters.

  6. OIFVet

    The problem as I see it is that the IMF didn’t specifically lend money to fund military operations. They may have known that some of it is bound to be diverted for such purpose, but good luck proving intent on the IMF’s part.

    I am a cynical person but even I don’t believe that the IMF ever had such intent. It simply did what it always does: lend money in return for forcing certain reforms that make it possible for the West to loot all that’s valuable at bargain basement prices. No court will ever go with odious debt argument and no intent to fund military operations could possibly be established. And comprador elites are a permanent fact of life so I don’t see a situation where a less corrupt government would ever even try to reverse what happened under any tenuous legal argument. Much as I would loge to see Soros and friends get shafted, they are old crooks and have covered their rears. So the Ukes will have to live with being a colony. Its the price for not learning from what happened to the rest of Eastern Europe.

    1. NotTimothyGeithner

      One problem is Germany and the EU won’t be as active as they were after ’91. Two, the Western consumers are gone. Much of what made Eastern Europe as nice as it is don’t exist. The industry is in separatist areas, and who wants to go to Kiev besides sex tourists with all the nazis running around? It will be much worse than people realize especially since the Ukraine wasn’t exactly great prior to the Maidan.

      It might sound unthinkable, but I think we will see more of a Libya situation as no one has the resources to control the Kiev rump state.

      1. nick

        A few things are still in Ukraine’s long term favor, fracking oil reserves, and farmland, both of which are safe from Russia.

        1. OIFVet

          But are they safe from the West? That’s the point, sparky. And where, pray tell, are the “fracking reserves”? The Donbass, Slavyansk. 90% of the energy resources are in the Donbass. Hence all the killing. Freedom, democracy, and Euro-Atlantic values? Not bloody likely.

          1. James Levy

            This gets more insane when you consider that pretty soon all the fictive “capital” is going to dry up so it won’t be around to finance these poisonous “plays” and the only safe bet in the long run is to leave that carbon in the ground anyway.

            American leaders are in a dreamworld were the current economy based on cheap and easily accessible fossil fuels and all the money the Fed can hypothecate out of electronic digits at historically rock-bottom interest rates goes on ad infinitum. Both those assumptions are not just false, they are crazy-false, as in you’d have to be an idiot to believe them, yet they are the bedrock postulates of what passes for “strategy” among those who rule this place and command stockpiles of nuclear and biological weapons that could eradicate the human race. It’s terrifying.

          2. Yonatan

            The frackin reserves are empty, and were mainly in the east (one reason for the ethnic clansing there). Shell pulled out ages ago.

        1. NotTimothyGeithner

          I don’t think a Rush Limbaugh type would head to Kiev anytime soon, but I could see a random less famous Duggar heading there. The more established predators will want to stick to their usual haunts such as the Dominican Republic or Thailand.

Comments are closed.